An e-commerce business that is able to offer free shipping has a significant advantage over competitors. According to JungleScout’s 2023 Consumer Trends Report, the top three reasons people shop online are due to convenience, fast shipping, and free or low-cost shipping. However, there are pros and cons to free shipping, depending on your business goals and mindset.
[Read more: 5 Unavoidable Costs E-Commerce Businesses Often Overlook]
Pros of offering free shipping for your e-commerce business
Offering free shipping can be a smart strategic move for your e-commerce business. These benefits can help both the customer and business alike:
- Reduces cart abandonment. High shipping costs are a common reason for cart abandonment. By offering free shipping, you increase the likelihood of customers completing their purchases.
- Encourages higher conversion and sales rates. Free shipping can act as a powerful incentive, motivating customers to make a purchase they might have otherwise hesitated on. This boost in conversions leads to increased sales and revenue.
- Allows for greater customer choice and satisfaction. Free shipping offers customers more flexibility in choosing products based on their preferences, rather than being driven solely by shipping costs.
- Boosts customer loyalty and brand recognition. Providing a perk like free shipping can create a positive impression and strengthen customer loyalty. Satisfied customers are more likely to return for future purchases and recommend your brand to others.
- Sets you apart from competitors. In a competitive market, free shipping can differentiate your business and serve as a compelling selling point, attracting customers who prioritize cost-effective shopping.
Cons of offering free shipping for your e-commerce business
While offering free shipping has its advantages, it also comes with some notable drawbacks to consider:
- Increases costs (both for you and for the customer). Providing free shipping means absorbing the shipping expenses yourself, which can strain your profit margins. Alternatively, passing these costs onto customers by raising product prices might deter price-sensitive shoppers.
- Poses logistical challenges. Efficient logistics and inventory management are required to ensure timely deliveries without incurring excessive expenses. Handling shipping complexities like international orders or peak season rushes can be particularly challenging.
- Can worsen the customer experience. Opting for budget shipping methods to offset costs may result in longer delivery times and a less satisfactory customer experience. Delays and damaged goods can lead to customer frustration and negatively impact your brand’s reputation.
- Can pose sustainability issues. Offering free shipping may entail frequent and smaller shipments, which can increase your carbon footprint. Balancing sustainability efforts with the desire to provide free shipping can be a delicate challenge, especially as consumers become more environmentally conscious and want to see the same from the businesses they patronize.
[Read more: 10 Eco-Friendly Packaging Options for E-Commerce Business]
High shipping costs are a common reason for cart abandonment. By offering free shipping, you increase the likelihood of customers completing their purchases.
Is free shipping right for your e-commerce business?
Offering free shipping can be effective for high-volume shippers with consistent product dimensions and weights. However, businesses with a variety of products or a low volume of requests should consider alternative strategies, like limited free shipping offers or minimum order requirements.
It can be helpful to view free shipping as a marketing expense for short-term gains or as a long-term business cost. By treating free shipping as a marketing tool, businesses can reach for a more favorable return on investment than other advertising expenditures provide.
How to offer free e-commerce shipping
Free shipping is a powerful tool for attracting customers. However, achieving the right balance between customer attraction and profitability requires strategic testing and consideration of key factors.
- Know your costs and profit margins. To offer free shipping while staying profitable, understand your shipping costs and profit margins. Keep in mind that your costs will be different if you mostly ship internationally rather than domestically.
- Look into local shipping options. Investigate local shipping providers to secure better rates than standard retail pricing. This can significantly reduce your shipping expenses and help maintain profitability.
- Streamline your packaging. Minimize shipping costs by optimizing your packaging. Choose materials that protect fragile items without adding unnecessary weight. This approach can save money on shipments, in turn enhancing profitability.
- Consider partial free shipping. Explore options like free shipping on orders exceeding a certain amount to boost average order values and profitability.
Understand that free shipping may not always be profitable; sometimes it's a loss leader to build market share, while in other cases, it boosts profits. Ultimately, while offering free shipping can attract customers, you must ensure that it doesn't lead to significant financial losses for your business.
[Read more: How to Choose E-Commerce Shipping Software]
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
Become a small business member and save!
Become an integral voice in the world’s largest business organization when you join the U.S. Chamber of Commerce as a small business member. Members also receive exclusive discounts from B2B partners, including a special offer from FedEx that can help your business save hundreds a year on shipping. Become a member today and start saving!
