How Much Does Free Shipping Actually Cost?
Updated: Jul 12
Free shipping always sounds appealing, but are covering the costs for consumers worth added value? Let's look at the facts:
In 2019, Walker Sands performed a study on what motivates consumers to follow through with a purchase. Of the 1,400 US consumers surveyed, 9 out of 10 said that free shipping was the No. 1 incentive when asked what would make them shop online more often.
The National Retail Federation (NFR) found that 75% of US consumers expect free shipping even on orders under $50.
Shopify's recent study in 2020 stated that 59% of consumers say free delivery would improve their online shopping experience, even when shopping with small businesses.
Another 2020 study by BizFeel surveyed 30,000 worldwide consumers aged 18 to 65. This study found that 62% of consumers will read the shipping and return policy before purchasing. They also found that 91% of their consumers expect to receive their goods within three business days.
In a 2017 study, Smart Insights found that 61% of consumers will abandon their cart if extra costs such as shipping, taxes, or fees are too high.
Accent Online found that 88 percent of consumers would be more likely to shop at a site online if they were guaranteed free shipping.
So when you look at all of these statistics, you can summarize that consumers want fast and free shipping. So, how do companies of all sizes realistically offer free shipping while still turning a profit?
The reality is that free shipping costs a lot of money. If your company were to offer free shipping for every customer, it adds up fast. An average medium-sized parcel sent through USPS costs around $11.50. That means with every sale, and you are losing on average $11.50. Though shipping costs fluctuate based on item specifications and destinations, there is a considerable loss.
Once you understand how to calculate your net profit and your actual take-home, add an average cost for shipping. You can find average shipping pricing online at USPS, UPS, or FedEx, whichever carrier you prefer depending on where you are shipping. Once you understand an estimate of shipping cost, don't forget to add in the price for boxes, packaging materials, and how much money is spent packing shipments (i.e., the amount you pay employees divided by the number of packages filled per hour). If you can still turn a profit that allows for your company to grow and expand, then congrats, you can afford free shipping!
Not sure if your bottom lines cut it? Here are six ways to still keep consumers happy and buying without necessarily offering free shipping:
Increase Price of Products
It is common practice for companies to increase their products' pricing to offset free shipping. Sometimes even increasing the price of products by 5% is enough to cover shipping. Though consumers tend not to notice the increase in pricing, they see the free shipping, and as the statistics show, they are more likely to follow through on their purchase when free shipping is offered.
Free Shipping Over $50 or $100
Offering free shipping once a consumer purchases a certain amount of product is a great way to offset shipping costs. Generally, that means you will be making more money than if you didn't offer free shipping. It encourages consumers to buy more to get free shipping, so it's a win-win for everyone involved.
Pay for Part of Shipping
Instead of having the customer pay for all of the shipping, offer a flat shipping rate. Though the shipping may come out to cost around $10.50, consumers are only picking up part of the tab. This initiative helps set a precedent with your consumers.
Be Completely Transparent
It is good customer service practice to keep buyers informed through all stages of the supply chain. As previously mentioned, consumers do not like to be surprised by hidden fees and costs, with 61% of consumers abandoning their carts with unexpected expenses. Being open and honest about shipping is the best policy. If your shipping policy changes based on the advertisement you are running, you will have to continue updating or altering your shipping policy.
Give Consumers the Option to Pay
When one does business with a not-for-profit company, they often give the option to help cover order costs such as credit card and shipping fees to offset the company's burden. Though we don't suggest this practice for large companies, it can be viable for mom-and-pop or small businesses. When you allow the consumer to cover shipping, they feel as though they are given a choice. Since consumers from 18-36 prefer to shop small and local, they most likely understand the burden that free shipping puts on a company.
Free Shipping for Members or Subscribers
Member/subscriber-only free shipping is a great option to get your loyal followers back for more. When you allow consumers to get perks, such as free shipping, they feel a sense of attachment towards your brand and products through that membership. Remember, it is much easier to retain a current customer than to acquire a new one.
The new way of e-commerce is free shipping. "Consumers want free delivery, and they're willing to meet retailers halfway to get it," said NRF Vice President for Research Development and Industry Analysis Mark Mathews. "If we can get their purchase to the store, they'll come to pick it up if that's what it takes to avoid a delivery charge. And once they're in the store, they are very open to seeing what else the retailer has to offer." How are you going to meet consumers halfway? Don't let shipping be the reason your company doesn't succeed.