There are many studies available online related to whether customers are more satisfied with receiving their products for free or not and among those the most interesting ones were released by PayPal, Harris Interactive and Forrester. According to those studies, free shipping is what almost any customer wants; more exactly, more than 60% of all interviewed customers are happy to receive their products for free. But what does this mean for an online store?
Indeed, “free shipping” or “discounted shipping” are phrases that one can meet on almost every online shop and when looking at numbers it seems that free shipping can be profitable. Not only that it can be profitable but it MUST be profitable, no matter its value would be…
What can free shipping bring to your business:
-Increase the numbers of orders
-Increase the average value of an order
-Increase the price per product
-Gross margin increased
-Increasing the orders volume and thus reducing transport costs
On the other hand, if the calculations are not properly done an online store risks to:
-Lose a substantial percentage of a product’s gross margin
-Subsidize the free shipping from gross profits
-“kill” the gross profit
The real problem lies in how the calculations of transport costs have been done and what is the real impact of free shipping on an online store’s daily operations. One of the easiest options can be to impose a minimum purchase level for free shipping (e.g. free shipping for over $200 orders).
In conclusion, free shipping is a great marketing strategy but it also lies on a very thin layer of ice that can break and really hurt, in terms of profits/losses.