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Online shopping has become extremely popular over the last few years, with customer expectations evolving in parallel. There was a time when free shipping was a competitive point of difference. With the change in consumer thinking and perspective, they now expect free shipping once they’ve paid a certain dollar figure for a purchase, if not for every order. They prefer stores that offer free shipping over those which charge a shipping fee.
And although free shipping may only seem attractive for a customer, businesses also stand to benefit. So how can free shipping help boost your sales and grow your business? How can you offer free shipping and calculate the breakeven cost? Find all this and more in the upcoming sections.
The importance of free shipping cannot be underestimated, especially when one considers the statistics. According to Statista, as of November 2018, 63% of online shoppers in the United States abandoned their carts because the shipping costs were too much. A study by Jungle Scout revealed that 66% of American consumers expect free shipping on online orders, whereas almost 80% expect free shipping when ordering a specific dollar amount on online products.
This shows that free shipping is paramount to reducing cart abandonment and increasing conversion rates. But this ‘free’ shipping is free just on the part of the consumers; you will have to cover it in some form. With the proper strategic planning, however, this can be done and offering this incentive to customers will eventually help your business. Start improving your customer experience with a great delivery strategy.
There are several benefits of offering free shipping to your customers:
Boost sales — Free shipping is a great way to boost sales since customers will automatically prefer you over other businesses that impose delivery charges, increasing the number of orders you get and boosting sales.
Brand loyalty — Even if you do not offer free shipping on all orders, you can give this incentive to customers if they join a loyalty program or become an annual member. In adopting a customer-centric approach such as this, people are willing to pay the annual loyalty or membership fee in return for some perks that also include free shipping.
Create a competitive edge — If your competitors charge an amount for delivery and you offer free shipping, it will help create a competitive edge for you and help you outcompete your rivals as people always prefer free shipping sites when shopping online.
Repeat orders — If customers had a good experience shopping with you once, they are less likely to look elsewhere. They will come back to you for their subsequent purchases as they know they can expect free shipping for their next orders.
Some might argue as to whether offering free shipping is better or having discounted prices. Each has its set of pros and cons.
- Leads to more orders
- Increases brand loyalty
- Makes you stand out among competitors
- Fewer requests of returns and refunds
- Enables you to charge the exact delivery cost as incurred by you
- Can have greater returns/refunds requests
- Can cause extra costs if minimum threshold is too low
- There is a psychological preference of customers where they may not opt for products with delivery charges
As discussed earlier, free shipping is not exactly free; sellers are able to offer it by absorbing this extra cost. One way would be to increase the overall prices of the products so that the shipping cost is actually included in the cost of the product. This gives shoppers the impression that they are being offered the additional perk of free shipping. Another potential method is to set a minimum order amount, where customers are rewarded with free shipping if the cost of their order exceeds this amount. In this way, shoppers are encouraged to add on another item or two, in order to meet the minimum order required to qualify for free shipping. This leads to increased orders and higher average order values which ultimately translates to a greater profit margin.
If you are offering free delivery in online shopping, it is important that customers are made aware of it when they visit your website. This way, they know from the start that there are no delivery charges and thus, they decide to order from you. One way to announce this is on every page of your website as a headline so that it is bound to catch the user’s attention.
When offering free shipping, you have to consider how you will absorb these costs as the business owner. Since setting a minimum threshold seems to be the most obvious choice, it is important to determine the breakeven threshold above which you will not charge delivery costs.
To calculate this minimum breakeven threshold, you have to consider the following factors:
The average order value (excluding any delivery charges)
The average costs you incur on shipping and delivery
The gross profit margin
Once you have determined the above-mentioned numbers, you can then propose a minimum cart value above which you will not charge for delivery. You don’t want this minimum threshold to be too high than the average order value or risk losing customers. But it also shouldn’t be a lot lower than the average order value as this would mean most customers would be able to qualify for free shipping on all orders, and you would end up making a loss.
To optimise your business operations, it is a good idea to outsource to a 3PL provider like DHL, who are shipping and fulfillment experts. DHL Express is a reliable delivery partner who will pick and ship products to your customers. For more information about how DHL Express can be beneficial when exporting internationally, apply for an account with us to start enjoying the benefits of MyDHL+.