Offering free shipping is a huge value proposition to customers that can boost your brand when applied strategically. The positives: providing free shipping can increase your conversion rate and differentiate you from competition. The negatives: implementing this shipping option is difficult to do without breaking the bank. Not to worry! ShipMonk is here to take the complexity out with our guide that details 8 easy ideas for incorporating free shipping into your business model while still being kind to your margins.
1.) Increase Average Order Value
Average order value (AOV) is the average amount spent per order during a given time period, (one week, one month, one year, etc.). This is one of the simplest ecommerce metrics to calculate. Simply divide total revenue during a period, by the number of orders during that same timeframe. For example, if your omnichannel ecommerce business processed 5,000 orders last month for a total of $300,000, the average order value for the month was $60.
If you increase average order value, then you can offset the costs of free shipping. Our recommended ways to do this include:
- Create Product Bundles
- Offer Volume Discounts
- Cross-sell and Upsell with Product Suggestions
- Include a Free Gift When an Order Reaches a Certain Subtotal Threshold
- Add a Welcome Offer
- Promote a Buy Now/Pay Later Option
- Reduce Your Personnel Fees
- Lower the Impact of Returns
You’ll need to experiment to see which of these strategies work best for your ecommerce business. However, once you find a way to raise AOV in a way that clicks with your customers and feels right for your brand, you’re golden.
In sum, knowing and tracking average order value is a pivotal part of growing your business. The metric gives you important insights into customer behavior, which you can use to optimize merchandising, pricing, and marketing strategies. By understanding those factors, and how to increase AOV, you can get your business to a profitable enough place to offer free shipping without taking a hard financial hit. So calculate your average order value today to begin taking those steps toward covering costs and protecting profit margins through fuller digital carts.
2.) Set Minimum Order Value
If you’re worried about free shipping cutting your margins too deeply, a great way to offset that is by selling more. That’s why huge brands can afford free shipping more simply, right? Because they sell enough volume to offset shipping costs. Regardless of the size of your brand, you can do the same by simply selling more to the same customers.
If you sell clothes for example, offering free shipping for every item purchased doesn’t work for your bottom line. Consider if a customer only orders one item (perhaps a shirt as low as $10). If you don’t set a minimum order value to qualify for free shipping and just offer it with every sale, you’ll lose with every order.
However, if you require that customers spend a minimum amount to earn free shipping (for example spend $100 or more) then you’re both encouraging upsells and protecting yourself from losing money on the sale when you pay for shipping yourself. As long as the minimum order value is reasonable, customers are often compelled to spend a bit more to reach it. Win-win. You move more product and increase profit margins on the average order while they get free shipping.
Before you set your minimum order value though, remember to run the numbers. Small differences can really make the difference between profit and loss when offering free shipping. So calculate average order value, shipping costs, and your profit margin with and without free shipping before you set minimum order value.
3.) Offer a Membership Plan
Even with all the money Amazon makes, they’re not giving away speedy shipping for free to every person. Only Prime members have enjoyed that perk over the years. To offset your free delivery costs, your ecommerce business can create its own membership model that rewards customers who sign up for accounts. Free shipping can be one of those benefits, among others. Note that this is especially effective for certain types of merchants, for example businesses with subscriptions or perishable products that need to be restocked frequently (cleaning supplies, home goods, etc.).
Customers who create accounts (memberships, subscriptions, loyalty program sign ups, etc.) are more likely to purchase again. So while you may take a small loss with an initial purchase, the fact that they gave you their information is a positive sign that they will be buying again, which means you’ll earn back those shipping costs in the long-term with the increased business they give you, even if it’s periodic. As an added value bonus to your brand, you can utilize the info acquired during sign-up for retargeting and promotional outreach, encouraging even more sales in the future.
***Note – just be sure you’re not being too pushy, don’t require customers to create an account to make a purchase in general, and don’t ask for too much information when customers make accounts. These factors can drive a customer and potential sale away, resulting in increased cart abandonment rates.
4.) Harness FOMO
Sometimes offering a benefit, even if it’s not the best option for a customer, is a goodwill gesture that can make a positive impact. FOMO is Fear of Missing Out, and it can be leveraged in this case by appealing to some consumers’ need for instant gratification.
Example: when it’s time for your customer to select their preferred shipping method, you can offer free shipping with no strings attached, but highlight that it may take 10 – 12 days for that order to be delivered, even if realistically you know it only takes about 5 – 7 days on average. By creating the perception that the order will take longer with free shipping, if a customer is excited about the order they may opt out of free shipping and select a shorter delivery window, even if they have to pay a bit for it. In this case, you could have a secondary option where customers can actually select to pay, let’s say, $5.00 for 5 – 7 day expedited shipping.
That is the same timeframe that you would realistically deliver the products anyway, but in the first instance you don’t want to overpromise and underdeliver. Furthermore, by choosing the second shipping option, it is the customer’s choice to opt out of free shipping to satisfy their need for speed, which in this case they value more. They feel like they’re getting what they prioritize and you are protecting your profit margins either way.
Just keep in mind that you’re not necessarily out to make money on an upgraded shipping method. Instead, you’re using it to offset your costs for providing free shipping to those who choose that route. You’ll have to experiment to find your customers’ sweet spot—that little window where buyers are willing to pay more to receive their product sooner. But you can definitely find a happy medium with certain expedited options like 2-Day shipping.
5.) Be Zip Code Selective
One of the greatest contributors to shipping costs is the distance (number of shipping zones) ecommerce orders travel. By limiting your free shipping eligibility to zip codes that are close to the fulfillment centers or warehouses where you keep your inventory, you reduce the distance orders travel and thus reduce the cost of sending them. When you work with a 3PL like ShipMonk that has many strategically-located fulfillment centers across the globe, free shipping can be a lot easier because your goods may already be a lot closer to your customers.
6.) Leverage Multiple Locations
If you only have one hub that handles your ecommerce orders, that location could become overwhelmed, especially during busy times like peak season. If orders pile up as a result, they are picked, packed, and shipped at a slower rate. This can be disadvantageous to your shipping budget.
If you’re going to offer free shipping in a cost-effective way, it is important that you’re not paying more to make up the time you lost getting products out the door. Having multiple fulfillment center locations helps you overcome this issue. By splitting inventory, you can get products to customers faster without your operation getting stuck due to an influx of your own orders or general supply and demand changes that affect an entire fulfillment center. Just remember, when splitting inventory, to do so in consideration of optimized geography choices, order fulfillment method, and general organization.
7.) Use Ground Shipping
This method is traditionally the least expensive way to accomplish free shipping. However, it only pays off if you have warehouses or fulfillment centers close to your customers, preferably in big cities or port cities that feed into larger order clusters in terms of region or customer demographics. By distributing your SKUs across a network of fulfillment centers, AND utilizing advanced fulfillment software to keep track of it, you’ll reduce the distance items have to travel to reach customers. This allows ecommerce businesses to harness ground shipping to achieve free delivery vs. paying for more expensive free shipping services offered by the major shipping carriers.
8.) Partner with a 3PL
Limited locations, limited technology, and lack of leverage with shipping carriers can all restrict an ecommerce business’s free shipping capabilities. Sometimes you need a little help. The right 3PL partner can make free shipping attainable, affordable, and easy for your brand to offer. How does a 3PL do this exactly?
ShipMonk’s global footprint of 12 fulfillment center locations allows ecommerce businesses to divvy up inventory strategically. This minimizes the number of shipping zones products need to cross (reducing shipping costs), and brings goods closer to customers, which keeps transit times down.
With new facilities opening each year around the world, ShipMonk is always expanding our reach and thus reducing customer wait times. ShipMonk Europe, for example, allows brands to achieve domestic-like shipping rates and 2 – 5 day domestic delivery times, which lead to increased conversion rates and superior customer experience. Meanwhile, our strategically located worldwide fulfillment centers make it so your orders avoid customs clearances while providing exceptional margin savings and rapid shipping windows to compete with companies abroad.
Leverage. It’s not just something you need to make a seesaw work. Working with a 3PL can get you leverage with the major shipping carriers that lends to lower overall delivery costs. Naturally, every major shipping carrier has its own guidelines, pricing structures, and shipping services. But in general, 3PLs have economies of scale that allow them to get discounted shipping rates they pass on to you.
Plain and simple: 3PL technology can save you time and money. At ShipMonk, on the ground we utilize an array of fine-tuned fulfillment technology to pick, pack, and ship items faster while still maintaining accuracy. Our AMRs (Automated Mobile Robots), for example, work alongside our experienced 3PL team members to speed up order packaging times, which leads to shorter delivery windows. Meanwhile, our fully-integrated fulfillment software keeps your sales channels connected, real-time data transparent, and inventory tracking dialed into our 3PL facilities. All this allows you to get orders to customers efficiently and provides you with the info needed to make the best business decisions. The result of both is savings, which potentially lets you provide consumers with better offerings, like free shipping.
When Ship Gets Real
They say the best things in life are free. Shipping may not be the best thing in life, but when it’s free it certainly makes a customer’s day. More importantly, free shipping can help you court attention from the competition and convert a browser to a buy in the first place.
We hope this guide has helped you understand how offering free shipping can enhance your business, optimal ways for implementing budget-friendly free shipping, and tips for running an effective expedited shipping model in general. If you’d like the best 3PL partner to help you enact a smarter, strategic shipping model, contact us to get started.