Free Shipping – Is It Worth The Cost?
Free Shipping. It seems like most sites offer it, so it must work to increase sales, right? I know that I’ve added additional products to my cart so that I could get free shipping. And I know of others that have done so, too.
All the big sites offer some form of free shipping, don’t they? In checking the web, I see the following free shipping promotions:
- Amazon.com provides free 2-day shipping to students for a year
- EddieBauer.com is offering free shipping on any order that includes an outerwear purchase
- WalMart.com offers free shipping if you have the product delivered to one of their stores
- BackCountry.com ships all orders over $50 for free
- Sears.com has free shipping for orders over $99
So, free shipping appears to be alive and well, as long as the shopper meets some requirement. In trying to find some hard data regarding the relationship between free shipping and sales, I found that merchants could see sales increases of about 15% to 20%, which is pretty awesome! But, of course, that increase comes at the price of swallowing the shipping costs.
The real question then becomes not whether free shipping increases your sales, but does it increase your profitability or get you new customers? This is where you get the answer “it depends.”
One article that provides some real data on the viability of free shipping was from F. Curtis Barry & Company. It is clear from their research that you will need to do some testing on your own to ascertain if offering free shipping will increase your profit. The article points out the following facts:
- The majority of the free shipping offers were tied to minimum orders.
- 80% or more of all major businesses offer free shipping in some form during the Fall and Holiday seasons.
- Raising prices on unique or exclusive merchandise could cover the cost of free shipping.
- One merchant indicated they saw a better increase in sales by offering a 20% discount instead of free shipping.
- There is a lot of concern in the industry that free shipping is conditioning the customer to expect never to have to pay for shipping and processing.
The bottom line is that you’ll have to evaluate not only your position in the market, but also that of your competitors. If they are offering free shipping, you may need to do the same to remain competitive. If they are not offering free shipping, then it could be a competitive advantage to you to have it as an option. You will then need to decide which restrictions are necessary to ensure the shopper purchases enough so that your overall profit is increased when offering free shipping.
Next time I’ll cover how to set up Free Shipping using ShopSite.
Good points. I agree that the correct way to go about this decision is to analyse your sales and shipping data. And sometimes, you just have to experiment with a few different approaches.
One of the Shopsite merchants that we work with was offering free shipping for orders above $50. But then, after doing some data analysis, they realized that their average order size is much above $50. So, they decided to try out a limited time offer of “free shipping on all orders”. The experiment is still going on, but as of now, the increase in sales caused by this new offer offsets the increase in shipping costs they have to eat. Net result is bigger sales and higher profitability.
For merchants, the first step is to start tracking the sales and shipping data at a granular level so that you can do similar analysis on it. Not every merchant does this very well. Shopsite has good reports on order history etc. Merchants should be tracking their actual shipping costs too in a similar fashion.
I don’t want this to sound like a sales pitch. But we offer an add-on that will allow merchants to keep track of their shipping more accurately and run some analytics on it.
I believe firmly in data-driven decisions for any business, and collecting data is the first right step towards that direction