Free Shipping: Good Idea or Unnecessary Expense For E-Commerce Businesses?

With more entrepreneurs trying their hand in the e-commerce marketplace, businesses are doing everything they can to stay competitive. That’s one of the reasons the “perk” of free shipping has become an expectation among many online consumers.

Free shipping, so named because the vendor takes all of the cost, can severely cut into the profit margins of small- and medium-sized businesses (SMBs). However, clever enterprises are finding ways to offset this cost and maintain the market benefits of offering free shipping.

Require a Minimum Purchase for Free Shipping

A recent study conducted by UPS and comScore called the 2013 UPS Pulse of the Online Shopper, concluded that three out of four shoppers would add items onto their order to qualify for free shipping when that option is offered. The shipping expense, therefore, is offset by increased sales volume.

According to the study, delivery options can be a primary reason for not shopping online or for shopping cart abandonment. The research showed 44 percent of online customers abandoned their purchases before checkout due to shipping times alone. This number has increased since 2012 and will most likely continue to rise as businesses partner with fulfillment companies for faster shipping.

Some e-commerce businesses attract customers by offering quick delivery times. They operate with extensive fulfillment networks to ensure faster turnaround than the competition. So, free shipping isn’t the only way to provide consumers with incentive.

Tips on Knowing What the Customer Wants

How can retailers figure out which delivery options their customers want? Multichannelmerchant.com has a few tips:

• Invest in traffic monitoring and shopping-cart analytics to understand why and if customers are leaving. Are these customers exiting the site when they see free shipping is not an option?
• Poll the customers. Ask what shipping options draw them to other stores, or rather, which shipping options do they expect?
• See what competitors are doing. If your customers can go to other sites for free shipping, a method of competing with that offer must be provided.

Innovative Ways to Save Money on Shipping

Knowing what your customers want is the first step, but making sure you’re not cutting into your profits is the second. Here are a few ways to get innovative with shipping options and save money:

• Correlate fee structures and delivery models. If an order cannot be shipped on the same day, consider giving cheaper shipment options that allow lower or no-cost shipping fees.
• Think outside the box. If free shipping is not possible financially, tie it to a promotion. Reward customers with a shipping perk if they share or promote their purchase with friends or through a social networking site.
• Test out shipping options before the holidays. Can the business handle high-traffic fulfillment? If so, prepare free-shipping promotions during November instead of giving out discounts in other areas.
• Returns are important, too. If you offer a hassle-free return policy, promote it — that’s a valuable perk for customers.
• Offer multichannel options. Customers like the ability to pick up items in store that they purchased online. The same goes for returns.

Buy Postage Online

Another method of offsetting shipping expenses is reducing postage cost. Many e-commerce companies choose to buy postage online for that very purpose.  Outside of saving money, here are three benefits of buying postage online:

1. Easy to access, edit and print
2. Simple to print stamps from any PC—if you have access to the Internet, then you have access to postage
3. Effortless to track expenditures—depending on the online postal service you choose, you can view detailed expenditure reports online

Despite all the creative business ideas of the digital age, many e-commerce companies keep it old school; they provide a quality product at a fair price and estimate customer shipping. There are a number of reasons, however, that shipping calculators could be incorrect. For example, if the box is light yet has substantial volume, a shipping calculator would underestimate the cost, so the business would spend more money than expected. Free shipping simplifies the process for both the vendor and the customer. It won’t make your product any more useful, but it could make you the best option among several vendors with the same inventory.

Image by _rockinfree from Foter

About the Author: Steve Anderson operates a third-party logistics firm.