Free shipping is past the stage where it was considered a fad or a growing trend in the eCommerce industry. Today, free shipping is considered a hygiene factor and a necessity for many businesses to remain competitive. Consider this – according to a comScore report nearly 50% of all online orders today include free shipping (nearly 58% for the US – Business Insider report).

According to another survey, nearly 73% of online shoppers noted unconditional free shipping as “critical” to a purchase.

While important for customers, free shipping is often considered a cost for businesses. And it is for some businesses – free shipping is not an ideal choice for every business, but for others this is an investment which pays for itself in multiple ways. Read on to find out how free shipping benefits businesses:

Improve Sales Conversions

Shipping charges are considered one of the most cited reasons for shopping cart abandonment. According to a Wharton study, 61% of consumers are somewhat likely to cancel their purchase if free shipping is not offered. According to a comScore survey, 55% of online shoppers are likelier to abandon shopping carts that don’t offer free shipping.

Businesses invest a lot of money in marketing to drive traffic to their eCommerce store but lose customers over shipping charges. The success of an eCommerce store depends greatly on conversions, and adding free shipping to an eCommerce store is a surefire way to improve your conversion rate.

Increase Average Order Value

Free shipping not only improves conversions but also drives revenue by increasing the average order value in more than one way. In a Deloitte report, it was noted that 40% of customers are willing to buy more items if they qualify for free shipping.

• No threshold – Free shipping is known to put shoppers in a better mood, which may lead them to spend more. In an online shopper survey, Compete found that 93% of online buyers are encouraged to buy more products if free shipping is included. In another study from Wharton, it was found that shoppers spend 30% more per order when free shipping is included.
• With threshold – Creating a threshold for free shipping is one of the easiest ways to increase the average order value. Businesses often set a minimum threshold on order value for a customer to avail free shipping.

According to Stamps.com, free shipping orders produce an average of 15%–20% higher order values than orders without the promo. The increased costs incurred in providing free shipping can easily be recovered through the increase in average order value.

Increase Customer Loyalty

It is widely known that free shipping can increase sales and improve average order value; hence most businesses often consider free shipping a short-term strategy. But when used effectively, free or discounted shipping can significantly boost customer loyalty and have a long-term impact on businesses. Amazon Prime is a case in point. According to a 2015 report from Consumer Intelligence Research Partners, Prime members spend an average of $1,500 per year on Amazon.com, compared with $625 per year spent by Amazon customers who aren’t Prime members.

Customer loyalty is one of the most sought-after parameters that determines the success of any business. According to a study by Marketing Metrics, the probability of selling to an existing customer is 60%–70%, while the probability of selling to a new prospect is only 5%–20%. According to Bain & Co., increasing customer retention rates by just 5% can increase profits by 25% to 90%. Loyal customers also spend more and provide free word-of-mouth promotion.

Shipping prices also impact customer loyalty by improving customer satisfaction. In a study, Compete.com found overall customer satisfaction to be 10 percentage points lower for customers who paid for shipping compared to those who had free shipping.

Gain Competitive Advantage

With increasing competition and very little value differentiation, businesses would do anything to gain an advantage over their competition, and free shipping can give businesses that edge. In a North American Technographics Retail Online Benchmark Recontact Survey, nearly 38% of consumers said they bought from a specific online retailer because of free shipping. Even during the most competitive time of the year, the holiday season, free shipping can give you the edge over competitors. In a Stamps.com survey, 64% of respondents indicated that a free shipping promotion was the most effective holiday promotion.

Also Read – Shipping – How It Affects Your Business

It is Not a Bed of Roses

Like everything else, free shipping too has its advantages and disadvantages. While it can help increase sales by improving conversions, increasing average order value, improving customer loyalty, and giving you a competitive edge, it also has a negative impact on profit margins and can set unrealistic customer expectations (customers may expect free shipping 365 days a year).

Hence, it is important to evaluate if free shipping is right for you, weigh the pros and cons for your business, and make an informed decision.

In our next few blogs, we will discuss strategies businesses can use to offer free shipping and how they can evaluate if free shipping is right for them. Stay tuned!

Let us know how free shipping has impacted your business by commenting below.