Here’s something you’ve likely been asked to provide before – free shipping. As a small business though, it’s not such a simple process deciding whether or not to offer customers free shipping. Should you do it? Yes, we think so. But we also think you should tailor your offering so that it suits your business, pleases your customers, and still leaves you room to grow and profit.
One company saw a 357% increase in purchases after offering unconditional free returns. Why? Because consumers crave the confidence of knowing an item fits, is true to color or is all that’s promised – which doesn’t happen online like it does in brick and mortar stores. Shoppers can’t try on items before purchase, so a free shipping and return policy offers them some peace of mind. Free shipping gives buyers confidence when shopping online, and that confidence translates to dollars in your wallet.
You need to work out the numbers beforehand to determine if you can afford free shipping (more on this later). You run a small business, and may not be able to offer unconditional free shipping and returns – but you can absolutely try out one of these options to create some opportunities for free shipping.
1. Offer free shipping only during the holidays.
Target does it. Why not try it yourself? Unless you exclusively sell Easter baskets or 4th of July pinwheels, you likely experience a surge of sales during the months of October through December. You probably have high enough profit margins during this season to accommodate the shipping costs. This is also a great way to drive sales to your store, over your competitors.
2. Set a minimum shopping cart value.
Many of the biggest online shopping marketplaces – like Amazon, Target, Walmart and Zappos.com – enforce minimum order values for customers to qualify for free shipping. Determine the minimum order value a customer must reach that still allows you to make a profit. For those that don’t know, a minimum order value is the lowest amount a customer can order to be eligible for free shipping. For example, many online retailers offer promotions such as, “get free shipping when you order $50 today.”
3. Make shipping free for customers who subscribe to your email lists.
Of all of Fortune3’s suggestions, we think this one is the coolest. You are essentially creating long-term profits, as subscribers will be privy to your newest products, sales, and marketing efforts. It’s a great way to make sure your customers remain shoppers long-term, and promises more sales down the line.
And now, for the math.
Like we mentioned before, in order to decide when and how you can offer free shipping, you need to know your profit margins and average order value, as well as a few other variables. Make sure you know the following elements:
- Total Orders Received
- Average Price per Order
- Average Profit Margin
- Shipping Fees per Order
- Shipping Costs per Order
Once you know these variables, plug them into this calculator to determine your shipping profit.
Fortune3 suggests finding your minimum cart value (for free shipping thresholds) this way:
Come up with a minimum cart value. From that, subtract the average order value. Take that number and multiply it by your gross profit margin. Then subtract your cost of shipping from that. Repeat this calculation until you find a minimum order value that works.
Here’s a quick visual of this equation:
Find a way to offer free shipping that suits your small business, in whatever way feels comfortable. Your customers will appreciate it, and so will your wallet. If you’ve ever wanted to jump on the bandwagon, this is the trend to hop on and take the reins. Our ecommerce shipping application will save you time and money thus keeping your costs low.