It seems that there’s always pressure for you to add just one more promotion to keep up with your competition. Coupons, samples, referral and rewards programs—the struggle to carve more and more dollars from the same consumer group never ends. Lately, ecommerce businesses large and small have been taking cues from the major players in the retail industry like Amazon and Walmart by offering their customers free shipping. And while offering your customers free shipping can be a wonderful way to entice sales and increase the size of those shopping carts, it can cut into your profit—unnecessarily so. So before you jump on the bandwagon and agree to absorb those shipping costs, make sure you understand the 4 most costly ‘free shipping’ mistakes and how to avoid them.
Mistake #1: Not Testing the Value to Your Customers
Even as Amazon and the other global retailers are quick to showcase the virtue of their free shipping programs, you have to be wary of the hype. Will your customers even recognize the value you’re offering them or would they appreciate a different, less costly promotion more?
It seems contrary to logic that a consumer would forego slashing freight charges at the checkout for a 10% or 20% discount on merchandise but that’s exactly what David Kravetz, cofounder of Fairytale Brownies, discovered when he split tested promotional offers at his Phoenix-based bakery. Almost twice as many paying customers opted for the upfront discount as opposed to the cut-rate shipping. Why did they do so? Kravetz says that many of his customers spotted the value of the discount and in order to maximize their savings actually increased the size of their orders over the average. What’s more, his business was able to absorb the cost of the bulk 20% discount more easily—thanks to snappy profit margin calculations—than forking out cold cash to a third-party for freight fees.
Mistake #2: Not Showcasing The Value
With so many companies offering free shipping (at least on orders at or above a defined threshold) consumers have become desensitized to the savings they’re enjoying. Shipping charges are not incidental—they can add up, especially on bulk orders. As such, the amount of money your customers are saving can be substantial. The last thing you want to do is let them forget that.
Sure, most online shopping carts already highlight the shipping charges (even when they’re waived or refunded), but you may want to take that message even further by adding a note in your receipts. A simple “you saved $X today!” reminds customers in dollar amounts how much you value their business.
Amazon is an excellent example in this regard. Their online checkout process includes a step during which customers are reminded that they can get free shipping if they just add a few more items to that shopping cart to push the purchase price above a relatively comfortable threshold. This not only showcases value but also encourages more sales.
Mistake #3: Setting Poor Purchase Thresholds
Even the massive online retailers set limits on their generosity. Customers’ orders must reach a certain threshold in order to qualify for free shipping. That’s to ensure that the business is recouping at least enough to break even on the sale (and hopefully make a profit). While many waive this during peak shipping times (such as Black Friday weekend or even the entire holiday season), these thresholds are socially acceptable to the customer (and even often expected) as well as necessary to safeguard your profit.
However, if you set your business’s threshold too high or too low you’re doing yourself a disservice. If you set the threshold too low, you’re not only cutting into your profit, you’re not showcasing enough of a value with your promotion. If you set it too high, the customer may become reluctant to hit the threshold, perhaps thinking that it’s just a gimmick to get them to buy more.
Depending on the type of business you’re in, a $25 to $50 free shipping threshold is probably a good balance between the two extremes. The number should be slightly above your average sale in order to boost profits but not so far that it alienates your core consumers.
Mistake #4: Going ‘Fulltime’
As mentioned above, most big time retailers only offer free shipping during certain times of the year. Doing so acts as a solid promotion to entice sales but limits the financial impact on your quarterly/yearly profits. However, when to offer free shipping and how long to do so are very business-specific.
For example, direct to consumer retailers like Land’s End, Radio Shack, and Bass Pro Shops are keen to offer free shipping during the Christmas shopping season to light a fire under those holiday shoppers. However, if your business is niche specific (such as Halloween decorations, costumes, etc.) your business may peak other times of the year (such as in October).
Likewise, adjusting the length of the promotion can have dramatic effects as well. Offering free shipping over the course of a long weekend can help you create a concentrated promotion with the added urgency of a time limit. Spreading that timeframe out to weeks or even months may net you longer lasting results but it’s unlikely you’ll get those furious spikes in sales that can be so invigorating. The key to finding your business’s own “sweet spot” is combining what you already know about your cyclic sales trends with a little trial and error.
Low Cost Shipping Options
Of course, if you do choose to offer free shipping, the easiest way for you to minimize the financial impact on your bottom line is to find a shipping service that offers affordable rates to begin with. The United States Postal Service® has been the go-to carrier for decades with a long-standing history of reliability. You can protect yourself by getting the best shipping rates possible and additional discounts, by using an internet postage provider such as Endicia to help you maximize your integration with the USPS. Doing so will ensure you maintain that high level of service and satisfaction your customers have come to expect while enjoying more favorable rates and higher profit margins.