Ecommerce Fulfilment: Should You Offer Free Shipping?

The continuous growth of online shopping has led to an increasing number of online sellers outsourcing their ecommerce fulfilment to companies like VBS Logistics. While outsourcing can help businesses free up time and reduce operational costs, passing on the expenses to customers by charging for delivery can be a tricky decision to make.

So, should your business offer free shipping? To help you decide, we’ve put together a comprehensive guide to the factors to consider.

When You Should Offer Free Shipping

Cost Calculations Show It's Worth It

When considering whether to offer free shipping, it's important to evaluate the impact on your bottom line. If your net profit per order, after deducting the cost of products, fulfillment fees, and delivery charges, is still acceptable to you, offering free delivery is a no-brainer. It's no secret that customers love free delivery, and it's highly likely that your sales will increase if you offer it.

However, if you're unable to afford free shipping, you may want to consider other options. For example, you could offer a reduced delivery fee that your customers feel is reasonable, or provide free shipping for lower-cost options such as 3-day delivery while charging a premium for next-day delivery.

Another option is to offer free shipping but increase the price of your product by a small amount. This could be a more profitable strategy, especially on marketplaces where consumers filter their search by including only sellers who offer free shipping. By increasing your product price, you can cover the cost of shipping while still providing customers with the incentive of free delivery.

Your Competitors Have It

If your competitors are offering free shipping, it may be challenging to remain competitive without offering it yourself. Amazon has set the industry standard for free or very cheap delivery due to its substantial volumes and buying power. While your business may not directly compete with Amazon, consumers have grown accustomed to this trend, and they may opt to purchase from sellers who offer free shipping instead of those who charge for delivery.

To ensure that your business stays relevant in a market where free shipping is expected, consider implementing strategies like offering free shipping on lower-cost items or reducing the shipping fee to a level that your customers deem reasonable. You could also explore other promotional tools such as loyalty programs that offer free shipping to frequent customers. Regardless of the approach, it's crucial to keep an eye on your competitors' offerings and pricing to ensure that you stay competitive and meet your customers' expectations.

When You Shouldn’t Offer Free Shipping

Costs Are Too High

Shipping costs are often the highest proportion of order fulfilment fees, making it challenging to offer free shipping without affecting your bottom line. However, there are several ways to reduce shipping costs, such as negotiating better rates with carriers, optimizing your packaging, and using a third-party logistics provider. You could also consider offering free shipping only for orders above a certain threshold, which can encourage customers to purchase more items and offset the shipping costs. Alternatively, you could offer a flat shipping rate that is attractive to customers but still covers your costs. Whatever option you choose, make sure to communicate the shipping policy clearly to your customers and factor in the shipping costs when pricing your products.

All Your Competitors Charge a Shipping Fee

If your competitors charge a delivery fee, customers buying your products expect to pay for delivery as well. However, that doesn't mean you can't differentiate yourself by offering a more convenient or faster shipping option, such as same-day or weekend delivery, or by providing more tracking and communication during the shipping process. You could also bundle your products with complementary items or services that your competitors don't offer, such as free gift wrapping or extended warranties, to make your offering more compelling to customers.

Use Free Shipping as a Promotional Tool

Offering free shipping as a promotional tool during quiet periods of the year can attract more sales, but it should be part of a larger marketing strategy that includes email campaigns, social media ads, and other tactics. You could also offer free shipping for a limited time to celebrate a product launch or a company milestone, or as a reward for loyal customers who have purchased from you multiple times. However, make sure that the free shipping offer is financially sustainable for your business and doesn't erode your profit margins.

Free shipping is no longer just a marketing tactic; customers expect it. Carefully consider whether it's possible to work free shipping into your business model. The best way to assess whether your sales will increase by offering free shipping is by conducting an A/B test. Nearly all shopping carts provide A/B testing, so have two checkout pages: one with a delivery charge and one offering free shipping, and analyze the results after a month. Keep in mind that A/B testing is just a starting point, and you should also monitor the customer feedback, return rates, and lifetime value to determine the true impact of free shipping on your business.

At VBS Logistics, we understand the importance of cost-effective ecommerce fulfilment solutions for businesses of all sizes, including small or start-up businesses.

We can help you decide on the best fulfilment options that suit your business and your customers' needs. Contact us today to discuss your fulfilment needs and see how we can help your business grow.