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Does Free Shipping Make Good Business Sense?

Time and again, surveys of online shoppers show that the biggest reason they abandon carefully-loaded shopping carts is because of the cost of shipping their order.

It doesn’t seem to matter what segment these buyers are shopping in –shipping costs can stop the sale. Amazon started the ecommerce tradition of free shipping, and now online order fulfillment processes almost demand free shipping – or do they?  Does free shipping make good business sense for your ecommerce fulfillment services?

When Free Shipping Matters

By and large, free shipping makes the biggest impact when you’re selling items that are fairly inexpensive on their own. Shoppers don’t want to spend as much for shipping as they did for their purchase, or even an amount they consider to be a significant percentage of their order.

Put yourself in your customers’ shoes – they want to go to your website and purchase a few items for under $100, but when they have to cough up another 10 percent or so for shipping, it starts to hurt a little.

Retailers of any significant size are expected to provide a free shipping option for their order fulfillment and for some customers this is a massive make it or break it point. That extra shipping charge may be the difference between their purchasing an extra item or abandoning their cart altogether.

Still, you can’t just ship products out of the goodness of your heart or you’ll soon find yourself out of business, so you’re going to need to figure out how to provide free shipping without putting yourself out of business.

Many companies with ecommerce fulfillment services manage it in one of a few ways:

Increasing prices. You don’t have to raise your prices very much to cover the cost of your shipping. A few dollars per item is often sufficient. Customers across the board say they’d prefer to pay a little more for an item with free shipping than to have to pay for shipping — even if the option to pay separate shipping is cheaper.

Offering free shipping thresholds. It’s not unusual for a company to offer free shipping once a customer has spent $25, $50 or $100. The threshold is going to depend heavily on your industry and your margin, but customers often respond to these thresholds by spending more than they would normally. After all, if they can get free shipping by adding just one more item in their cart, they might as well, right?  It’s like getting something for free, and we all love that.

Member shipping discounts. Membership programs are another way to offer free shipping to frequent customers. Amazon has done an amazing job with this through their Prime service. For just $79 a year, customers get free two day shipping at no extra cost through an arrangement with their distribution network. You may not be able to offer free two day shipping for your order fulfillment, but even fast ground shipping may be worth a membership fee to your customers.

Free shipping makes a lot of business sense – but you don’t have to eat the costs entirely. By using one of these three methods, you can reduce your shipping expenses and provide customers with the discount they are looking for.

August 28, 2014
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