All online shoppers want free shipping and returns, but not all eCommerce businesses are able to offer it.
Once considered a perk, most people now expect free delivery and returns as standard—so much so that several studies have indicated that shipping costs are a leading cause of shopping cart abandonment.
For online sellers, however, free shipping is anything but free. Even Amazon spent $37.9 billion on shipping in 2019—that’s 23% of the company’s cost of sales.
So, the question isn’t if your online store should offer free shipping, but whether and when your business can afford it.
What to consider before jumping on the free shipping bandwagon
When you see successful online retailers offering free shipping and returns, take a moment to think before joining them.
Free shipping might increase sales, but it could kill your profit margin
A Walker Sands survey found that nine in 10 respondents named free shipping as the top incentive that would encourage them to shop online more often. But before diving in, you need to figure out whether it makes more sense to absorb the cost of shipping or raise your product prices slightly to cover the charges.
Either option will have an impact on profit margin, but it’s important to consider whether long-term gains will outweigh any short-term losses.
Here’s another way to look at it: what’s the lifetime value of any new customers you’ll acquire due to your free shipping offer? Is the ROI worth the upfront cost?
Related article: eCommerce Customer Loyalty: Seven Ways to Grow it
Your returns could skyrocket
Analysts estimate that roughly one-third of online purchases are returned. According to research from The Tuck School of Business, free shipping significantly contributes to this figure.
The reason: free shipping encourages people to spend more than they normally would. If a potential customer is undecided about an item, they’re more likely to purchase if you offer free shipping. This also means they’re more likely to send it back!
Related article: How to Write a Returns Policy: With Examples!
While those unused returned items can be resold, much of their value is lost as they move through the supply chain. Selling less-than-perfect products could ruin your reputation, so handle with care!
You could be leaving money on the table
Free delivery might be exactly what’s required to hook in more buyers, but it’s worth weighing up what you’d be losing by offering it to customers who would have bought from you anyway.
Offering free shipping is a great marketing tactic to encourage shoppers that are considering an item but not fully decided. For the ones that were intent on buying the product anyway, you’re simply giving them a freebie.
It’s very difficult to measure how committed customers are to buying your product. You can get some high-level indications by looking at the eCommerce metrics on your website. The time spend on product pages and then purchasing, for example. But in many cases you’ll only find out by testing and analyzing different shipping tactics.
How do some bigger retailers handle free shipping?
They might have substantially deeper pockets than most online retailers, but they’re still delicately balancing the allure of free shipping and returns, with maximum profitability. Let’s take a look at how some of the biggest online retailers in the world tackle it.
Amazon customers receive free shipping if their order includes at least $25 worth of eligible items across all categories, delivery of which will take place five to eight business days after all products are available to ship. Meanwhile, Amazon Prime members get free shipping with two-day delivery on eligible items, no minimum spend required.
Walmart, like Amazon, is a massive online retailer as well as being one of the biggest marketplaces in the world. It offers free two-day shipping on 2 million items on orders that are more than $35.
Related article: How to Sell on Walmart in Three Easy Steps!
Target customers who pay for their online order using the retailer’s RedCard get free shipping when they spend at least $25 on eligible items.
Asos offers free standard delivery to US customers on orders of $42 or more, while Premier members ($19 annually) get free unlimited two-day shipping with no minimum order value.
Nordstrom ships almost anything on its site to anywhere in the U.S. for free. In-stock items typically arrive three to five days after an order is placed.
Should you offer free shipping and returns on all orders?
Most online retailers are very careful when offering free shipping and returns on all orders.
Absorbing the full costs of all your shipping and handling, regardless of the order size, can make selling small ticket items extremely unprofitable. You’re gambling the cost of shipping an item entirely for free, without much of a reward.
Here are some points to bear in mind when setting your free shipping and returns conditions.
Site-wide free shipping is expensive
Determine the type of shipping service you want to offer and how much that will cost, then factor that into the cost of your goods. Can you absorb the cost yourself or will you need to raise your prices to make up for the charges? And if your prices do need to increase, will you lose existing customers? Remember, it’s cheaper to retain a customer than to acquire a new one.
Free delivery doesn’t make sense for certain items
Small lightweight items such as jewelry, makeup or small accessories are cheaper to ship than larger ones. But that doesn’t mean it makes sense to only offer free shipping on those items. Consider high-margin items that not only have a low shipping cost, but also enough markup to offset shipping fees.
Customers are used to free shipping thresholds
Let’s face it, free shipping on everything all the time isn’t sustainable. Setting a minimum order value can encourage larger orders and reduce risk. According to UPS, 48 percent of shoppers add items to their cart to qualify for free shipping.
Related articles: eCommerce Shipping: How to Boost Sales and Slash Costs
The bottom line
Thanks to Amazon, consumers expect fast, free delivery—and that’s unlikely to change any time soon. But it doesn’t mean that your online store has to offer it, too, especially if it’s going to hurt your bottom line.
That being said, the promise of free shipping and returns provides an incentive for first-time visitors to become paying customers. From there, focus on nurturing the post-purchase relationship and turn those new leads into loyal customers.
It sounds obvious but sending shoppers an order confirmation and thanking them for their business is a must-do. Go one step further and provide some value-added content they won’t expect to receive, such as a support manual, a how-to video or an ebook on a related topic.
Anticipate their needs
Contact customers a few days after delivery. Make sure everything went smoothly with their orders, address any common queries and ask if they need help.
Reach out regularly
Segment your new customers based on the data you have collected from them so far and send targeted emails that encourage them to return to your online store and spend.