Can You Offer Free Shipping Without Risking Your Profit Margins?

Selling online is currently more competitive than ever, and with companies like Amazon driving expectations, that competition is becoming especially prevalent when it comes to shipping. As if same-day deliveries weren’t pressure enough, many customers also now expect free shipping as standard. Unfortunately, for small businesses, this can seem like an impossible goal to achieve.

After all, nothing in life is truly free, and if your customers aren’t paying for shipping, then you inevitably will be. The high costs to your business could be potentially devastating, and yet, countless smaller brands seem to manage free shipping with ease, enjoying benefits like a 70% lower incidence of cart abandonment as a result. So, how do they do it?

You certainly can’t breeze into free shipping without thought. But, we do have some suggestions that could bring this impossible pipedream into a financially viable, and ultimately beneficial, business reality. Keep reading to find out what they are.

# 1 – Always Have a Free Shipping Threshold

Not even Amazon offers free shipping without a threshold. Generally, this benefit is in place only for Prime customers (who are technically already paying for the benefit through monthly subscriptions) or for purchases over a certain dollar amount. These limitations become even more obvious on the websites of smaller businesses, which may have far more stringent thresholds in place. Taking steps to do the same ensures that free shipping is always a sensible business choice, rather than a financially questionable one.

But how do you settle on a threshold that actually works for you? The complicated answer is that you need to understand how much shipping actually costs, which involves some pretty complex sums about gross profits, product cost, and so on. We’ll leave that work to your accounting team, but there are simpler approaches once the maths is in order.

For instance, most brands offer shipping on orders over a certain amount, while others only offer free shipping on selected items. This ensures that you can offset some shipping costs or make sure that your profits easily cover that financial hit.

# 2 – Reduce Shipping Outlays Where You Can

If you’re offering free shipping on items that you pack by hand and send individually via a premier courier, then you’ll probably lose money even with thresholds in place. Luckily, this isn’t your only option.

In actual fact, there are plenty of ways to reduce shipping costs in your company, any of which can bring affordable free shipping within easier reach. The most obvious option here has to be outsourcing e-commerce fulfilment, which will see you outsourcing responsibilities like storing, packing, and shipping your products, often with benefits like next-day delivery. Sounds expensive, right? Or perhaps not when you consider that this complete service saves you from the need to hire dedicated packers or work with independent couriers for a high price per package. In fact, when you split those fulfilment costs, you should find that you can offer premium shipping for a fraction of the price, along with all of those other services. And that makes the blow of free shipping a whole lot easier to manage.

Other methods for reducing shipping costs include everything from simply making sure to keep your packages lightweight and as small as possible, to consolidating orders and signing contracts with dedicated couriers. In each instance, costs go down, and free shipping losses drop off along with them.

# 3 – Consider Increasing the Price of Your Products

This may be a controversial point, but hear us out. Remember when we said that nothing is free? Well, the same is often true for free shipping, which customers often end up paying for with slightly higher product costs that absorb that profit hit. Does this mean that you can slap an extra $10 on each item and still secure custom? Absolutely not. But, you’d be surprised how many people would be willing to pay incrementally more when a product has a ‘free shipping’  benefit attached.

The most important thing to note here is that you can’t be so obvious as to directly translate shipping costs onto product price tags. But get smart, and be realistic about how much more you’d need to charge to cover shipping costs overall. It’s especially important not to aim for profits here – that’s not the point, and it won’t work. The money you add should solely go towards affordable shipping solutions, which you can still take steps to minimalism using the pointers above.

It’s important to realise that this is also a matter of psychology. It might seem cheeky to ask for more than market norms, but pushing your free shipping benefit right away (via page banners, on-page product descriptions, etc.) should still see those sales rolling in.

# 4 – Use Free Shipping as a Loyalty Incentive

Many brands, Amazon included, also use free shipping as a loyalty incentive. This makes complete financial sense, as the overall lifetime value of customers who get onboard will more than cover the small losses you face on shipping in the moment.

Amazon’s approach to this predicament comes from offering a subscription service that sees customers paying a set monthly amount for free postage. It’s cheeky, but it works, and it’s often still a bargain for customers who place multiple monthly orders. Getting away with something similar is undeniably harder in a smaller business enterprise, but you might still find that dedicated customers are willing to pay a small monthly subscription price to bring free shipping within reach.

More likely, however, you may want to use free shipping as a dedicated loyalty incentive. Free shipping on repeat purchases is common, for example, or brands might offer free shipping benefits to customers who recommend their friends using a referral code. In each instance, you’re ultimately earning more to cover that lost cost.

Free shipping sounds expensive, and there’s no denying that it can be if you aren’t careful. Ensure you can work around those high costs using these essential tips.