Offering free shipping has become a popular strategy for e-commerce businesses to attract and retain customers, and customers love it. They want their purchases delivered quickly and affordably and have come to expect free shipping as a standard feature when shopping online. Free shipping is not only a key factor in giving customers an exceptional shopping experience; it’s also a significant factor for customers when making a purchase decision.
However, as with any business decision, there are times when offering free shipping may not be the best option for your e-commerce store. While it may seem counterintuitive, free shipping can hurt your business more than it helps in some specific circumstances.
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When to Not Offer Free Shipping
|Economically Unfeasible||Offering free shipping may not be financially feasible if the cost of shipping outweighs the benefits of offering it.|
|Product is Too Large or Heavy||Shipping costs typically increase with weight and size, and large or bulky items may require specialized shipping options that can be more expensive than standard shipping.|
|Not Realistic||Small e-commerce businesses may not always be able to offer free shipping due to lower profit margins, higher shipping costs for remote or rural areas, or lack of resources to negotiate lower shipping rates or invest in technology to streamline shipping processes.|
One of the main reasons customers abandon their shopping carts is high shipping fees. According to Baymard Institute’s Cart Abandonment Rate Statistics 2023, 48% of shoppers abandoned their shopping carts at checkout because of unexpected shipping fees.
Customers are willing to pay a fair price for products, but high shipping fees can turn them off and lead them to seek alternatives.
While offering free shipping does increase conversions and sales, it's not always economically feasible. In some cases, the cost of shipping may outweigh the benefits of offering free shipping. For example, if the shipping cost for a product is higher than the product's profit margin, offering free shipping may not be financially feasible. Shipping costs can vary depending on the size, weight and destination of the product, and it's essential to calculate these costs accurately to avoid losing money on your sales.
Some products, such as low-cost items, may also have low-profit margins that make it challenging to offer free shipping. For instance, if you're selling a lip balm with a profit margin of $2, offering free shipping that costs $5 per item would be financially unfeasible. Instead, you may want to consider offering free shipping for purchases above a certain amount to offset the shipping costs.
Other commerce products with low-profit margins and may not be suitable to ship for free include apparel, perishable food and beverage products, books, and even consumer electronics like smartphones.
As an e-commerce business, you need to accurately calculate shipping costs to determine whether offering free shipping is financially feasible for your business. Shipping costs typically increase with weight and size due to the following reasons:
- Carrier costs: Carriers, such as USPS, UPS, and FedEx, calculate shipping costs based on the weight and dimensions of the package. The heavier and larger the package, the more it will cost to ship.
- Packaging costs: Larger and heavier packages require more packaging materials, such as boxes, bubble wrap, and packing peanuts. The cost of these materials can increase with the size and weight of the package.
- Handling costs: Handling and processing larger and heavier packages may require additional labor and equipment, which can also increase the shipping costs.
- Delivery area surcharges: Some carriers may apply delivery area surcharges for remote or hard-to-reach areas. These surcharges can increase the shipping costs for larger and heavier packages.
- Fuel surcharges: Carriers may also apply fuel surcharges based on the distance and weight of the package. These surcharges can increase the shipping costs for larger and heavier packages.
In general, any large and bulky item that exceeds the carrier's weight and size limitations can be expensive to ship. They may also require specialized shipping options, such as freight shipping or white-glove delivery. These options can be more expensive than standard shipping and make it challenging to offer free shipping for these products without negatively impacting your bottom line. If the shipping costs are too high, offering free shipping may eat into your business profits or even cause you to lose money.
Furthermore, large or heavy products may be more prone to damage during shipping or may not meet customers' expectations when received. This can result in a higher number of returns and exchanges, which can be costly for your business if you have to cover the cost of shipping these products back and forth.
Examples of products that may be too heavy or large for free shipping are furniture (sofas, beds, and dining tables), exercise equipment, appliances, outdoor equipment, musical instruments, and large electronic items (home theater systems).
Interested on how to efficiently ship heavy and large items? Check out our blog here: The Cheapest Ways To Ship Heavy and Large Items
For small e-commerce businesses, offering free shipping may not always be possible. The cost of shipping cannot be absorbed because of having lower profit margins than larger businesses. If you’re a small business that sells inexpensive items, you may not be able to offer free shipping without raising your prices. However, this could make you less competitive.
In addition, small businesses may not have the resources to negotiate lower shipping rates or invest in technology to streamline their shipping processes. For example, if you’re shipping products internationally, you may face high shipping costs and customs fees that cannot be absorbed without increasing prices.
If you’re a small business selling handmade goods from a rural area, you may also face higher shipping costs than a larger business located in a major city. This is because you are far away from your customers, which means longer transit times and increased shipping distances.
However, there are other ways that you can compete with larger retailers. These include offering competitive prices, providing exceptional customer service, or offering free shipping for orders above a certain amount.
Shipping for Free: A Counterargument
Despite the challenges and limitations of offering free shipping, especially for small businesses, some may still argue that it is always beneficial.
For one, offering free shipping can be a powerful marketing tool, especially during holidays and other promotional events. You can use free shipping offers to drive traffic to your website and increase sales. It can also be a way to differentiate your business from your competitors and attract more customers. In some cases, offering free shipping may be necessary to remain competitive in a crowded market.
Furthermore, offering free shipping can help to position your business as customer-centric and focused on providing a positive shopping experience. This can lead to increased brand recognition and improved brand perception. Also, customers who receive free shipping may be more satisfied with their overall shopping experience, which can lead to positive reviews and word-of-mouth referrals. This can also encourage customers to return to the same business for future purchases.
Some businesses may also argue that offering free shipping will always generate more sales, therefore making up for the cost of shipping. This is based on the belief that customers are more likely to make a purchase if they know they can get free shipping, and that this increase in sales volume will offset the cost of shipping.
While it is true that free shipping can be an effective way to drive sales and increase customer loyalty, it is not a guarantee that it will always generate more revenue than it costs. The effectiveness of free shipping as a sales driver will depend on a variety of factors, such as the business industry, customer demographics, and pricing strategy.
For example, if you are in highly competitive industries, such as fashion or electronics, you may need to offer free shipping to remain competitive, even if it means taking a hit on your profit margins. In these cases, the benefits of increased sales volume and customer loyalty may outweigh the costs of shipping.
On the other hand, if you’re selling niche or high-end products, you may not need to offer free shipping to attract customers, as your products may be more exclusive and sought after. In these cases, the cost of shipping may be too high to be given for free.
Final Thoughts: Making the Right Decision for Your Business
In conclusion, there are several situations where offering free shipping may not be an ideal option for your e-commerce business. When it's economically unfeasible, the cost of shipping can outweigh the benefits of offering free shipping. When the product is too large or heavy, the cost of shipping can be prohibitively high. And when it's not realistic, such as for small businesses with limited resources, offering free shipping may not be feasible.
Ultimately, the decision of whether to offer free shipping or not will depend on different factors, including shipping costs, profit margins, and customer expectations. By carefully considering these factors and weighing the costs and benefits, you can make an informed decision for your business and ensure that your shipping strategy is aligned with your overall business goals.