Should your ecommerce business offer free shipping?

Whether or not to offer free shipping is one of the biggest questions that new ecommerce entrepreneurs need to ask themselves when starting an online business.

Fri Nov 05 06:04:00 EDT 2021

“To offer free shipping or not to offer free shipping? That is the question.” You’ve probably seen this line before. Shakespeare famously penned it in his play Hamlet, when the main character contemplates his fate. Okay, so Shakespeare didn’t actually write that...but now we’ve got your attention, and you get the idea.

Whether or not to offer free shipping is one of the biggest questions that new ecommerce entrepreneurs need to ask themselves when starting an online business. Offering free shipping comes with its benefits—and its challenges—but we’re here to help guide you through the process to reach the right decision for your business. Let’s get started!

“Free” shipping isn’t free

Speaking of famous phrases: have you ever heard the one, “There’s no such thing as a free lunch?” Well, the same rule applies to free shipping. The first thing to recognize is that free shipping isn’t really free. It’s free to your consumer, but the cost has to be paid by someone...and as the seller and the shipper, that someone is you!

In essence, free shipping is presented as “free” to your customer because you’re the one assuming the cost for it. Since it’s an added cost, the decision to offer it to your customers creates a better experience for them, but in turn, it cuts directly into your bottom line. In some cases, assuming full responsibility for the shipping costs may reduce your margins by more than your business can handle...and if there’s one thing you don’t want to do, it’s cripple your business by taking on unnecessary expenses.

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Why offering free shipping is important to consider

Now that we’ve gotten the existential crisis out of the way, we’ll hit you with some basic consumer psychology: free shipping is a huge value-add to your business. In fact, some studies show that as many as 66% of consumers expect free shipping when ordering products online. When you take those numbers into account, it’s easy to see why having to pay for shipping may deter a potential customer from making a purchase altogether!

Do you find yourself wondering when online consumers got so greedy all of a sudden? The answer lies at the top of the business food chain. Huge multinational corporations like Walmart and Target can afford to offer free shipping on pretty much they did just that. In turn, this phenomenon has created certain expectations in online shoppers, and a ton of small ecommerce business owners have struggled to play catch-up to consumers’ expectations.

Think about your margins and product costs

Another thing to think about in the free shipping game is whether or not you can even get away with taking on these costs for your customers in the first place. At the end of the day, it all depends on your margins, and how comfortable you are with taking away from your bottom line. If you’re selling lower-value items, it may not make sense to offer free shipping at all, especially if your margins are already tight to begin with.   

We’ll give an example to illustrate this point. Let’s say you’re selling T-shirts for $20 on your website, and that it costs $10 to create them. Without any other variables, that means you’re left with a $10 profit after the sale of one T-shirt, or a margin of 100%. Not bad, right?

Now, for the sake of easy math, let’s assume that these T-shirts cost $5 to ship. If you assume that expense, your cost of goods sold all of a sudden jumps up to $15, leaving you with $5 net profit—and a 50% profit margin. That’s a reduction of 50% to your margins right off the bat!

On the other hand, let’s say you’re selling high-end jewelry that also costs $5 to ship, but you charge $100 for on your website. Assuming that your margins are a bit higher here, it might not hurt so much to assume the shipping costs for your customers. In fact, for “higher-end” items like that, it might be something your customers fully expect!

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How to offset costs associated with offering free shipping

No matter what you’re selling, offering free shipping is going to eat into your profit margins no matter what. That’s just the truth. However, there are some “sleight-of-hand” tricks you can pull to make taking on this added expense a bit less hard to handle. Here are some ways to offset the costs associated with free shipping that we’ve seen work over the years, laid out for you below.

Take advantage of huge shipping discounts with online shipping software

This is the number one rule that can make or break your business: never pay for postage at Retail rates! This includes going to the Post Office, your local UPS Store, or the FedEx Office down the street. Instead, you should always use online shipping software that sells postage at huge discounts.

When you use online shipping software (such as SendPro Online) to buy discounted postage online, you’re not just giving yourself the chance to buy and print your own labels at home. You’re also giving yourself access to huge discounts that USPS offers, known as Commercial Pricing. USPS typically reserves this level of discounts for huge shippers sending more than 50,000 packages per year, but when you use shipping software, you get hooked up with the same level of discounts by just signing up. With those discounts, you could end up saving way more money on your shipping costs than you ever thought possible...and as a result, assuming the shipping costs to make it “free” for your customers might be easier to bear.

Build your average shipping costs into your product prices

Another popular method for offering free shipping is to figure out how much your packages cost to ship on average, and then adding that amount onto your product prices. For easy math, let’s say you’re selling those T-shirts we mentioned before, and that your average cost to ship one of them out still runs you about $5. In this case, instead of selling them for $20 on your website and making your customer pay for shipping, you could try selling them for $25 and offering “free” shipping to the customer.

Charging a bit more for your products may obviously result in less sales at a higher price point, but it never hurts to try this strategy and see how it turns out! You may just find that customers are more enticed to make a purchase when they feel that the shipping costs are on the house.

Want to learn more about figuring out your average shipping costs? Check out this guide on Shipping School that goes into more detail: What Should I Charge for Shipping?

Experiment with offering free shipping as a perk to “unlock”

A third and final way to make free shipping less of a burden on you is to run certain promotions that “unlock” free shipping for your customers when they purchase a certain amount of items in a single transaction. We’ll use the online T-shirt business as an example for a third and final time. In this case, maybe you decide to not offer free shipping for a single T-shirt, since your margins don’t really allow you much wiggle room. However, you can run a promotion that makes shipping “free” when a customer purchases, say, three T-shirts. Then, when a customer orders three T-shirts for a total of $60, your average order value has shot up drastically (as well as your margins), and you could afford to take on the shipping expense without it making a serious dent in your wallet.

Offering a free shipping “perk” could theoretically incentivize customers to buy more products in a single session, which increases your average order value...and therefore, boosts your profits. When all is said and done, that might just be the ultimate win-win situation for both you and your customer!

The decision to offer free shipping is entirely up to you

Remember, no matter what you choose, there’s no right or wrong answer here. There isn’t some invisible book of rules written by some guru in some high-up castle telling you to offer free shipping, or else face business doom for the rest of your life. You could offer free shipping, or you could choose not to. We’ve come across massively successful ecommerce businesses that assume the full shipping costs for all their products, as well as successful operations that don’t cover a dime on the shipping expense.

At the end of the day, it’s all about deciding what’s right for you and your business. All we can hope to do is arm you with more tools in your arsenal to help you make that decision.

To check out the latest shipping news, browse hundreds of free resources, and to read recommendations written by shippers like you for shipping software, fulfillment centers and more, come visit us over at Shipping School!

Save on postage today with SendPro Online

Give your customers exactly what they want: your products delivered with free or discounted shipping.