How to offer free shipping without breaking the bank

When Amazon first offered free shipping for a minimum spend in 2002, it shifted the goalposts in online retailing forever more. 

Now, free shipping is the norm, with brands such as THE ICONIC, ASOS, Cotton On, Bonds and Adairs extending standard free shipping to shoppers. 

It’s a compelling offer for shoppers – and without it, they may cancel their purchase. Studies show that high extra costs such as postage costs are a key reason for abandoned carts. 

There’s no one-size-fits-all approach to offering free shipping. What works for one merchant may completely destroy the profit margins of another.

Here’s how to weigh up whether free shipping is a good choice for you – and which option to try:

1. Assess internal costs 

Free shipping sounds great, but it carries a business cost that retailers need to justify before simply introducing it as a blanket offer for all purchases. After all, absorbing the cost of free shipping within your business will prove costly over time.

So, start by having clear visibility over your internal business costs, including product margins, average cost of online orders and the actual cost of shipping, before you consider whether or not to introduce free shipping. 

Do this by reviewing the current domestic and international shipping costs based on the average size of an order to determine how viable this is, and whether it’s a sustainable option for your business. Here’s the Australia Post calculator to help you get started. 

2. Set a minimum order amount 

To avoid being out of pocket for postage, most retailers set a minimum order amount to qualify for free shipping. Otherwise, customers could make small purchases and get postage costs covered – which is a steal for them, but a loss for you.

Avoid absorbing shipping costs in your business by advertising a minimum order value to qualify, say $100. This can entice some shoppers to add items to their cart to get free shipping. In fact, 36 per cent of online shoppers add more items to their cart to qualify for the free shipping. 

Australian fashion retailer Blue Bungalow offers free express shipping for orders over $100. “In the fashion niche, it 100 per cent helps to bolster sales, as many people are happy to add another article of clothing to their basket to quality for free shipping,” says the retailer’s Leanne Lee. 

“This raises your average order, which in turn helps to cover the added cost for us, since we need to absorb the shipping costs.”

3. Build shipping into the purchase price

There are different ways to nudge your customer along the purchase pathway and, as marketers have long known, presenting the cost of an item including the shipping as an all-inclusive purchase will be perceived as good value. 

Do this by building the shipping cost into the price of the product and adding free shipping. For example, if a dress retails for $129 and shipping costs $9.20, selling it for $139 with free shipping will mean the cost of getting the dress into the hands of the shopper is clear in their mind. 

For Australian natural deodorant online retailer Pure Deo Co., selling products online in one category makes shipping costs tricky. “Consumers may be willing to buy deodorant once and pay shipping to try the product, but regular shipping expenses on top of your day-to-day product costs soon gets old,” says co-founder Nathan Favre. 

He made a slight price increase to the product and offered free shipping on all orders, with a single deodorant for $12.90 with free shipping. The switch saw a 100 per cent increase in purchases in the first month, with order counts growing month on month. “There’s no profit margin in this approach on its own, but we have confidence that our product will in most cases be loved and lead to repeat purchases,” he says.  

4. Offer free shipping on select items 

Another approach is to offer free shipping on some items, but not others. For example, you could apply free shipping only to items that aren’t as costly to ship, such as those that fit in small packages. Whereas large or bulky items that would cost more to ship could incur postage fees. 

David Jones offers free shipping on orders over $50, but bulkier purchases, such as TVs, furniture and beds, incur delivery fees. 

Alternatively, you could introduce tiered shipping options so that regular shipping is free, and express delivery is at an additional cost.

5. Use free shipping as a promotional event 

If your sales are lower earlier in the week, promoting free shipping for these days can entice shoppers to spend, which will even out the peaks and troughs in trade. Or, you could introduce a free shipping code for long weekends to boost sales, which could turn window shoppers into paying customers. 

Get the word out to your database via email marketing, or utilise your Facebook page and other social media channels to reach your audience with a free shipping code that can be added to your cart when completing a purchase.