Offering Free Shipping and Increasing Profits
Let’s face it, the days of charging a hand and a foot for shipping are over, and so is the comfort of having 5-7 days to get everything together and to the customer’s door. With so many of the “big name” competitors offering free shipping and 1-2 day shipping times, there is no choice other than to start making those tough compromises. Unfortunately, in today’s technological age, retailer’s costs are rising and so are the customer’s expectations.
Understandably, smaller retailers are wary and concerned that making the change to be competitive with their larger counterparts could end up breaking their bank big time. However, there have been proven strategies developed by high-volume online retailers to offer free shipping and increase profits overall.
One of the best things you can do is make sure you are broadening your carrier options. If your shipping volumes are high, more carriers will want your business and will be willing to charge you less to obtain it. A successful way that quality 3PL companies have been doing this is by buying in bulk. They will buy for many clients at once. By combining the freight volume of their clients, they creative price leverage with bigger bulk buys which results in lower freight costs across the board. It is also very beneficial to work with a 3PL that has long-developed relationships with their carriers. Having an established and trustworthy relationship can make a huge difference in what they are willing to charge.
The shorter the distance, the lower the costs and the faster an item can be delivered. Shipping from multiple locations gives online retailers the incredibly beneficial option of 2-day shipping without the fees that usually accompanies expedited deliveries. If your company sells and ships nationwide, the best option we have found is to utilize two locations located centrally in the United States without too much overlap for maximum efficiency. IDS have been able to successfully achieve this by having locations in Salt Lake City and Indianapolis. These two positions provide maximum coverage with a 3-day shipping reach to nearly 100% of the US. Over 90% of the country fall into the 2-day shipping range. Do your research and figure out what is best for your company individually, and choose two locations that are most beneficial for your deliveries.
Know Your Costs
Know your costs to ensure you can calculate a good price point to offer free shipping. It is most common that companies offer free shipping on orders $25, $50, or $100, however the options will differ based on your company’s specific needs. In order to figure out what will work for you, there are some tests you’ll have to run. Before worrying about whether you can make free shipping profitable, you need to figure out how much making the offer will raise your conversion rate. If the offer of free shipping won’t raise conversion rates, you may not want to go ahead with the change. Kissmetrics recommends establishing your baseline first. The test for this is simple, add a free shipping offer to your header on your homepage then track your conversion improvement, average order value, and net margin/order and you can figure out your total improvement in profit., or your baseline. This simply shows the potential you have to boost conversion rates and profits. Next, consider raising your thresholds. Instead of offering free shipping on orders over $100, try bumping it up to $125 or $150. Do the same experiment as establishing your baseline and you can get a fairly accurate idea on what is too high and too low for your company to benefit from free shipping. The final way to make free shipping offers work is to offer them on products that already have low shipping costs. For example, if it already costs you very little to ship office supplies, try promoting free shipping on those items specifically and calculate your conversion rates on that. Play around with these options and figure out which will be most beneficial to your company overall.
Consumers are expecting more from their shipping in today’s world. Offering free or reduced shipping can seem intimidating and like a daunting task that could hurt you financially. Do your research and put together a plan that can be beneficial to your company. Likely, there is a way to make it work and even increase profits. If you need any assistance figuring how where to start, or would like to partner with us to make your expedited shipping possible, contact IDS today