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How Free Shipping Can Impact Your eCommerce Business
Offering free shipping on your online retail store is becoming increasingly popular and many eCommerce businesses, big and small, are capitalizing on the trend. The prospect of not paying additional shipping charges for goods purchased online is a very attractive proposition for consumers and they will be more than willing to buy from you repeatedly. As you can imagine, this can give you a major competitive lead over other online businesses.
Why Offering Free Shipping is Important
Ultimately, including free shipping on your eCommerce business page significantly impacts an online buyer’s decision to spend their ‘precious money’. By providing free shipping, you can take advantage of what the ultra-lucrative eCommerce experience offers to enjoy more sustained revenue; when customers see the “free shipping” option on your web page, they are enticed to purchase more. Don’t worry about losing out on potential revenue, since some of those costs are integrated into the retail price of items.
Did you know there’s a very high likelihood of shopping carts getting abandoned when customers see dissuading shipping charges at the checkout page? If you maintain a steady cost from the product to checkout page, a follow through or purchase is guaranteed.
These statistics should give you a fairly good idea of how free shipping can have an impact on your eCommerce business:
- Red Door Interactive, a digital marketing agency, saw their orders increasing by a whopping 90% after offering free shipping.
- 2 Big Feet, an online men’s shoes store, witnessed a 50% increase in orders after including a free shipping option on their website.
- One study discovered how more items were being added to carts and an increase in cart prices as well after free shipping was made available.
- A report witnessed shoppers spending 30% more per order once free shipping was offered.
Still need more reasons to offer free shipping on your online retail store? That should cover it for now!
Free Shipping Vs Paid
A Forrester survey revealed that 27% respondents made unplanned purchases to meet spending stipulations just so they could enjoy free shipping, while 57% said they favored retailers offering free shipping, compared to those that didn’t. –Source
From a customer perspective, the term free shipping itself is quite appealing. However, free shipping may not be the most profitable route to take for every business, particularly those that have limited resources or those only starting to enter the online retail store space.
Even though pretty much any free shipping statistics you come across would point to the fact that it is absolutely a must-have option to advertise on your eStore (and it really is), it pays to understand and contemplate in advance, how it can have an effect on your bottom line and long-term revenue stream. We’ll be discussing that in detail shortly, though for now, here’s a tool that can help you determine how free shipping costs can affect profit margins.
In short, know that you can’t win price wars while going head to head with eCommerce Goliaths such as Amazon. Ultimately, almost any online business can to profit by offering free shipping, including small businesses and startups. More on that in just a bit.
In the meantime, take a look at this really useful infograph to determine if free shipping will boost your profit margins.
5 Common Types of Free Shipping That Drive Profits
Here’s how the top eCommerce businesses are offering meaningful free shipping deals to better drive revenue that we’ve seen as the best SEO company Toronto:
Free shipping on minimum purchase
While the free shipping option is a guaranteed way to have more people checking out on purchase pages, offering it on all of your products may or may not be the best idea. If you’re selling handmade goods for example, it is probably best to offer free shipping on a “minimum purchase” basis. Set your minimum order thresholds to encourage more orders while keeping risk at a minimum.
Free shipping on specific items
It’s actually common practice for many online retailers to offer the free shipping option only on specific items – those items where the profit margin is higher and the shipping cost is easily absorbed. However, offering free shipping only on high-margin items might put customers off; decide what exceptions you’re willing to make and offer free shipment deals on the lower-margin products as well. This will let you better communicate offers to customers and highlight the benefits of buying from your store.
Location-specific free shipping
Depending on the scale or scope of your online business, you may be willing to ship to every state or city in the country or even beyond borders. However, you may need to decide if the charges are something you can cleverly tie in with your product price or generally absorb without harming profits too much. Some retailers offer a “free ship to store” option, where customers order online and pick up items from the retailer’s closest physical store. For one thing, this can encourage more business at your local brick-and-mortar store.
Time-specific free shipping
Offering free shipping all year round may not be the best thing to do; in fact, offering it during the holiday season or special days such as Valentine’s for example, might get you more orders, since there’s more competition around those times of year and customers are expecting free shipment offers to be at their highest. This can bring a surge of additional orders without impacting your overheads in a significant way.
Free shipping based on loyalty programs
Want to give people more reason to purchase from you? If you can’t offer free shipping to everyone all the time, offer it to your most loyal patrons. This is a surefire way to enjoy more long-term revenues by effectively increasing your customers’ lifetime value.
Some quick statistics on why it really pays to offer free shipping on your online retail store:
In 2012, survey participants admitted to the fact that free shipping was the most important factor they considered when shopping online.
Another survey revealed that 63% buyers recommended the online retailer because free shipping was an option.
On cart abandonment, 61% said they end up cancelling their order if free shipping isn’t available.
Companies that started adopting free shipping claimed to have seen a 58% to 357% increase in sales over the course of two years.
Free Shipping to Boost Purchases – Case Study
NuFACE is a company that deals in anti-aging skin care products. They wanted to improve their online business and eventually see higher sales. A digital marketing agency was hired for this purpose and through specific analytics, it was determined that customers were quite interested in purchasing their products but were hesitant to take the next step. An incentive was needed to be given to customers to encourage buying.
An A/B test was run to see how a free shipping threshold might impact company sales. In the test, 50% of the visitors were shown the original site without the offer, while the others were shown a variation with an incentive: “Free shipping over $75”.
The test revealed that after seeing the free shipping incentive, orders went up by 90% and consumers’ confidence in purchasing by 96%. In addition, NuFACE’s average order value (AOV) rose by 7.32%.
This worked because buyers are more willing to purchase when coming across a “free shipping” option on the checkout page. Online retailers really need to take advantage of this to gain a lead over their competitors. Research conducted at the University of Pennsylvania shows about 60% eCommerce businesses claim that offering free shipping with conditions is in fact, their most potent marketing tool.
As discussed earlier in the article, offering free shipment all the time on each one of your items may not be feasible. Decide on your shipping threshold by taking these factors into account.
To conclude, what you want to do is offer free shipping once orders hit a certain threshold value.
For instance, NuFACE started offering free shipping on orders above $75; if a customer ends up purchasing a $50 product, he/she will gladly add another product to the cart just to meet the threshold so that the free shipping option can be availed. You see, what you’re doing is striking two birds with one stone: increasing you AOV while also absorbing shipping costs without significantly cutting into profit margins.
Good to know:
- During a 2010 holiday season, the average AOV for paid shipping orders was $86.58, while the AOV for free shipping orders was $125.20.
- A free shipping offer where customers save $6.99 is more appealing than a $10 price cut on any given item.
- Providing free shipping on your eCommerce website is the same as offering 20-25% off on items purchased online.
Successfully Integrating Free Shipping into Your Business Model to Increase Sales
Whether you’re a small online startup or an established e-business, here’s how you can offer free shipping to boost sales and remain competitive in the online retail trade:
Compete not over price but shipping services
A number of eCommerce businesses fall into this trap, particularly smaller ones – competing with major online sellers on price like Amazon. Instead of trying to beat a huge global retailer on price, work on competitive strategies that revolve around free shipping.
Wrap shipping costs into price
It only makes sense to offer 100% free shipping because it’s guaranteed to lead to higher sales, right? While this is true, you need to be smart of wrapping some if not all of the shipping costs into your product prices.
A/B test a few scenarios
It’s important to do a little testing before making free shipping offers available on your eCommerce business pages. For example, do your customers prefer 7-10 days free shipping versus 1-2 days paid shipping? Are they willing to make additional purchases to meet the $80 free shipping threshold?
Online returns should be kept simple
Keep free shipping for online returns as simple as possible. While you’re at it, test how free shipping works out on ‘no-hassle returns’, ‘returned items’ or other offers to see which ones are most suitable for your eCommerce business.
Make offers during specific times to further leverage sales
Sometimes, it may not make complete financial sense to offer free shipping all year round. Offering free shipping incentives around competitive seasons and holidays can really boost sales; i.e. at the end of the year or 4th of July deals.
The Impact Free Shipping Will Have in Future on eCommerce Businesses
Based on the plethora of facts unveiled in this piece, along with a case study to support those claims, we believe free shipping will continue to play a pivotal role in driving online sales. To what extent you’re willing to offer free shipping on your products is something you’ll need to decide; however, the more generously you offer it without cutting too deeply into profit margins, the better you’ll be able to entice people to continue buying from you. Experiment generously and employ the services of a digital marketing pioneer like AOK Marketing to do all the legwork for you.
Do it the AOK Way
AOK Marketing is one of the original pioneers in the digital marketing industry, with expertise and experience dating back to nearly two decades.
We understand the tried-and-true practices that guarantee better conversions and sales. We have also helped countless online businesses over the years devise their sales and marketing strategies to position themselves as niche leaders.
Drop us a call today at 1.888.566.2577 for a FREE consultation or contact us directly.