The ongoing expansion of e-commerce allows entrepreneurs to reach consumers across the U.S. If your product is appealing enough, you can now compete for customers with retailers of virtually any size.
One advantage that larger online stores have over smaller rivals, though, is the ability to invest in a variety of initiatives and promotions that provide them with a significant edge. A free shipping offer, for example, is typically the determining factor between a successful sale and an abandoned cart, but many small business owners don’t think they can afford to give up the revenue that shipping fees can generate — much less absorb those fees themselves.
Online shoppers, though, prefer free shipping to any other offer, including expedited shipping. In fact, it’s the best sales closer in the e-commerce world — twice as effective as a percentage discount offer. The promise of free shipping draws shoppers online and keeps them coming back to specific outlets. Better yet, it also increases individual purchase totals — assuming it’s done right.
Assuming a free shipping offer makes sense for your business, here are the three most common types used by large and small online retailers.
Free shipping with strings attached
Setting a minimum purchase threshold can ensure that you can afford the shipping costs. Determine how much customers need to spend per order to cover shipping costs while still maintaining your profit margin, then test that (and other levels) until you find the optimal balance between total sales and average order amounts. Another option is to reward customers with a free delivery after a specific number of purchases and/or on orders within a certain time span.
A limited-time offer can also help you drive more sales (or at least better compete) during high-volume shopping periods, especially the holiday season. A lot of holiday shoppers refuse to place orders if they’re charged for shipping, which is why practically every retailer offers free delivery in some form or fashion at that time. Combining your offer with a minimum threshold will help you stay competitive while protecting your bottom line.
Pre-paid shipping programs
In exchange for a monthly or annual fee, programs such as FreeShipping.com and Amazon Prime give consumers free order deliveries at hundreds of retailers and/or on millions of products. Members are assured of easy, year-round access to free shipping, which gives them the confidence to place more orders, and they typically enjoy a robust suite of other money-saving benefits that further entice them to shop through their chosen program.
As a participating retailer, you’ll benefit because a third party will pay your customers’ shipping fees. Your products will also be exposed to a wide audience of qualified, eager consumers. These members have voluntarily invested in shopping through the program, so they’re highly motivated to do so. They’re also more likely to explore innovative stores and products through the program, which will help you grow your customer base.
Unlimited free shipping
Offering free shipping without strings or restrictions automatically eliminates the biggest obstacle to closing online sales (in consumers’ eyes). It will also put you on par with (or, more likely, ahead of) your competitors in this area. However, this option only makes sense if your business can cover the shipping costs through:
- The increased sales volume generated by the offer;
- Your current overall profit margin; and/or
- Your current (or adjusted) product prices.
This option is usually the sole realm of large, deep-pocketed retailers, because it carries the highest costs and risks. (Of course, it also offers the greatest potential rewards, i.e., more sales, higher purchase totals, and greater loyalty.) Unless you have substantial funding upfront, you should probably hold off on unlimited free deliveries until you have a reliable, replicable, profitable business firmly in place.
E-commerce offers entrepreneurs the opportunity to reach large numbers of customers quickly and efficiently. Online shoppers have consistently objected to shipping charges, though; to attract and retain them, you’ll therefore need to figure out how to deliver your products at no visible cost to them. Fortunately, a well-designed offer can pay off for you and your customers in the long run.
