According to an investigation from Stitch Labs using data mined from more than 1 million US Shopify orders, small businesses are three times less likely to offer free shipping than their larger counterparts. However, the same study showed that customers avoid paying for shipping at all costs, with 44 percent of all ‘shopping cart abandonment’ being due to shipping costs.
Here are a few things to consider when attempting to take advantage of the overwhelming demand for free shipping — without it costing you too much revenue.
Obviously, one way or another, someone is paying the cost of shipping. But offering something for free can influence your customers into thinking they’re getting a better deal — even if, in the end, they’re paying the same price.
By using a shipping-included strategy, you avoid the gut check that online shoppers experience at the checkout screen. That jump in price when the shipping is calculated is when the majority of people will back out of the purchase. Shoppers are more likely to buy a 20 dollar item with free shipping than a 15 dollar item with a shipping fee of $4.99.
Free shipping increases your conversion rate at checkout — and you can bet that if your competitors offer free shipping, you’re doing yourself a disservice by not offering it as well. And don’t make the mistake of assuming your customers won’t shop around. According to AdWeek, 81% of shoppers conduct online research before purchasing.
Watching the Margins
When you’re competing with e-commerce titans like Amazon with their Prime offering — who are willing to do things like swallow a $7.2 billion loss on shipping costs in order to maintain their massive market share — you need to find a balance between your margins and your conversions.
Eating the cost of shipping will have a much bigger impact on the bottom line of a small business compared to a large one. For high-ticket items, it can be easier to offset that cost with markups because they’re less noticeable and you need to make fewer sales overall to cover the costs. For shops that sell less expensive items, markups are more noticeable and could lead to an overall decrease in sales — even if you’re offering free shipping.
Minimum Order Thresholds
For those businesses that can’t get away with markups, one way to help offset the cost of offering free shipping is by offering it for those who spend over a minimum dollar amount in total. Not only can this save you money overall, but it also encourages your customer to buy more then they initially intended.
The psychology behind the minimum threshold is clear — people want to take advantage of a deal if they can, and they’re more than willing to convince themselves that spending extra in order to qualify is the right move.
In fact, a study from Comscore and UPS came to the conclusion that 52 percent of American online shoppers purchased more than they intended just to hit a minimum threshold for free shipping.
Of course, there are several other options. Offering free shipping to qualifying members, free shipping only for specific items, free shipping if you buy within a certain period of time, or even free shipping to your nearest brick-and-mortar store for pickup. The best way to find out the offering that is right for you is by testing different methods and collecting the sales data.
Whether you’re offering free shipping on all purchases, a minimum purchase threshold, including shipping costs in your pricing, or some other method, one thing is clear: shoppers really love the word ‘free.’