The Importance of Free Shipping in E-Commerce

By: Corien de Jong

Free and discounted shipping offers are becoming more critical to the success of e-commerce. Here's how your business can make it work -- without breaking the bank.

Free or discounted shipping can be an effective way to increase e-commerce sales and help your business thrive. Shoppers appreciate it and with the growth of Amazon Prime there is an increasing expectation by consumers that shipping can be minimal or no cost to them. But free or discounted shipping doesn't have to break the bank, and if properly implemented can lead to a range of benefits including meaningful sales growth for your business. 

Identify the Right Incentives to Offer 

To start, examine the shipping incentives that your competitors offer and determine the proper discounted or free shipping plan for your business. Keep in mind that not all orders are created equal – you may want to offer free shipping for all orders over a specific “basket” total, such as $30 or $50. In general, consumers want to pay less when they shop; this kind of incentive can be a win-win for the buyer and seller alike. The average cost per unit goes down for the buyer when the free shipping hurdle is met, while the seller benefits from increased revenue as well as cost efficiencies by shipping more goods in the same package.   

Much of this depends on the types of products that you ship. If you’re in the business of selling $10 bowling balls, free shipping would not be cost effective. But, perhaps a shipping discount of 10-20 percent when customers buy multiple bowling balls could increase sales. On the other hand, if you are selling small, lightweight items with high price points, then free shipping will make a lot of sense.  

Increased Customer Conversion 

The goal of your free or discounted shipping plan is to increase sales, which means you have to ensure customers visiting your site convert and buy. According to a Wharton study, 61 percent of consumers are “somewhat likely” to cancel their purchase if free shipping is not offered. Meaning, shoppers will get all the way to the cart checkout and then abandon the order when they see the shipping charges. In fact, 65 percent of shoppers who do abandon their carts do so because of the added shipping and handling costs.  

Conversely, that same Wharton study indicates customers are likely to spend up to 30 percent more on their purchase when free shipping is offered. An eConsultancy survey yielded a similar result, revealing that one-fifth of consumers say free shipping is an “important part” of them making a purchase, and 58 of respondents said they will increase the order value to qualify for free shipping. 

It’s All in The Mind 

There is a psychological principal in effect here. If a shopper feels that shipping is too expensive for an item that they could just as easily get at the store down the street, they will replace the online purchase with a local one. However, people typically overvalue the benefits of “free” items and think free shipping is providing them more of a savings than it actually is. So, the savvy marketer will be sure to use this to his or her benefit.  

Timing is Everything 

It’s important to think about seasonality when developing a free or discounted shipping plan. If you’re in the toy business, free shipping during the “hard eight” weeks leading up to Christmas is going to really move the needle. It will be helpful to keep track of competitor discounts and programs, so your business can be as good or better than the competition. Research shows that nearly half of all “e-tailers” are offering free shipping at least some point during the year; so, it’s imperative you don't fall behind.    

Finally, Everything has its Price 

And that includes free shipping; there is a sizeable cost involved with most free or reduced shipping programs that you’ll see right away. But, avoiding free or discounted shipping has an opportunity cost – lost sales that you may not even be aware you’re losing. If you manage your shipping program carefully, you’ll be able to enjoy the increased revenue and profits that come with a well-executed plan.

About Brick to Click!

With decades of experience in retail marketing, Gina Lee De Freitas, President of IMM, and Corien de Jong, SVP Executive Creative Director, have the insights and strategies you need to take your in-store and online retail traffic to the next level.

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