These days, online shoppers want and expect free shipping.
According to Shopify, 67% of online customers say free shipping is “crucial” to their shopping experience. Ever since Amazon Prime unleashed free two-day shipping, consumers have been fixated. And if they don’t get free shipping, they’re happy to shop elsewhere.
Feeling the pressure to offer free shipping? You’re not alone. Most merchants lack the economies of scale that allow Amazon to offer this attractive feature. That said, free shipping is a key differentiator among online brands. To remain competitive, it’s important to understand the benefits and tradeoffs of the newest cornerstone of eCommerce.
Free shipping works like magic for merchants. When you add this selling point to your store, conversions increase and cart abandonment declines. To cover the added costs, you can either raise your item price or sacrifice a slice of your profit margin.
It’s best for merchants to take a creative approach to free shipping. This guide highlights the most effective approaches for eCommerce brands, plus how to calculate the cost of free shipping. By the end, you’ll have a clear idea of how to implement a free shipping policy that’s both cost-effective and compelling to shoppers.
Chapter 1: The Pros & Cons of Free Shipping
In the age of Amazon, free shipping is the cost of doing business online. Despite its appeal to customers, paying for shipping can cost merchants dearly. Here are the tradeoffs around including free shipping in your eCommerce store.
The Pros of Free Shipping
- Raise Average Order Value (AOV)
You can use free shipping as an incentive to raise your average order value (AOV). This is because more than 8 in 10 shoppers will add extra items to their order to get free shipping. By increasing AOV, you offset the costs associated with free shipping by simultaneously increasing revenue.
- Boost Conversions
Shoppers are more likely to complete a purchase when free shipping is on the table. In fact, almost half (43%) of online shoppers say they abandon carts because of high shipping costs at checkout. For growing merchants, free shipping is a way to drive sales and decrease cart abandonment at once. In other words, free shipping can be a strategic investment in long-term growth.
- Gain Brand Advantage
Free shipping is a brand feature that sets you apart from competitors. Of those surveyed by Shopify, 67% of shoppers say that free shipping is “crucial” to their shopping experience. This advantage can really add up over time in the form of greater sales, referrals and re-sells, as well as customer retention.
- Build Customer Loyalty
Shipping is a form of customer service in eCommerce. With free shipping, you’ll catch a shine from the 6 in 10 online shoppers that say they fall in love with a brand after good service. The more people return to your store, the more loyal they become. Of course, you’ll want to take steps to ensure each of your customers enjoys a successful post-purchase experience.
The Cons of Free Shipping
- Reduced Margins
How do merchants pay for free shipping? By either raising the cost per unit or reducing their profit margin. Both approaches eat into your bottom line. It’s important to run the numbers before you commit to free shipping, or you may end up losing money. We’ll show you how to calculate free shipping costs in chapter four.
- Increased Delivery Lead Times
The cheapest way to offer free shipping is by using economy shipping services. Saving money may slow your delivery times, though. This can raise issues with the 87% of online shoppers that say delivery speed is a key factor in whether they choose to shop with an eCommerce brand again.
Savvy brands get the best of both worlds by offering multiple delivery options at checkout. This way, shoppers can choose to wait for free shipping, or pay for expedited shipping. To quickly compare delivery speeds for shipping services, try our free shipping rate calculator.
Chapter 2: 5 Smart Ways to Offer Free Shipping
There’s no one-size-fits-all approach to free shipping. This is because the final cost of free shipping varies depending on several factors, including:
- Product weight
- Box size
- Delivery destination
- Item price
Here are five ways to offer free shipping in your eCommerce store.
1. Order Value Thresholds
According to BigCommerce, the most common way (64%) that brands offer free shipping is on orders over a certain value threshold. For example, all orders of $100 or more qualify for free shipping.
This is effective because people are typically willing to add one or two extra items to the cart to unlock "free" savings. Another benefit is that, as AOV increases, you're better able to cover the cost of shipping.
Here’s how the streetwear brand Patta offers free shipping at checkout for all orders over €200.
2. On All Purchases
Free shipping for all only works for certain merchants. This is because average shipping costs can be too high if you ship heavy items, low-price items, or have customers in faraway places.
This approach is best suited for retailers with low shipping costs and high-value items. For example, a high-end jeweler with domestic customers. Or Mighty Jaxx, a collectible toy studio.
According to BigCommerce, more than 1 in 5 brands offer free shipping on all orders.
Is it Christmas? Black Friday? Back to school? If you offer free shipping during periods of peak sales, the increased order volume will help to offset the costs of shipping.
This approach works well for seasonal items or items people wait to purchase until a sale, like electronics on Cyber Monday. 16% of brands adopt free shipping during special occasions or holidays.
Here’s the luggage brand Biaggi offering free shipping for its spring sale.
4. Marketing Related
Free shipping is a great way to entice up-sells and cross-sells. For example, you can offer it to first-time or returning customers. Or feature it in your loyalty program. Consider your marketing goals and where adding a dash of "free" in your promotion will help you hit your targets.
4. Product Related
High-inventory items. Lightweight items. Seasonal items. These are a few examples of products that align well with free shipping, whether to clear out old stock or just drive sales.
5. Dynamic Rates At Checkout
You may discover that free shipping isn’t workable right now. No sweat! Easyship’s Dynamic Rates at Checkout feature is an excellent substitute. This powerful cart plugin allows you to automatically display a set of accurate and discounted courier rates in your store checkout.
Research shows that 2 in 3 online shoppers choose a retailer based on the availability of their shipping and delivery options. With Rates at Checkout, every shopper can pick from the cheapest, the fastest, or the best-value rate. With or without free shipping, enhanced delivery options are a great way for brands to drive sales.
Chapter 3: How to Set Up Free Shipping With Easyship
Easyship is the world’s leading shipping software. Our all-in-one platform integrates with top eCommerce platforms like Shopify, Magento, and more to help merchants simplify and save on all shipping processes.
Easyship allows you to set rule-based shipping preferences to determine which orders receive free shipping in checkout. For example, on every order over $100, for select SKUs, only deliveries in the US – or all three at once. Shipping rules are 100% customizable.
Shipping rules also alleviate a main challenge of free shipping for merchants: displaying the right shipping option for each order. With so many variables impacting shipping costs, you want a tool to help you auto-select which orders get free shipping in checkout. Unfortunately, your native cart software lacks the tech needed to implement a truly flexible shipping policy.
With Easyship, you can offer free shipping any way you like, no matter which platforms you use. This next section shows you how to set up free shipping in your store with our Dynamic Rates at Checkout feature, and with Hybrid Shipping.
Free Shipping with Dynamic Rates at Checkout
Dynamic Rates at Checkout lets you display three accurate shipping options in your store: the cheapest, the fastest, the best-value option. Most merchants set free shipping as the default cheapest option.
To active free shipping, visit the Store Settings area in the Connect section of your Easyship dashboard. Next, just click the "Add" button for Free/Discounted Shipping on the next screen.
With Free Shipping activated, all qualifying orders automatically display an option for free shipping, plus two others of your choice. To keep costs down, you can choose which courier service to use for free shipping.
With Rates at Checkout, all shipping options also include a delivery time. This is important because 53% of people won’t order from an online merchant unless they know the date and time of delivery.
Here’s how the eco-friendly smartphone company Teracube uses Rates at Checkout to offer free shipping with delivery estimates.
With Rates at Checkout, you can display free shipping within a set of options and let customers decide. This way, you don't always have to pay for free shipping.
Hybrid shipping is when you offer both free shipping and paid shipping options. This approach lets you offer free shipping but also protects your margins and drives conversion for non-qualifying orders.
Similar to Rates at Checkout, hybrid shipping works by automating which shipping options appear in checkout. But instead of featuring three default rates, you create rule-based shipping preferences that determines for every order which options appear at checkout.
This Easyship feature is called Shipping Rules, and it allows you to customize your shipping options in any way possible. You can set any number of shipping rules based on different factors, including:
- Delivery destination
- Package weight
- Box size
- Preferred courier
For example, you may want to use USPS Flat Rate for free shipping stateside, but use DHL Express for international orders. With Shipping Rules, you can get truly granular about which orders see the free shipping option
To use hybrid shipping, visit the Shipping Rules section in the Easyship dashboard. Say you want to offer free shipping on all orders over $50. Just set your minimum order threshold and the maximum in the settings. As the video below shows, now all your orders over $50 and under $200 qualify for free shipping.
Shipping Rules is compatible with Dynamic Rates at Checkout. This means you can offer up to three shipping options, but only display those that match your needs.
Here’s how the watch company Eone combines Rates at Checkout with Shipping Rules to give buyers the choice of free or faster delivery.
Hybrid shipping lets you leverage all the best shipping options in a way that suits your budget as well as your customers. To learn more about Easyship’s hybrid shipping solutions, click here.
Chapter 4: How to Calculate Free Shipping Costs
Free shipping isn’t free for merchants. You’ll either need to raise your item price or absorb these costs yourself. Though it seems tricky, the math on free shipping is straightforward.
Say you want to offer free shipping on orders over a certain threshold (for example, $100). The most important number to calculate is your average order value (AOV). Once you know the value of your average order, you can experiment with different thresholds above the average.
Your goal is to nudge customers into adding one or two extra items to get free shipping. The trick is finding the sweet spot. Too high and people won’t bite. Too low and your margins take a hit on every order.
To stay profitable, only give free shipping on orders that exceed your average order value by more than the cost of free shipping, plus a cushion for your bottom line.
Here’s how to calculate the free shipping threshold.
Next, we propose a minimum cart value above which we offer free shipping. For example, $75. Now let’s test this number.
With a cart threshold of $75, we break even on free shipping. But if we change the order threshold to $100 – we actually earn $4 on every order.
Once you’ve found a few numbers, experiment with different thresholds on your site. This process, known as A/B testing, helps you determine which threshold will maximize your profit as well as your conversions.
Lastly, embed your order threshold in the shopping experience. Announce free shipping on your home page, the cart page, and at checkout.
Free Shipping Cost Factors to Consider
If you offer free shipping at a threshold, be sure to account for the following cost factors:
- Average shipping costs: Finding ways to reduce your shipping rates will directly increase your margins. Shipping costs are primarily impacted by product size, weight, and the distance to delivery. Can you get a better rate on shipping?
- Added fees: Don’t forget to include any duty or taxes if you’re shipping internationally, or credit card processing fees.
- Profit margin: Your product, packaging, and shipping costs all eat into your profit margin. Free shipping is only sustainable if you’re happy with your take-home after expenses.
- Average order value (AOV): Typically, a higher AOV makes it easier to offer free shipping (except if you’re shipping heavy boxes far distances). When you calculate AOV, keep an eye out for outliers – sales items, for example – that throw off your averages.
How to Calculate Item Price Increases
If you decide to raise prices to cover the cost of shipping, customers may recoil. According to a Harvard Business School study, shoppers are 10x more sensitive to increases in product prices as they are to shipping fee increases.
Raising item prices works best with high-value items. After all, customers will shop elsewhere if a $20 item goes to $25 – but are less concerned if a $300 item goes to $305.
Here’s how to calculate a free shipping price increase:
When you disperse the total cost of shipping across all orders, the unit price goes up by $8. This won’t work with low-price items. Instead, you can remove the low-price SKUs from the average monthly order volume, and only price up items that still sell at the higher price.
Alternatively, you can simply add the cost of free shipping to item price. This way, you can offer free shipping on high-ticket items or on orders with cheap delivery. To find what converts best, experiment with price increases on various items.
Chapter 5: How to Lower Costs For Free Shipping
As you consider free shipping, it’s a good idea to look for cost savings opportunities. Here’s a handful of ways to free up cash to cover the costs of free shipping.
- Free shipping boxes: Free shipping boxes and supplies are available on the websites of top courier companies like USPS, UPS, and FedEx. Free boxes can be used for most shipments, except for Flat Rate shipping which requires Flat Rate boxes.
- Bulk supplies: Purchasing your shipping boxes and supplies in bulk from retailers like Uline can really add up over time.
- Warehousing & fulfillment partners: You can reduce the cost of international shipping by storing inventory in warehouses in the destination country. This reduces import fees and slashes last mile delivery costs while accelerating delivery lead times.
- Use pre-negotiated discount rates: The cheapest rates on shipping are available from Easyship. You’ll save up to 70% off the retail prices from couriers. To see these discounted rates, try our Free Shipping Rate Calculator. Just enter your package weight and destination to access the cheapest rates available anywhere.
To start using Easyship, create a free account.
Chapter 6: How to Manage Expectations For Free Shipping
With customers fixated on free shipping, it’s best to get ahead of expectations before checkout. Announce your shipping policy in the following places:
- Shipping policy page
- Home page
- Social media
- Cart page
- Email marketing
Be clear on where and if you offer free shipping. Even if it’s only available on qualifying orders, being transparent will attract customers. Link to your returns policy, and include any taxes and duty for international shipments.
What if you just can’t swing free shipping?
In this case, it’s best to present buyers with a set of shipping options. This way, buyers can pick the price and timeline that works for them. Making shipping a transparent process also helps to defuse concerns about hidden fees. Apparently, according to Ravi Dhar at The Yale Center for Customer Insights, people hate the feeling of being “nickel and dimed” by brands on shipping.
Meanwhile, a seamless yet choosey checkout flow can help customers with that final click. Here are some proven ways to spruce up your purchase flow for better conversions:
- Offer free returns
- Include the delivery date at checkout
- Provide multiple shipping options
Nomad Lane, a crowdfunding campaign turned luggage company, wasn’t able to afford free shipping for international orders when it started. The company used Rates at Checkout to show real time rates at checkout for multiple delivery options. By year's end, Rates at Checkout had increased their conversions, and revenue jumped by 200%.
Brands that can’t offer free shipping instead rely on customer experience to clinch sales. For best results, create a seamless and choice-rich checkout flow that’s fully transparent about shipping costs and delivery times.
Free Shipping With Easyship
Free shipping is top of mind with shoppers these days. As you evaluate this option, it’s important to balance customer expectations against shipping costs. Many brands take a mix-and-match approach, using various order thresholds, SKUs, and location specifics to determine which orders qualify for shipping on the house.
Help yourself to our free rate and speed comparison tools as you calculate your costs. If you’re looking to enhance your checkout page with Dynamic Rates at Checkout, create a free Easyship account. If you’re shipping less than 100 orders per month, Easyship is 100% free.
For help setting up free shipping with Easyship, get in touch with one of our shipping experts or create your free account.