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What Does 'Free Shipping' Really Mean for Retailers?

Know where you can take shortcuts, and you'll thrill customers with a great delivery deal.
What Does 'Free Shipping' Really Mean for Retailers?
Image credit: Shutterstock

Free shipping? Smaller ecommerce companies, in particular, need to plan strategically in order to make this feature pay off for both their customers and themselves.

Related: Free Shipping: 7 Ways It Can Hook Your Customers

But of course there's always a caveat. You've heard the old saying, "There’s no such thing as a free lunch," and you've probably realized by now that “lunch” can mean just about anything.

When it comes to ecommerce retailers, there may as well be no such thing as free shipping: Carriers won’t work for free, after all, so someone has to foot the bill, be it the customer or the retailer.

In fact, major carriers are raising their fees. In January, the U.S. Postal Service announced that rates for priority mail packages would rise by an average of 9.8 percent, and priority mail express prices, by 14.4 percent. The Postal Service is just the latest member of an inflationary fraternity that includes UPS and FedEx, each of which has increased its rate by an average  4.9 percent this year.

Consumers, meanwhile, generally understand that there is a cost of admission for free shipping, usually in the form of a minimum-order requirement. However, what’s often overlooked is the damaging effect free shipping can have on smaller retailers. Retail behemoths such as Walmart and Amazon operate at such a scale that they can absorb sharp increases in shipping costs. But the same is not true for smaller operations that need to keep a closer eye on their profit margins.

"Free" is not a four-letter word.

That’s not to say that any retailer on a smaller scale than Amazon should ditch free shipping. Free shipping still offers benefits for retailers of all sizes. For one thing, customers clearly care about this perk. According to Walker Sands’ 2016 Future of Retail study, 9 out of 10 respondents ranked free shipping as their top incentive for shopping online.

Retailers also have plenty of reason to love free shipping. Shoppers will spend more money on your products, and the lure of free shipping will lead to higher conversion rates.

For the average retailer, however, it's important it to think strategically about how and when free shipping pays. Here are a few tips to put in action when formulating your own free-shipping strategy.

1. Be picky about packaging.

When shipping packages, it’s the outside that matters most. Do judge a book by its cardboard shipping cover. A universe of packaging options exist for your products, but certain options will save you money. For instance, soft goods should go in a poly mailer, not a box. It’s cheaper to ship and doesn’t risk damaging the product.

Online couch retailer Burrow took this concept to a new level when it engineered its sofas for shipping. It took Ikea’s idea for flat-pack design and applied it to a couch. Now, if buyers order a Burrow couch, it comes in two to five boxes -- each with its own built-in handle. The sofa pieces come off the boxes, and, just as if they were dealing with an upholstered 3D puzzle, all that customers have to do is fit the pieces together and lock them into place.

Related: 3 Ways to Be More Savvy About Free Shipping

2. Hunt for deals.

Packages from your retail site may come in all shapes and sizes, but the best-selling items are always the same size. This standard dimension for your most frequently shipped items can give you a lever to move a shipping carrier. Aggressively target your most commonly used tier of shipping rates, and you will have greater success in negotiating a special rate.

Keep in mind, too, that several carriers offer different kinds of deals for retailers. For instance, FedEx has the Save Now Program, which offers discounts on its express, ground and holiday shipping options. Some options are also available for certain types of retailers or merchandise, like the Postal Service’s Media Mail discount for educational materials. When a few percentage points can blow your margin, it makes sense to explore any possible discount rates.

3. Find that magic number for your threshold.

Willow & Werth brought its casket sales to life by dedicating an entire page of its website to explaining its shipping policies. Yes, the company offers free shipping, but it requires a little flexibility from customers: The company explains that it may take an extra day for the casket to arrive and that Saturdays, Sundays and holidays are not counted in its shipping calculation.

The company saves higher carrier fees and satisfies customers at the same time. A win-win scenario like this is possible only when you dive into your shipping-costs data and find an ideal order value to justify the gift of free shipping and ask your customers for a little slack, too.

Related: 5 Mistakes to Avoid With Free Shipping

In the end, free shipping will never be totally free, but that doesn’t mean it’s out of the question. A little homework will take you a long way toward discovering what you can offer to your customers. Know where you can take shortcuts, and you’ll thrill customers with a great delivery deal.