Using Free Shipping as a Tool
There’s a lot of different advantages to free shipping and they ultimately translate into increased orders. Besides increasing the number of sales, you can use free shipping to instantly increase your average order value as well. Both of these combined are huge. They can make the difference between a good business and a great business.
Let’s say you’ve decided to offer free shipping to your customers. This is where it gets fun.
When offering free shipping, you have to be smart - you can’t just offer free shipping for all orders. You must set a minimum order threshold for customers to be eligible for free shipping. The shipping cost will have to be factored in as a percentage where it only becomes a small portion of the order value.
Setting a minimum order value has 2 main advantages:
- Ensures You Don’t Lose Money
- Customers Spend More
Ensures You Don’t Lose Money
If you’re selling something for $10 (let’s say a mask), you can’t afford to offer free shipping on this. This is because the shipping cost might be $5 alone. That’s 50% of the sale price. Most businesses don’t have a 50% gross margin.
In this situation, offering free shipping doesn’t make sense.
Now, let’s say you offer free shipping at $100 and the shipping cost is still $5. In this case, the shipping cost will only be 5% of the order value. If you’re operating at a 30% margin, you’re now down to 25% margin in this situation. You’ll still be happy at 25% because there might not be a sale without the free shipping.
The $100 minimum is a more realistic scenario but it still might not be the right number for you. Spend some time and figure out the sweet spot for your business.
Customers Spend More
People don’t like to pay for shipping. People also like deals. When customers aren’t paying for shipping, they feel like they’re getting a deal. They will add more items to cart to not have to pay that annoying shipping fee. It’s a psychological trick but it has benefits behind it too. I also do this all the time.
In fact, I did this today purchasing socks from Van Heusen. My cart had $36 of socks in it. I needed to get to $75 to get the free shipping. Want to know what I did? See below:
I justified it to myself because I had $80 worth rewards saved up but either way, I took advantage of “free shipping”
This works on everyone. It works because there’s value to the customer. The customer is in-fact not spending money on shipping. The trade-off is that they had to spend a bit more. They’d rather do this. Both parties are happy and that’s why everyone loves free shipping!