Free Shipping vs Paid Shipping
Posted on 18 December 2018
“Free Shipping & Returns.”
It’s a dream when you see it as a customer, because it means what you see is what you’ll pay. If you don’t like it, send it back without any hassle.
As a seller though, thinking about these four words can be a logistical nightmare.
Do you absorb the costs and eat into your profit margins? Do you add a free shipping threshold? How much money will you lose on sales that are returned?
It’s a mess to consider especially when you’re considering the risk vs. reward of adding “Free shipping & Returns” as a part of your buying experience.
The good news is, there is an overwhelming amount of research that indicates that improving logistics has a positive impact on order quantities, loyalty, and average order values - likely because it strengthens your value proposition, and works in tandem with several of psychological triggers of persuasion.
In this article, I’ll share with you my 8 favorite articles and resources on offering free shipping.
Whether you’re just getting started or are already an established seller, this will get you thinking about how including "Free Shipping & Returns" will impact your bottom line.
This article on Compete.com shares several findings from a survey asking customers their primary barriers about shopping from an online retailer.
As you can see from the graph above, free shipping & returns is the largest influencers in what would encourage people to buy more online.
Other findings include:
- Why people aren’t satisfied with their shopping experience
- The % of people who want faster shipping options
- Why customers choose the “ship to store” options when it’s available
This guide by UPS brings a lot of clarity to the returns process and the various ways you can repurpose your returned inventory.
Given the data from the Compete study in the previous section, it comes as no surprise that some companies have found that making their “Free Returns” policy visible increased their profits by 357%.
Of course, this might not be the case for everyone, however given that other studies have shown that 90% of customers are loyal to companies that make the returns process easy, it’s worth investigating how free shipping & returns can be incorporated into the foundation of your business model.
This is a great round-up of research on the TrueShip blog that debunks 10 common myths behind returns in the apparel space.
The debunked myths include:
- Returns cost me money
- Returns are a hassle for everyone
- Most customers don’t read our returns policy
- Returns are usually the customer’s fault (they aren’t)
- Most returns are made by one-off shoppers
- The returns policy doesn’t affect sales
- Shoppers don’t really think about the returns process
- People don’t care about free return shipping
- My returns policy doesn’t affect my future sales
- Plenty of stores get sales with a bad returns policy
The answers to many of these myths will surprise you and make you rethink your current returns policy.
Nate Shivar breaks down the logistics of offering Free Shipping to your customers, and helps you analyze the actual dollars and cents benefit of what it could mean for your business.
In this article, he cites a case-study by SitePoint that found offering Free Shipping improved conversions by 50% overnight.
He also offers alternative Free Shipping strategies that smaller companies could use that wouldn’t eat into their operating costs.
Nate also created this handy free shipping & profit calculator to help you get a better sense of the numbers associated with free shipping.
In this study by VWO, it discusses how beauty retailer NuFACE A/B tested offering a free shipping threshold in the site’s navigation.
The end result was that orders increased by 90% and the average order value also rose by 7.32%, meaning not only were people ordering more, but they were spending more to reach the free shipping threshold.
In this article on the Retention Science blog, in a study of more than 100 million transactions, it was found that free shipping was 2x more effective than percentage discounts when sent through email.
The research also explores the time of day and day of week that received the most response from the email offers.
While I wouldn’t recommend following the data blindly in your own testing, as every market is different, the research provides a nice framework for you to learn more about your own audience and what (& when) these kinds of offers may work best.
In this academic whitepaper, marketing professors Yang, Essegaier and Bell explore a data based perspective the relationship between free shipping offers, threshold based shipping offers, pricing and their influence on order values and repeat purchases.
It’s a much more academic read than the other articles on the list, the model they create shows the how shipping thresholds are affected by the item costs, and how these numbers can be tweaked to influence the overall lifetime value of the customer.
The disclaimer on this research however is that the study was analyzing restockable goods.
And while it may seem counterintuitive, it seems to align with the research from the previous section that found that Free Shipping is more important to customers than % discounts.
It also is in line with other studies that find people are willing to pay more for the exact same item, if the overall brand experience is aligned to the customer’s preference.
“For whatever reason, a free shipping offer that saves a customer $6.99 is more appealing to many than a discount that cuts the purchase price by $10, says Wharton marketing professor David Bell.”
“ Approximately 60% of online retailers cite “free shipping with conditions” as their most successful marketing tool.”
This article on the Wharton School of Business’s website has several insights, and an easy to understand podcast, that’ll get you thinking more strategically about offering free shipping.
While offering free shipping & returns might seem like a headache, the research is in favour of it being a way to increase your overall sales revenue and profit.
If you’re hesitant to roll out free shipping & returns on all of your products, try selecting a few items from your inventory and A/B test an email to your customers with the free shipping offer featured in the subject line.
Compare the opens, clicks, and conversion rates of those items. If you see a significant an improvement, run the test again in the future with additional items in your inventory. If you continue to see improvements, calculate what the impact would be on your overall business.
My guess, you’re going to like what you see.