eCommerce shipping strategies: when should you offer free shipping?

eCommerce Fulfillment
An icon of a paper aeroplane: a metaphor for eCommerce shipping.

In the previous post in our how to start an eCommerce business series, we touched on the importance of clear delivery and returns information in conversion rate optimization. Today, we look at eCommerce shipping strategies in detail and discuss whether offering free shipping is feasible and profitable for you.

Deciding how to charge for shipping is always a dilemma that store owners struggle with. On the one hand, you want to meet customers’ expectations – 73% of online shoppers now say unconditional free shipping is critical to their purchase. On the other, you want to ensure that you cover your shipping costs, even for worst-case-scenario orders.

It’s worth remembering too that there are two Ps in P&P – the cost of packaging and handling can be significant compared with that of postage, especially for small, light orders. If you’re using an e-fulfillment service, these packaging costs will be easy to quantify. But if you’re carrying out order fulfillment yourself, it may be trickier to work out the labor and material costs associated with each order.

Here we look at the five most common eCommerce shipping strategies in turn, and discuss the pros and cons for your online store:

  1. Free shipping on all items
  2. Free shipping on all orders over £x
  3. Flat-rate shipping of £x on all orders
  4. Two-tier shipping by weight
  5. Free shipping membership

Free shipping on all items

The Tredz bike store: an example of when free shipping makes sense.
The Tredz bike store: an example of when free shipping makes sense.

Adding free shipping to all orders is certainly desirable – 93% of online shoppers say it encourages them to buy more. But its feasibility will depend on the product you’re selling.

If your items are over £30 each and have a good margin, you’re likely to be able to offer this. Though beware if you also stock cheaper accessories – someone ordering a £2 accessory with free shipping is likely to represent a loss.

Free shipping can work especially well if you sell competitive, big-ticket items, where the cost of shipping can easily be absorbed into the items’ price – like the Tredz example above. Make sure you clearly advertise that shipping is free though, so that customers can compare your total price against a competitor’s – their price may be cheaper, but they may also charge for shipping.

Free shipping on all orders over £x

Offering free shipping on all orders over a certain amount gives many of the benefits of the strategy above. But it also ensures that you cover the cost of postage on smaller orders.

Further, the prospect of free shipping is likely to make customers spend more – when 2BigFeet introduced free shipping on orders over $100, it increased sales by 50% overnight. As such, it’s a good idea to place the free shipping threshold around 10% over your current average basket size.

Again, it’s worth checking some of your lower margin products, to ensure that if someone orders 10 and gets free shipping, you’re still making a profit. Often in these cases, though, it can be the item that’s the problem (it’s low margin), not the free shipping threshold, so make sure you consider both.

Flat-rate shipping of £x on all orders

Offering a clear, flat rate shipping price on all orders is a popular method. It gives customers good visibility of your shipping charges upfront, so they’re not shocked when they find them out at checkout.

It also encourages larger basket sizes – if a customer has to pay £4.95 postage and they shop with you regularly, they’re likely to order more than they would normally, but still return regularly.

The price you set will obviously depend on the value and weight of the items you send, so beware of setting the price too high if your products are low value – it may put customers off.

Two-tier shipping by weight

Two-tier shipping is a great approach if you sell lots of small accessories, but also a range of much larger items. It enables you to set a weight threshold, and charge a smaller amount for orders up to x kg, and a higher amount for orders over x kg.

The weight threshold is likely to correspond to the point at which you stop using Royal Mail and start using a courier – as this is usually where the shipping cost jumps up.

Free shipping membership

Amazon Prime: the best-known example of free membership shipping.
Amazon Prime: the best-known example of free membership shipping.

If you have a lot of regular business to your site, then it may be worth looking at a free shipping membership. You can offer customers free shipping for an annual or monthly fee, prompting them to order from you more often and ensure you’re their supplier of choice.

It may generate a lower margin compared to other methods, but this could be offset by a significant increase in turnover. Look at the success of Amazon Prime, for instance – more Americans now use the service than voted for Donald Trump.

Communicating and fulfilling your shipping promise

Whatever eCommerce shipping strategy you choose, it’s important to communicate it clearly to customers in your delivery and returns information. This will both encourage them to buy from you and reduce their likelihood to abandon their cart – read more in our post on eCommerce conversion rate optimization.

More crucially, it’s important that you fulfill the promises you make about shipping times and services on your website. If you’re struggling to get orders out the door or the couriers you’re using are letting you down, it’s probably time to outsource your eCommerce fulfillment – get in touch to find out how we can help.

So now you know how to pick the right shipping strategy when setting up your online store. Read more posts in our how to start an eCommerce business series.