Offering your customers free shipping can be an effective way to remove an important obstacle to purchase and give you the short-term sales boost you’ve been craving.
However, there are some long-term risks associated with shipping for free. Look before you leap and consider these four key factors…
#1. Watch your profit margin
Your profit margin is the amount of money you make on each product sold. But calculating your profit margin is more complex than simply subtracting the customer’s purchase price from the cost price of the product. You must also factor in your operating expenses — including the cost of shipping if you’re planning to cover this for your customer.
It’s a difficult balance to get right. On one hand, you’ll want to keep your prices down to remain competitive. But, on the other hand, you’ll need to maintain a healthy profit margin for sustainable e-commerce success. Be very careful that offering free shipping doesn’t take too large a bite out of your profit margin.
#2. Beware of increased returns
While offering free shipping does remove an important barrier to purchase, it can also encourage your customers to make less considered purchasing decisions, which in turn can lead to an increase in product returns.
Customers may also assume that free shipping means free returns. If you are offering free returns also, you’ll need to factor this expense into your profit margin to ensure your ecommerce business will remain profitable. Otherwise, you’ll need to set a very clear returns policy and make an effort to draw your customers’ attention to it prior to sale.
#3. Be careful of tarnishing your brand
Giving your customers the best deal possible is important, but building your brand is about much more than dollars and cents. If you’ve invested the money, time and effort in building a high-end brand that your customers value and respect, they’re likely more than happy to pay for shipping.
Offering free shipping can tarnish your brand image and signal to your customers that perhaps they have over-valued your products. Quality and exclusivity comes with a price tag. Consider channeling the money you were going to invest in free shipping into providing a free gift, experience or loyalty club for your repeat customers.
#4. Protect your customer loyalty
Just as building a brand is about more than offering cheap deals, creating customer loyalty requires long-term consistency. Offering free shipping as a limited, one-off offer can harm this consistency and erode your customer loyalty.
If a first-time customer receives free shipping only to be charged a shipping fee the next time they purchase, this could send them looking for a better deal from your competitors. Loyalty is built through providing consistent customer experiences. Changing your shipping policy could leave your customers uncertain about what they can expect from you each time they visit your store.
The take-home message here is don’t rush into offering free shipping on a whim. If you do want to offer free shipping, it should be part of your long-term strategy. At the very least, you’ll need to build it into your profit margin and make it part of your foundational brand values.