How to Offer Free Shipping to Increase Your Revenue & Get New Shoppers

August 16, 2022
by
Rachel Go

How to Offer Free Shipping to Increase Your Revenue & Get New Shoppers

August 16, 2022
by
Rachel Go
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Free shipping is no longer just a nice perk of shopping online, it’s a requirement to close sales. 

Sixty-six percent of shoppers expect free shipping on every online purchase, and 33% of consumers will only shop at stores with free delivery.

That all goes to say, modern consumers not only know about the concept of getting their packages sent for free, they expect it and many will not convert without it.

However, many merchants find the shipping cost prohibitive, especially if they were previously passing shipping fees on to customers.

Today we’ll show you how to offer free shipping on your online store in different ways that protect your bottom line, as well as tactics for making it more cost efficient.

In this article, we cover:

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Why free shipping is important for every brand

More than 65% of online retailers offer free shipping at least some of the time, which means your competitors understand how important it is. 

It increases conversions, reduces cart abandonment, and improves your buyer experience.

Increase conversions

Free shipping is a conversion lever

It lowers the barrier to entry to becoming a customer by removing what is seen as a prohibitive additional cost.

Seventy-four percent of online shoppers report that free shipping is the single most important option at checkout, 73% are more likely to convert if a listing includes the offer.

shipping statistics online shopping
Image: SaveMyCent

Simply put, a free shipping offer helps to get conversions, and your competitors are already leveraging it.

Improve buyer experience

Free shipping has the power to improve your buyer experience. It feels like a perk, reward, and must-have all wrapped into one line item.

According to Lauren Freedman, senior consumer insights analyst with Digital Commerce 360: 

“Free shipping is most important to online shoppers when selecting retailers despite the fact that the dollars involved are small relative to other discounts. It’s psychological and shoppers have a nose for finding free shipping and go to great lengths to get it.”

Ultimately, free delivery is a requirement to provide a great buyer experience that keeps people coming back for more.

Reduce cart abandonment

Nearly 70% of online shopping carts are abandoned before the customer completes their order, and the leading cause of abandoned carts is extra costs, such as shipping fees.

reasons for cart abandonment during checkout shipping costs top reason
Image: Baymard Institute 

According to a National Retail Federation survey, 75% of shoppers expect free shipping to be an option for their orders, and 29% have gone as far as to back out of a purchase because free two-day expedited shipping wasn't available.

This is just further confirmation of the effect Amazon Prime has had on consumer expectations for not only shipping cost but also delivery time.

Offering free shipping reduces the barrier to entry to becoming a customer, which helps to eliminate abandoned carts in favor of more completed checkouts.

Increase your sales

A whopping 94% of consumers have performed an action in order to qualify for free shipping. 

That might include adding more items to their cart to meet a minimum order amount (boosting average over values), or signing up for a rewards program (helping to extend customer lifetime value).

Free shipping spurs action, and you can use that driver in strategic ways to make more, better, and longer-lasting sales. More on that below.

How to offer free shipping while protecting profits

As we’ve covered, free shipping is critical… but it can also get expensive. 

To combat any incurred costs, there are a few different ways you can offer free shipping to strategically also protect your profits.

Create minimum order values to unlock free shipping

Offer free shipping upon reaching a purchase order amount. 

For example, some stores offer free shipping on orders over $50 or $100. A UPS survey found that 48% of shoppers had previously purchased extra items in order to qualify for free shipping.

ally shoes free shipping minimum order banner
Image: Ally Shoes

Offering free shipping unlocked by minimum spend helps to boost your overall average order values (AOV), which makes better use of your customer acquisition costs and closes more deals with fewer touchpoints.

As a nice bonus, the larger your cart volumes, the less you will have to spend on shipping. 

Someone who purchases $100 in a single order costs a single shipping fee, whereas shoppers who spend $50 over two orders incur costs across two shipping fees.

Determining minimum spend for free shipping

There is no strict formula when calculating minimum spend threshold to unlock free shipping

However, we’ve gathered insights from successful brands around their decisions.

According to Filip Pejic, founder of Pearly, they recently raised free shipping thresholds from $40 to $50 for three reasons:

  1. Shipping is expensive. Over the last two years, shipping prices have gone up dramatically. As a result, we've found ourselves having to increase our free shipping threshold because of margin concerns.
  2. Overall margin on business. When thinking of free shipping, we take a look at our total profit margin for an average order and see what the best offer is that we can include incentivizing people to spend a little more to get to that threshold.
  3. Current AOV. We take a look at our AOV in our store and try to place the threshold ~$10-15 higher to try to boost order sizes.”

Danty Ishak, CMO of Vont shared that their minimum spend amount correlates to the number of SKUs they have available.

When they started out with four SKUs—the cheapest product being $15—their minimum spend to unlock free shipping was $19, and AOV was $21. 

Once they expanded their catalog to about 32 SKUs, they raised their free shipping minimum to $29, and saw their AOV rise to $32.

Most recently, they expanded to 72 SKUs and “added a dynamic ‘free shipping bar’ in the cart that tells [shoppers] ‘you have $21 more to spend for free shipping’, and that has done very well.” 

They now have a $49 minimum spend to unlock free shipping, and AOV has risen to $47.5.

Finally, Fintan Meagher, marketing lead at ReConvert, suggests first finding your median order value. This is the order value most commonly spent in your store.

Meagher recommends merchants :

set your free shipping threshold about 15-30% above your median order value…Experiment with different percentages to see how far you can push the boat before customers start to opt for paying for shipping again.”

Make free shipping a tiered loyalty reward

Getting shoppers to give you their details is a challenge that can be made easier if you offer free shipping in exchange. 

Consider adding free shipping as an exclusive perk for your loyalty club members, or a tiered reward for members who have reached a certain level.

Convincing shoppers to sign up for a loyalty program to earn rewards and quality for perks helps to extend your customer lifetime value

These shoppers essentially give your brand permission to stay in touch and contact them.

Loyalty programs open the door to additional sales, keep your brand top of mind, and give you an advantage over competitors. 

Ask yourself how often you or someone you know flies with a certain airline because you’re part of their mileage program.

Offer free shipping as a special treat

specialized free shipping email cart abandonment
Image: Really Good Emails

For shoppers who don’t qualify for any loyalty rewards or meet the minimum spend, you can offer free shipping as an occasional treat to combat cart abandonment.

In these instances, it’s important to only trigger a free shipping coupon or email if you would have lost the sale otherwise. 

By providing free shipping and saving the sale, you still earn some revenue compared to a lost conversion—even if you end up covering shipping.

#cta-mini-pb#We share abandoned cart email templates and more in our ebook.Download

Provide free shipping on subscriptions

Offering free standard shipping on subscriptions is a brilliant CLV and logistics strategy.

Merchants can deliver subscription orders on time and affordably, because you can plan out the cadence of your deliveries

You know when an order needs to arrive with plenty of lead time, so you can use cheaper ground or standard shipping while still getting items where they need to go.

Your shoppers still get their free deliveries, you get more affordable shipping rates, and your brand gets loyal customers.

Link free shipping to select products

You might also adjust your free shipping strategy to offer it on select products. 

Generally, this would involve charging a shipping fee for low-cost, low-margin items while offering free shipping for high-cost, high-margin items

This is an excellent way to encourage shoppers to purchase the items that net you the most profit, and you can also use this strategy to move products that aren’t selling well.

Offer blanket free shipping

Finally, you can decide to offer blanket free shipping for orders in a certain region

For example, you may provide free deliveries to the USA and Canada, or within the European Union.

This strategy makes sense if you want to cater to all shoppers in a certain country or region (for example, where you’ve noticed most of your revenue comes from).

vitabiotics free shipping in uk blanket policy
Image: VITABIOTICS

Although this is the easiest to track and manage, you should also take care to calculate your profit margins carefully.

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How to make free shipping more affordable

We’ve gone over different ways to offer free shipping. Now, let’s cover strategies to make free delivery more affordable logistically.

Keep inventory close to demand

By distributing inventory strategically according to geographic demand, you can ensure stock is nearby order destinations. 

The shorter distance items have to travel to their destinations, the more affordable (and speedy) it is to deliver them.

This may not be feasible on an in-house warehouse network, unless you have enough demand to justify a wide network of nationwide and even international warehouses. 

If this is the case, our next tip covers working with outsourced fulfillment partners.

Work with global fulfillment partners

In line with distributing inventory, working with an ecommerce fulfillment company grants you access to a distributed warehouse network and the advantage of economies of scale

Many even have Shopify apps for easy order management from a single dashboard, helping you figure out how to do free shipping on Shopify.

Carrier rates are determined by how much volume you ship. That means, on a per-item basis, smaller stores end up paying more for shipping than larger stores. 

Your typical outsourced fulfillment company, either a 3PL or 4PL, works with a huge range of brands and ships high volumes every day. This gives merchants access to better shipping rates and cheaper packaging prices.

Fulfillment by Amazon (FBA) is an excellent example of this concept at work. 

Using FBA means merchants get access to the same fulfillment network that is able to achieve lightning fast Prime shipping around the world.

As an added bonus, using a fulfillment partner helps you to build more resilient logistics around your brand. 

If something goes wrong, you’ll have multiple other delivery options and inventory pools to fix the problem with.

Offer alternative delivery options

To cut down on shipping fees overall, consider offering alternative and more eco-friendly delivery options.  

For example, customers can choose to buy online and pick up their items in your retail stores (BOPIS).

If your online store has a brick-and-mortar counterpart, then in-store pickup is an easy and affordable way to offer free “shipping” to your customers.

Obviously, this isn’t as convenient for the customer as having the order shipped to their home, but it’s still a popular option. 

One survey found that 77% of shoppers purchase items online and pick them up in-store at least once per week.

hand in pocket shipping policy alternate options curbside pickup
Image: Hand In Pocket

You may even want to invest in automated lockers to help manage your in-store pickups. 

This technology has become quite popular in recent years, and it allows customers to collect their orders without pulling your staff away from other tasks. 

It won’t take long for the amount of employee productivity you save with these lockers to be worth more than how much they initially cost.

Amazon utilizes this tactic well with their lockers. 

For example, some Whole Foods Market locations contain lockers where shoppers can order goods on Amazon, then pick up their packages in the lockers upon entering a code.

Consider cost of shipping in your final price

Finally, if you want to ensure profit despite covering shipping on orders, consider incorporating shipping fees into your product prices

When a customer buys a product, the value they associate with the transaction is tied to the product itself, not the shipping.

Psychologically, buyers still get the benefit of ‘free shipping’—not having to pay an additional line item for shipping. 

Financially, you still net as much as you did per sale.

The only problem with this tactic is you risk driving your product prices significantly higher than your competitors, which may push customers away. 

To prevent this from happening, use the other techniques in this article to make free shipping more beneficial for all parties.

Offer free shipping while protecting your profits

Free shipping isn’t going anywhere, and why would it? 

Your customers love it, you can set up logistics to support it, and there are so many ways to turn it into an additional conversion lever to boost loyalty and average order values.

Use the strategies above to determine how to offer free shipping for your unique brand in a way that supports both your buyers as well as your bottom line.

#cta-visual-pb#<cta-title>Create websites that convert<cta-title>Showcase your free shipping promise front and center with Shogun Page Builder.Start building for free

Rachel Go

Rachel is a remote marketing manager with a background in building scalable content engines. She creates content that wins customers for B2B eCommerce companies like MyFBAPrep, Flxpoint, Shogun, and more. In the past, she has scaled organic acquisition efforts for companies like Deliverr, Skubana, and Pipe17.