The Holy Grail of Free Shipping and How to Apply it to Your Business

There is no doubt about it, free shipping is the holy grail of online commerce. You only need to look at Amazon Prime to see this. Amazon net shipping costs were more than $1 billion per quarter in 2014. They chose to subsidize shipping heavily as part of their growth strategy –– very heavily in my opinion.

Pitney Bowes published their 2015 Holiday Shipping Survey in the last week and it makes for an interesting reading. Here are some of the more relevant and poignant points:

• 93% of consumers say shipping options are an important factor in their online shopping experience (up a massive 24% from 2014)
• 88% said that free shipping with 5-7 day delivery time is more attractive than paying a fee for 1-2 day faster delivery
• 3 in 5 consumers have increased their total spend in the past to qualify for free shipping
• 68% have used a free shipping coupon code

Given all of these data points, what’s interesting is that only 22% of merchants feature information about their shipping policy on their homepage. My advice –– go fix that. So, if 9 out of 10 of your customers are considering this, as the data suggests, then you need:

1. To indicate current shipping promotions above the fold on your homepage
2. A link on your homepage detailing your shipping policy, not just around pricing, but time in transit, returns policy and even the carriers you are using if possible
3. Careful thought about what your shipping policy should be –– write it down and flush it out, make the numbers work

Free Shipping is Tough

But, here is the issue: how exactly does a merchant make money in this scenario? Free shipping, particular in the U.S. and Australia is very hard to do –– and Amazon is proof that businesses need a pretty big financial reserve to make it work.

At ShipperHQ, we have dealt with merchants facing this conundrum for a number of years, and we have seen a number of solutions to the problem. We have assisted many thousands of merchants in their setup, so let me share with you my recommendations with you on how to tackle this issue.

Consider the Space in which you Work

As a merchant, you need to think about your market sector, your competition and the space in which you play. You might not need free shipping. This is especially true in the B2B space, where what might be more important is accurate dimensional based pricing.

If you have customers that are loyal to you, they will appreciate you passing on your negotiated rates to them and giving them the choice over urgency of delivery. If you are competing based on product price, then it may be that you have no ability to absorb free shipping costs. It’s all about information accuracy, and using multiple carriers where required so you can offer the best and cheapest service.

Decide if Shipping is a Marketing Expense or COGS

This plays into my comments above. You need to decide whether shipping is part of your costs of goods sold, or whether it’s a marketing expense. Or, maybe it’s a combination of both. Do free shipping and related shipping promotions drive your sales up enough that you can justify it partly as a marketing expense?

Offer Free Shipping to Limited Regions

As a starter, I’d say in the U.S. you should limit free shipping to the U.S. 48 contiguous states. Alaska, Hawaii, Puerto Rico –– sorry you are out of luck. People in those places expect to pay extra for shipping.

APOs and PO Boxes are other areas for which you can switch off free shipping. If you take a look at Jet.com they follow this policy. Copy it.

Surcharge Your Expedited Rates

We know how this works. We go to a store advertising free shipping. We shop. Then, we get to checkout and find out it’s going to take 10 days to deliver. Amazon is the master of this. They will purposely hold the shipment back for a few days if its free –– and how frustrating is that!

The reasoning is that, by this point, we are committed to the sale. We’ll then think, “Oh, another $10 bucks I could get this faster.” This where your opportunity lies. Surcharge the expedited. There will be a segment of customers (especially as the holidays get closer) that will pay extra to get it faster. This surcharge can offset the free shipping you are offering other customers.

Take a Monthly View

Some merchants want to look at every single order and ensure they make a profit. In some cases that’s necessary. But I’d say in most cases, taking a monthly view is a better option.

You win some, you lose some. It’s an iterative process. You should understand your shipping rules and be able to correlate what’s happening with your charges against your own policy. At the end of the month –– are you happy with the results?

Show Delivery Time

People are becoming more and more impatient. And, more and more used to having readily available information. For example, I order a pushchair from Europe. Just when is it going to arrive? Having that estimated number of delivery days, or an expected delivery date, is becoming more important.

Once you have that, you can then have more leverage around upselling faster services. It’s my belief that offering “Next Day Delivery” with no actual information about whether that means tomorrow or next week will soon be a thing of the past. People are much less tolerant now, and they have greater choice to shop elsewhere.

Offer Free Shipping after Conditions Met

Try pushing up your minimum order price to qualify for free shipping. Does it affect sales? Maybe. Run an A/B test to see what the impact is.

You can advertise free shipping on your site, but qualify that it only applies on your small goods, a certain category or maybe you want to just offer it on your big ticket items.

Promotions

We all love a promotion. Does it need to be free shipping? I don’t believe it always does. Maybe you publish list rates for UPS, but then offer 20% shipping discount to your returning customers via an email campaign. Or, just charge shipping on the highest value goods. For example, if I buy a kayak, I might pay shipping for that, but any other goods in the store ship for free. There are many, many combinations you can do here which give customer reward and encourage a higher dollar price.

Using a Shipping Solution

Now that you’ve started thinking about all of this, you may be wondering how you can achieve it. Well, I have just the solution: ShipperHQ.com. It’s the most advanced shipping rate calculation and manipulation platform in the world and is all about the rating.

Many platforms out there will focus on that label, the last mile, first mile and all around fulfillment. But they don’t care about the customer experience, and frankly they should because that’s where it all starts. At ShipperHQ, we do care. We put the merchant front and center. There is no right solution here –– its merchant specific. With knowledge and the right partner, you can achieve what you need for your store.

Shipping is pretty interesting, and it should be a big part of your online strategy. Remember though: it’s your cart, your shipping and your rules. Be agile, learn, improve and iterate.