Advice for startup success: How to offer free shipping without breaking the bank

As a startup entrepreneur, you spend much of your time giving things away: your energy, your ideas, not to mention equity in your company.

But what about free shipping, a must-have for many online shoppers nowadays? For a startup looking to scale quickly for acquisition, here are the pros and cons of offering free shipping for your go-to-market strategy.

Free shipping vs fee shipping

Of course, rather like the proverbial free lunch, there’s no such thing as free shipping. Shipping involves many costs from picking to packing to physical transportation. Ultimately, somebody must foot the bill for getting products from point A to point B.

Nonetheless, the prospect of free shipping remains a powerful draw. Shoppers will go out of their way to secure free shipping, even if it means spending a little extra on their shopping cart.

Changes in the marketplace have bolstered this trend. In recent years, free and fast shipping has become the norm. Online sites make comparison shopping easy, and it is second nature for many shoppers to search for free shipping promo codes before making a final decision to purchase.

The research backs this up. According to the UPS Pulse of the Online Shopper™ survey, four out of every five shoppers say that shipping fees are an important factor during their product search. Additionally, more than 50% of shoppers surveyed abandoned their cart because the cost of shipping made the total purchase more expensive than expected.

Independent research on cart abandonment from the Baymard Institute arrived at similar conclusions. Whichever way you cut it, that’s a lot of lost sales.

How to offer free shipping

As a startup, the business case for offering free shipping is compelling, particularly when it comes to e-commerce transactions. However, free shipping carries a business cost, and you need to manage for this cost as part of your early-stage planning.

The most obvious way to offer free shipping without breaking the bank is to price it into your product. As marketers and psychologists alike have long known, how you present pricing to shoppers has a marked impact on how they feel about their purchase.

Take the example of a product that costs $15 to manufacture, retails online at $25, and carries an average shipping cost of $5 per item.

If you start by giving the total price of the product as $30 inclusive of shipping, the cost is clear in the shopper's mind.

However, if you list the same product as $25, only to add $5 for shipping at the point of purchase, it’s easy to see why a shopper might reconsider their purchase, even though the total purchase price is $30 in both scenarios.

That doesn’t mean you should simply price shipping into your product and offer it automatically across all purchases. There are different ways you can use free shipping to nudge your customer into doing other things along the purchase pathway. For example, consider these free shipping offerings:

• As a time-limited promotion. The urgency factor (“Get it now before it’s gone!”) can encourage orders that may otherwise linger in carts for days or weeks untouched.
• If your customer reaches a minimum order value. This is a way of getting shoppers to add to their shopping cart.
• As part of tiered shipping options. If a customer requires express delivery, give them the option to pay for it. At the same time, offer them free shipping if they are happy to opt for a longer delivery window.
• As a perk of your customer loyalty program.
• As a one-off reward for subscribing to your company newsletter or other marketing communications.

Whatever you do, don’t simply give free shipping away without considering how it fits within your overall strategy. Shoppers are sophisticated and understand that you can’t always get something for nothing. Striking the balance between investing in customer experience while managing overhead is a delicate operation but essential to get right.  

The case for fee shipping

Don’t dismiss the option of fee shipping, where the customer pays separately for the cost of transportation. Here are some situations in which fee shipping might make sense:

• For higher-value goods where the cost of shipping is proportionally lower. In these cases, paying for the shipping may feel like less of an issue for the customer. (That said, if someone is paying $700 for a luxury item with a high mark-up already built in, do you really want to risk losing that customer over shipping?)
• For heavy or large goods where the cost of shipping is such that a shopper would reasonably expect to incur some level of shipping cost.
• In business-to-business transactions, where fee shipping remains common.
• For international shipping, where the landed cost (the total cost of getting your product to its final destination) is subject to a range of additional factors.

Also, and very importantly, remember that free shipping may drive up the rate of customer returns. With free shipping, shoppers are more likely to order items to try them out, with only half a mind on keeping them.

If you decide to offer free shipping, do you also offer free returns? What will the additional cost be? Determine your returns policy, and review what your competitors offer. Get help with planning for reverse logistics.

Finally, remember that free vs fee shipping is not an either-or. As we’ve mentioned, it's entirely normal to offer your customers a mix of free and fee shipping options.

Managing shipping costs

Whatever your approach, the one thing that’s clear is that shipping carries additional costs. As such, it makes sense to start planning for your shipping programs early into your startup.

Research your estimated shipping costs based on product size, weight and likely range of delivery destinations. Review your options for optimizing your stocking and distribution to keep shipping costs in check. Remember that the most forward-thinking startups achieve supply chain efficiencies by designing their logistics plans from the outset. This includes planning for and costing out your shipping strategy. 

However you approach it, price shipping into your total cost of doing business. How well you ship reflects directly on your brand, which ultimately impacts your bottom line.

Sign up online for a virtual consultation or contact us at startupteam@ups.com, and let's explore how to set your shipping policies for startup success.