According to my inbox, we're well into the holiday shopping season. Retailers large and small seem to be offering discounts and sales in the hopes of driving more sales and ending Q4 with a bang.
Free shipping has become the most enticing of those offers, with big retailers lowering their minimum purchase thresholds to encourage customers to use the service. Amazon has tacked on free shipping to its same-day delivery option for Prime members ordering $35 worth of certain items.
"With Amazon’s fast delivery option, business owners have to offer something as intriguing or they may be lost in the holiday shopping mix," says Michael Lazar, director of operations at TrueShip, an online shipping and returns software company.
Free shipping may also help increase sales, Lazar continues. "A recent survey conducted by [comScore and UPS] that polled over 5,000 respondents found four in five consumers see free shipping as an important part of the online shopping experience." The majority of respondents (93 percent) claimed they would take actions to qualify for free shipping; the most popular option was adding more items to the shopping cart (58 percent).
But for small-business owners, it's not as simple as slapping a "free shipping" icon on your website or e-newesletter. Here are some key ways that may help you offer free shipping without hurting your business in the long run.
Set Free Shipping Thresholds
When you're deciding to offer free shipping, you should determine what your thresholds are—that is, the minimum purchase necessary for customers to be eligible for free shipping—to make it worth your while, Lazar suggests.
"Retailers can establish free shipping thresholds by carefully assessing their profit ratio on certain products that are above the threshold value—to get free shipping," he says. "For example, say a retailer knows that their average shipping cost is $7.50 using Priority Mail [and] that their average sale is just $25 with a 50 percent profit window, or $12.50 profit average per order. By integrating a free shipping threshold at $79, they can still earn a profit while also factoring in the cost of shipping.
"Certainly, base cost, profit margin and shipping cost can and will vary, and these numbers are based upon average order value, average product cost and average shipping cost," Lazar continues. "But there’s a lot of wiggle room for a healthy profit when a free shipping threshold is being offered to consumers. It’s a smart way to encourage a higher average order value while appealing to the consumer demand of free shipping and simultaneously spurring sales."
Get Your Team Ready
If you're unable to hire extra team members for the holidays devoted to processing and shipping orders, it may help to change your system to process orders as soon as you get them. When asked about the biggest mistake small-business owners make when it comes to offering free shipping, EasyPost founder and CEO Jarrett Streebin replies that small businesses often don't get shipments out on time.
"The minute the order comes in, the clock starts ticking," Streebin says. "Instead of waiting until the end of the day to do the orders, you’re much better off doing [them] as they come in, so you're never building up this big batch of orders that have to go out." He suggests building your fulfilments around your carrier cut-off times; if orders come in after your FedEx guy swings by, they'll have to be processed for the next day, but everything that came in before that should be ready for him.
"[When] you look at the shipping rates, the [difference] between a day can often be up to 50 percent more on the shipping price," he explains. "Knowing that you’re paying a serious hit to get it there quickly, you might as well do the easy part, which is get the order out as quickly as possible. Then you won't need to ship it so fast, because you'll get it out in time ... without spending the next-day dollars on it."
Pad Those Dates
The concept of under-promising and over-delivering can be your friend when it comes to offering free shipping.
"Don't be afraid on the customer side to pad those delivery dates," Streebin advises. "If you know it takes three to four days, add a few days to the estimate you give to the customer. That way, they're not going to expect it quick, and when it does arrive, they will be really excited."
According to UPS, people are willing to wait longer (up to 8 days on average) for a delivery when they use free shipping, versus 6 days when they pay for shipping.
Be Strategic With Your Vendors
Free shipping isn't really free, points out Zach Pennington, CEO of chia seed company US Chia, which offers free shipping year round. It comes as a cost to small-business owners. Small-business owners are footing a bill for the customer's convenience. But that bill doesn't have to be as big as you may be anticipating.
"Using a third-party app/vendor to buy your shipping from—like Endicia, Shipping Easy, Ordoro, Shopify Shipping—can really help you save over buying directly from the post office," Pennington says. "For larger sized items, setting up a UPS business account can save you hundreds of dollars on just shipping a few items. These companies want loyalty and repeat business and are willing to discount in order to earn that business. Don’t just buy retail like everyone else." Doing so has saved him $10,000 in shipping costs, he claims.
Companies like Roadie also let you turn locals into your own private shipping crew if you want to offer free same-day delivery. Just post a gig with details and photos of the shipment, and a "Roadie" will deliver the goods for you.
Let Your Customers Know the Details
"It is important to make sure your customers understand estimated delivery dates, who will deliver their package, free shipping thresholds and holiday ordering deadlines," says Angie Stocklin, co-founder and COO of One Click Ventures, a company that focuses on product-based e-commerce brands in the eyewear space. "If your customers have to dig for this info, they are more likely to leave and shop somewhere else. Sending timely shipping confirmation emails and tracking numbers will reduce the burden on your customer service team."
Make Free Shipping Worth Your While
Stephanie Miles knows offering free shipping makes her company Purple Laurel, a line of belly wraps and nursing apparel for moms, more competitive. But after doing the math and realizing she was losing $5 per sale with the free service, Miles decided to make free shipping a perk only available to Purple Laurel's e-newsletter subscribers.
"If I'm going to have to lose a little money by offering free shipping, I might as well gain something at the same time," Miles explains. "The amount we stand to gain could be substantially more, depending on how we're able to leverage our email list going forward. We've been offering free shipping to people who sign up for our email list for a few weeks now, and already I've seen a 50 percent increase in signups. Now that we have these customers' email addresses, we can follow up with targeted offers and messages [on] Black Friday deals and holiday specials."
With these tips in mind, small-business owners may be able to compete against their biggest competitors' free shipping offers this holiday season.
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