More and more, online buyers have come to expect perks like free shipping. And many will shop around if your store doesn’t offer it.
McKinsey found that more than 95% of consumers prefer free standard delivery over paid expedited delivery. And according to Baymard, 39% of shoppers abandon checkout because extra costs are too high, while 21% abandon because delivery is too slow. The problem, of course, is that free shipping is never actually free for retailers.
How Does Free Shipping Work?
Free shipping works by removing the separate shipping fee from the customer’s checkout experience. The retailer still pays the carrier or fulfillment provider, but covers that cost through product pricing, order minimums, shipping zones, product exclusions, customer groups, slower delivery methods, or limited-time promotions.
The goal is not to make shipping magically cost nothing. The goal is to offer free shipping only where it supports conversion, average order value, and profit margin.
Calculating a Free Shipping Minimum Spend Threshold
To calculate a free shipping minimum spend threshold, first analyze your average order value (AOV). This metric can be obtained by dividing your total revenue by the number of orders. From there, increase that value enough to help cover shipping costs while encouraging customers to spend more per order.
A simple starting point is:
Free Shipping Threshold = Average Order Value + Enough Extra Revenue to Cover Average Shipping Cost
You also need to factor in your profit margins and the additional costs of shipping to ensure you’re not eroding your profits. For instance, if your AOV is $45 with a profit margin of 20%, you might set your free shipping threshold at $60 to encourage larger orders while still maintaining a profitable margin.
But if your products are heavy, oversized, low-margin, or frequently split across shipments, you may need a higher threshold or more restrictions. Thankfully, there are clever ways to configure your eCommerce shipping strategy to alleviate the cost of free shipping. Here’s how:
1. Limit Free Shipping to Certain Locations
Limit your free shipping by geography. You can save your free shipping offer for the people in your country or region.
For example, shipping to Alaska, Hawaii and across borders is generally more costly than shipping to the contiguous 48 states.
How to limit free shipping to a certain zone: You can easily set a Shipping Rule in ShipperHQ to limit free shipping.
Read our guide on “How to Set Free Shipping for a Specific Zone” here.
2. Set Promotional Thresholds
As shoppers, we’ve all run into online stores offering “Free shipping on purchases over $50.” Why not be that store?
Promotional shipping is a temporary or conditional shipping offer used to encourage a specific action, such as spending over a threshold, buying certain products, joining a loyalty group, or ordering during a campaign window. Free shipping is one of the most common promotional shipping offers.
The threshold persuades shoppers who may have visited your store for one thing to add extra items to their carts. Plus, it ensures you make enough profit on the sale to cover the cost of free shipping.
To manage the costs of free shipping, you can implement several strategies. First, consider bulk purchasing shipping supplies to secure volume discounts. Second, negotiate rates with multiple carriers to ensure you’re getting the best deal. Third, integrating a shipping software solution can automate rate comparisons and optimize shipping methods based on cost-efficiency. Lastly, consider utilizing economy services such as UPS Ground Saver or FedEx Ground Economy. These services are designed for lower-cost, less urgent residential deliveries.
How to set promotional shipping thresholds: In ShipperHQ, you can set promotional thresholds in just a couple minutes by adding a new Filter and Shipping Rule.
Find out how either by checking out our step-by-step guide on “How to Offer Free UPS Ground Shipping on Orders Over $X”.
The Advantages of Free Shipping Offers
Free shipping offers can have transformative effects on e-commerce businesses. Firstly, they can increase the average order value, as customers are incentivized to reach the minimum spend threshold for free shipping.
Secondly, they can substantially reduce cart abandonment, a common problem caused by unexpected shipping costs added at checkout.
Thirdly, by meeting customer expectations of free shipping, businesses can boost customer loyalty and drive repeat purchases.
Finally, in an increasingly competitive e-commerce landscape, offering free shipping can distinguish your business from others that charge for delivery.
Moreover, consumers perceive free shipping as a significant value-add, often preferring it over discounts on products.
3. Limit Free Shipping to Certain Products
Offering free shipping on a refrigerator is likely going to cut into your margin on said refrigerator, and on other sales.
To prevent this from happening, you can limit free shipping to lightweight products only.
How to limit free shipping to certain products: Login to ShipperHQ and create a “Shipping Group.” From here, you can exclude any product(s) you want from any free shipping promotions your store offers.
Read all about “How to Exclude Certain Products from Free Shipping on Orders Over $X” here.
4. Offer Free Shipping to Certain Customer Groups
They say you’re not supposed to pick favorites. But honestly, segmenting customers is a great way to make more bang for your buck on free shipping.
This can include segmenting frequent buyers, long-time customers, big spenders, or customers in a certain geographic location. It can also be any other customer group to whom you’d like to offer free shipping.
How to offer free shipping by customer group: Most eCommerce platforms allow you to segment customers into Customer Groups. Once you’ve segmented your customers in the backend of your preferred platform, you can then set up a Shipping Rule in ShipperHQ.
Find our step-by-step guide on “How to Set Free Shipping for a Specific Customer Group” here.
5. Delay Free Shipping and Incentivize Faster Shipping
Chances are your customer wants their order yesterday. Keeping this in mind, one strategy to keep free shipping low is to only offer it on slower methods like economy and ground. You can even delay the dispatch on these goods, if that makes more sense for your business.
For many retailers, the cleanest setup is free standard shipping with paid upgrades for faster delivery. That gives shoppers a free option while still letting you recover costs when someone needs two-day, next-day, or same-day delivery.
Another common strategy is to add a surcharge for two-day, next day or same day shipping.
Why a surcharge? Keep in mind that many customers need their item as quickly as possible. By adding a surcharge to faster shipping, you can defray the cost of offering free shipping to customers who don’t mind receiving their items at a snail’s pace.
How to add a surcharge to certain shipping methods: ShipperHQ allows you to easily set surcharges on certain shipping methods.
Find out how in our “Use a Shipping Rule to Mark Up a Specific Shipping Method” guide.
6. Pay Attention to Dimensional Shipping
Size matters. The size of the box you ship your product in, that is.
To save money on dimensional packing, instruct your pickers and packers to use the smallest box or packaging unit available for the order. And try to pack multi-item orders into one package whenever possible.
By doing this, you’ll automatically save on shipping when you use the smallest size boxes and the least amount of cartons.
How to maximize savings with dimensional shipping: ShipperHQ’s Dimensional Packing Advanced Feature can guide your pickers and packers to the right box for every shipment, a feature that most eCommerce carts built-in shipping lacks.
Turn on Dimensional Packing in your ShipperHQ account to achieve more accurate shipping rates especially when getting rates from carriers like UPS and FedEx or when using USPS Flat Rate boxes.
Read our case study from BoatOutfitters.com to see first hand how ShipperHQ’s dimensional shipping capability can be a game change for their business.
FAQs
Is free shipping really free?
Free shipping is free for the shopper, but the retailer still pays the carrier, fulfillment provider, or delivery partner. Most businesses cover the cost through product pricing, minimum order thresholds, customer groups, product exclusions, slower delivery methods, or promotional rules.
What is promotional shipping?
Promotional shipping is a temporary or conditional shipping offer used to encourage a specific action. Examples include free shipping over a certain order value, free shipping for loyalty members, free shipping on select products, or discounted shipping during a campaign.
How do small businesses afford free shipping?
Small businesses can afford free shipping by setting minimum order thresholds, limiting the offer to certain products or regions, using slower delivery methods, negotiating carrier rates, optimizing packaging, and using shipping rules to avoid offering free shipping where it will erase margin.
Can free shipping improve customer loyalty?
Yes, free shipping can enhance customer loyalty by creating a more satisfactory shopping experience. The elimination of unexpected costs can increase the likelihood of customers returning for future purchases.
How do you integrate free shipping online?
To incorporate free shipping into an online store, adjust the settings in the shipping or checkout section of your e-commerce platform. You can specify conditions such as a minimum order value, certain products, customer groups, shipping methods, or regions where the offer applies.
Should free shipping have a minimum order?
While it’s not mandatory, having a minimum order amount for free shipping can help protect profitability by incentivizing larger purchases and giving you more margin to cover shipping costs.
Should free shipping be seasonal?
Offering free shipping seasonally, especially during peak shopping seasons like holidays, can drive sales and attract new customers. Just make sure the offer is tied to a clear margin, product, region, or delivery method strategy.
How do you announce a free shipping offer?
Announcing a free shipping offer can be done through email newsletters, social media posts, website banners, paid ads, product page messaging, checkout messaging, or app notifications.
Can free shipping be region-specific?
Yes, businesses often limit free shipping offers to certain regions because shipping costs vary by distance, carrier, destination, and fulfillment location. Region-specific free shipping can help protect margins while still giving shoppers a strong incentive to buy.
