Key takeaways
- While free shipping can raise business expenses, the majority of customers expect the perk when shopping online
- You can typically afford to offer free shipping on products when you make a profit on the purchase
- You can set a spending threshold that a customer has to reach to be eligible for free shipping
Free shipping is a perk that can add significant costs to your business, but it’s something customers often expect to keep their business with you. According to Jungle Scout’s 2021 Consumer Trends Report, 66 percent of Americans expect free shipping with their online orders.
And if they don’t get what they want? Shoppers are likely to abandon their purchases or choose a competitor. In fact, 47 percent of online shoppers abandon their carts due to high shipping costs, according to Baymard Institute data. Since Small Business Saturday brings millions of customers to small businesses each year, you might consider free shipping for the holiday to give customers a top-notch experience.
Learn why you should offer free shipping and how to make it happen, even if you’re in the beginning stages of your business.
Benefits of offering free shipping
Free shipping helps your customers spend more on tangible items rather than a cost that they can’t use in any way. Customers may see the cost of shipping the same as if you’d charged them a higher price for the product. The benefits of providing free shipping include:
- Encourages customers to choose your business. Many customers don’t like seeing an additional cost on top of a product’s purchase price. By offering free shipping, they may choose your business over another that doesn’t.
- Encourages customers to shop online. Purchases that require shipping are often purchased online. If more customers flock to online purchases, your business saves money on overhead costs. So, offering free shipping can boost your business’s overall profits.
- Motivates customers to buy more products. Since customers aren’t spending money on shipping, they may spend more on products. Your business actually gets a cut of that money versus the amount people might spend on shipping.
- You can mark up product prices. To offset shipping charges, you can add shipping costs as a line item in your business budget. After analyzing your business finances, you can set your prices high enough to generate positive revenue.
How to offer free shipping for your small business
To offer free shipping, you want to make sure that your small business can do so without dipping too far into profits. Here’s how you can afford to offer free shipping, even if you have less working capital than big-box retailers.
Bankrate insight
Working capital is the money your business has on hand to use as a resource to grow. There are also working capital loans, which help cover regular business operating expenses, opportunities or short-term expenses.
1. Understand your product costs
To understand whether or not you can offer free shipping, consider your business’s profit margins.
You can calculate the production cost per product, including shipping costs. Then, you can set a retail price that would incorporate the cost of shipping and turn a profit while offering free shipping. NielsenIQ provides an in-depth explanation of pricing your products that may be helpful.
2. Look at current shipping methods and costs
Your small business can choose to pay standard or flat-rate pricing for shipments through carriers like USPS, UPS or FedEx. Most carriers weigh or measure the package to determine your rate and charge accordingly. To help you control costs, you can compare costs from different carriers online before you set foot in the store.
You can also choose flat-rate pricing, which gives you a single rate — regardless of weight — when you ship in a carrier’s specific packaging. You can estimate your shipping costs on the carrier’s website or in person. If you ship products frequently, you could potentially negotiate a custom rate with the mail carrier based on your expected number of deliveries.
Bankrate insight
As an example, a box that is 10 inches in length, height and width would cost around $23 to ship from Atlanta, Georgia, to Dallas, Texas, with two-day UPS shipping. However, if the customer wanted the delivery sooner, your business would front nearly $157 for the quickest air delivery.
In comparison, a five-pound package with USPS would cost $14.05 to ship through normal Priority Mail or $54.20 if shipping with its two-day delivery option.
3. Have a free shipping minimum
You can encourage customers to buy from your small business by including free shipping when customers spend a certain amount. Setting a minimum spend for free shipping helps you offer this perk to customers without putting financial stress on your small business.
For example, you may have products that wouldn’t pay for themselves if sold and shipped free. Small or low-cost products may not generate enough profit to offset the shipping costs, but larger or more expensive products or a set free shipping minimum can likely help you cover shipping expenses.
Even Amazon only allows certain small products to be added to a shopping cart, and only if you reach its minimum $35 spend amount. With Amazon, the shipping minimum only applies to shoppers who don’t subscribe to Amazon Prime.
4. Use it as a Small Business Saturday promotion or event
If you’re not sure whether free shipping is right for your small business, you could try it out on Small Business Saturday. Choose which items you want to give customers a deal on, set your shipping minimums and see how customers respond.
Then, take a pulse of how shipping costs are affecting your business. If the shipping cost boosts your business that day, you can continue the momentum into the holiday season. If it isn’t working out, you can discontinue the deal.
5. Offer free shipping on certain products
A slight twist on having a shipping minimum: you could only offer free shipping when customers buy certain products. For example, many large retailers offer free shipping on larger items, like furniture, since the customer is already spending hundreds of dollars with them.
You could follow suit with products that could easily absorb the shipping costs. It’s a give-and-take promotion, allowing your small business to offer free shipping without taking a hit when customers buy less expensive products.
Why is Small Business Saturday important?
Small Business Saturday is the Saturday after Thanksgiving — between Black Friday and Cyber Monday — that celebrates small businesses and encourages customers to shop locally rather than with big-box stores.
Shopping small is vital to building a vibrant local economy, and small businesses need customers to support them. According to American Express, for every dollar spent at a local business, $0.68 stays within the local community. Additionally, each dollar employees and local businesses spend purchasing local goods and services adds an additional $0.48 to the local economy.
With customers already aware of Small Business Saturday, you can promote your small business for Small Business Saturday to encourage people to shop with you — whether that’s online or in person.
Bottom line
Free shipping may seem like a huge expense to your small business. But when you consider the cost of losing customers, it’s worth your while to figure out how your business can provide it without reducing revenue and profits.
See it as a service to your customers, putting their needs first to encourage them to shop with you. It’s also an opportunity to offer branded packaging and reinforce the quality experience that people can have with your small business.
Frequently asked questions
Small businesses can afford free shipping by calculating the full cost of shipping per item and either absorbing some of the cost or setting the product’s pricing at a level that covers shipping. If you absorb the cost, you want to make sure that you’re still making a profit, but your actual profit may be smaller. Keep in mind that free shipping encourages customers to buy from you, so you may generate more sales, improving your profitability.
Given the number of people who expect free shipping or purchase from other businesses due to shipping costs, it’s worth it to find out if your business can manage to offer this perk to your customers.
On Small Business Saturday, you can offer several sales to attract new customers or encourage higher sales. Those include:<br /><br />
- Buy one, get one free
- Buy three, get one free
- Spend $50, get a free gift
- 25% to 50% off an item
- Free shipping
- Holiday gift wrapping
- Free sweepstakes
