Shipping is one of customers’ biggest considerations when buying online. “How much is shipping?” and “When will my order arrive?” are make-or-break questions that determine whether an online shopper completes their purchase.
Customers expect free shipping and super-fast delivery, and if those perks are not on offer, they’re happy to walk away. Shipping fees are frequently cited as one of the main reasons shoppers abandon their carts; overall, the shopping cart abandonment rate stands at about 70%.
There’s a reason customers love free shipping so much they’ll put a $10 product in their cart to avoid a $7.99 shipping fee. Learn about the psychology behind a free shipping strategy, so you know when and how to deploy it.
What is free shipping?
Free shipping is a strategy where online retailers cover the cost of shipping as a way to reduce shopping cart abandonment and increase conversion rates. The shipping fee doesn’t get levied onto a customer’s order at checkout—online shoppers know that the price they see on a product page is the amount they’ll pay.
Reasons to offer free shipping
The age-old question of whether free shipping increases sales is best answered by looking at the data:
Free shipping increases sales
More than eight in 10 consumers cite free shipping as their top priority when putting in orders. Shoppers believe they’re getting a better deal when they don’t have to pay for shipping costs, and will add more items to their carts to qualify for it. Plus, offering free shipping can help you build trust with your customers.
Free shipping increases average order value
A free shipping threshold can boost your average order value (AOV). For example, if customers spend an average of $35 and you set the free shipping threshold at $50, you can increase the average amount customers spend.
As many as 80% of online shoppers are willing to meet a minimum purchase threshold to avoid extra shipping costs. And if they want to spend $10 to receive an additional physical product rather than $7.99 simply to get their initial purchase delivered to them, they’re going to do it. That’s because they feel like they’re getting more value by purchasing an additional item than paying for shipping.
Free shipping reduces cart abandonment
Extra costs, including shipping, cause 48% of online shoppers to abandon their carts. If a potential customer hits checkout and then gets a look at your standard shipping rates, they’re likely to exit your website right then. However, if you offer free shipping, your shoppers are much more likely to finalize their purchase without hesitation.
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The Shopify guide to shipping and fulfillment
Boost customer satisfaction while driving sales growth for your ecommerce business with an effective shipping and fulfillment strategy. Use this guide to create a plan that covers all aspects of shipping and fulfillment, from how much to charge your customers to choosing the right fulfillment method.
Types of free shipping
There are a few ways to offer free shipping to your customers:
Site-wide free shipping
Whether a first-time customer is placing a small order or a loyal buyer returns to make a larger purchase, they’re all entitled to free shipping with the site-wide approach. This can increase your conversion rate and minimize cart abandonment. However, free shipping isn’t necessarily free—someone needs to front the cost of shipping. Depending on the products you offer, you can significantly lower profit margins by offering free delivery to all shoppers.
Conditional free shipping
The most popular example of conditional free shipping is minimum order thresholds. This strategy influences up to eight in 10 online shoppers to spend more and avoid shipping costs. Other conditions include people within a certain radius of your store, or for certain customer segments (such as first-time customers or loyalty program members only).
Free shipping for loyalty program members
A recent report found that the biggest benefit for people who sign up for a store’s loyalty or membership program is to qualify for free shipping. This alone can encourage retention and squeeze more revenue out of customers you’ve already acquired.
How to cover the cost of free shipping
- Calculate profit margins
- Set a minimum order value
- Limit free shipping to select products
- Offer free shipping within a certain radius
- Negotiate discounts with shipping carriers
- Reward specific actions with free shipping
- Launch a free shipping promotion
- Consider free local pickup
Free shipping across the board might not work for your business. After all, it doesn’t work as an incentive if it puts you in the red. Here are eight ways to go about it and maximize profitability:
1. Calculate profit margins
One of the easiest ways to offer free shipping is to include the shipping cost in the price of your product. This way, free shipping is baked into every item you sell.
To make this work, calculate your profit margin to ensure free shipping won’t cut into your profits. Remember to include the cost of goods sold (COGS) and additional operating expenses like running your online store, holding costs, marketing, and other necessary costs to keep your business moving. You can then use the Shopify profit margin calculator to calculate.
For example, if an item costs $20 to produce and you charge $30 for it, your markup is 50%.
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This means you profit $10 per product, with a gross product margin of 33.33%. To offer free shipping, you’d need to take a slight cut in your profits or mark up the products so the shipping costs are included. You could do a bit of both.
Even if your products are slightly more expensive than your competitors’ products, if they’re free to ship, you have an advantage.
2. Set a minimum order value
Another option is to offer free shipping if your customers spend a certain amount. This can be incredibly effective, considering 47% of consumers will spend a minimum amount to get free shipping.
Many brands use this strategy, like SKIMS, which offers free domestic shipping on orders over $75 on its website.
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Here’s how to calculate your free shipping threshold:
- Calculate your average order value (AOV), without shipping costs (for example, $40).
- Determine your average shipping costs (for example, $8),
- Calculate your gross profit margin. To do this, subtract your cost of producing product from the total sales and divide that number by your total sales (for example, if your total sales add up $100k and your cost is $60k, then the formula would be ($100,000 - $60,000) / $100,000 = 40% gross profit margin).
- Propose a minimum cart value (for example, $45).
Next, put your proposed minimum cart value to the test:
- Determine the difference between the minimum cart value and the AOV ($45 - $40 = $5).
- Multiply the difference by the gross profit margin ($5.00 * .40 = $2).
- Subtract the result from the average shipping cost ($8 - $2 = $6).
In this example, you’re going to pay $6 for shipping on qualifying orders. This is too much of a hit on your bottom line so look to adjust the minimum cart value. Use $55 as the minimum.
- Proposed minimum cart value minus AOV ($55 - $40 = $15).
- Multiply the difference by the gross profit margin ($15.00 * .40 = $6).
- Subtract the result from the average shipping cost ($8 - $6 = $2.00).
By upping your threshold by $10, you still provide value for customers while dropping your shipping cost to just $2 per order.
Ideally, the free shipping threshold is set just high enough above your median order value (MOV) or AOV to nudge customers to add extra items to their cart, which they might not have done otherwise.
3. Limit free shipping to select products
Shipping fees for larger products can be pretty hefty, so at some point, it would not make sense financially to offer free shipping. For example, it could be difficult for a furniture brand to provide free shipping to all of its customers.
However, if you sell a mixture of products, you might be able to swing free shipping on some of the smaller ones. That furniture brand could offer free shipping for things like bedding or small tables, for example.
4. Offer free shipping within a certain radius
If shipping to faraway places gets too expensive, consider only offering free shipping in certain states, provinces, territories, or countries. Location-based free shipping can be one way to appeal to a large segment of your audience—even if you can’t offer it to everyone.
Local delivery is another option that’s quick and offers a way to create a personalized brand experience. Customers who shop locally are often looking for a personal connection, and direct delivery is a great way to do it.
Alternatively, you can try to store your inventory close to where data shows your customers are buying. Storing your products closer to your customers helps you reduce carrier costs, offer free shipping, and speed up shipping.
Keep in mind that relocating your inventory will incur new storage costs that will impact your profit margins. Speak to a third-party logistics provider to better understand the costs of outsourcing the pick, pack, and shipping process.
5. Negotiate discounts with shipping carriers
No one has more control over your shipping costs than the carriers themselves—companies like USPS, DHL, and UPS that deliver your customers’ orders. Sometimes they hold the key to offering free shipping while remaining profitable.
You can connect your account to use your own rates, or let Shopify handle it for you. With Shopify Shipping, you have access to the best discounts available through exclusive carrier partnerships.
6. Reward specific actions with free shipping
Use free shipping to incentivize other actions that help your business, such as:
- Creating an account
- Opting into your loyalty and rewards program
- Signing up for your email newsletter
- Following your social media accounts
- Referring your business to a friend
This free shipping strategy is ideal if your sales cycles are long or paid shipping options are expensive. For example, if you’re selling expensive furniture, people probably won’t buy something the first time they visit your store. They need to compare their options, measure the space they have available, and chat it through with their housemate.
Use an email popup form that offers free shipping in exchange for their email address. This allows you to retarget that customer after they leave your site and encourage them to buy.
7. Launch a free shipping promotion
Offer free shipping for a short period of time to create a sense of urgency and boost sales.
Consider creating a promotion for one weekend every month or for events during holidays like Christmas, Mother’s Day, or Father’s Day. Or, offer free shipping coupon codes for people who sign up for your email newsletter.
Alternatively, create a shipping-related discount code that lasts for a few days and promote it on your website and social media. By offering free shipping for just a few days, you incentivize customers who have been putting off a purchase to pull the trigger.
8. Consider free local pickup
If you can’t offer free shipping on an ongoing basis but have a brick-and-mortar storefront, consider adding curbside pickup as an option.
Customers actively look to support local businesses to help sustain their communities and economy. They’re also interested in curbside pickup options because they offer enticing advantages like reduced wait times, convenience, reduced ecological impact, and guaranteed delivery on their schedule.
Fast vs. free shipping: what’s more important?
It can be challenging for small businesses to offer both free and fast shipping. Many brands have to choose between the two. While it can seem like a tradeoff, a recent survey found that customers overwhelmingly prefer free shipping to fast shipping.
That said, customers are under the “Amazon effect,” or the expectation that certain products will be available for free two-day shipping—even same-day shipping in some cases.
Often, your best bet is offering standard shipping first, then faster shipping. This might mean setting a minimum purchase threshold to qualify for free standard shipping and upselling expedited shipping options that let them get their order faster for an extra fee.
Customer expectations around free shipping
What customers really want from free shipping offers
Removing shipping costs at checkout isn’t enough to satisfy online shoppers. Aside from making delivery free, there are other expectations around shipping that you must factor into your shipping strategy, including:
- Speed. A DHL report found that 61% of global shoppers want next-day delivery, but they’re not willing to pay extra for it. Consider outsourcing the fulfillment process to a third-party logistics provider like the Shopify Fulfillment Network. It connects your store with Flexport, which has the infrastructure to fulfill orders quickly, often passing on discounted rates from shipping carriers.
- Convenience. Some 16% of consumers say that convenience is the most important delivery feature when online shopping. Cater to this with a variety of delivery options, such as curbside or in-store pickup, delivery to a parcel locker, or the ability to choose a delivery time slot.
- Sustainable shipping options. Some 59% of shoppers consider sustainability important, with DHL reporting that many are willing to pay higher shipping costs to be more eco-friendly. Cater to these shoppers with sustainable shipping practices like using eco-friendly packaging, removing packaging to avoid waste, and working with carriers that have an electric fleet of delivery vehicles.
- Shipment tracking. Nine in 10 online shoppers say shipment tracking is important, per DHL. This isn’t just useful to customers—it can reduce the administrative burden of replying to “Where is my order?” questions. Shop, for example, has a native parcel tracker that sends pop-up notifications to app users at key points during the delivery process.
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How free shipping affects brand loyalty
Extra shipping costs are an extra hurdle that could deter loyal customers from buying. It becomes a no-brainer to buy their favorite products again if they don’t have to pay an additional fee for shipping and fulfillment.
The same applies to returns. If first-time customers are forced to pay a fee to return an item, you’ll alienate the 41% of shoppers who only buy from retailers that offer free return shipping.
Setting up free shipping on Shopify
Shopify makes it easy to offer free shipping. There are several ways to do this:
Free shipping rate method
The free shipping rate method allows you to automatically offer free shipping when a customer’s order meets price or weight conditions. To do this in Shopify:
- Find the Settings tab.
- Go to Shipping and delivery.
- Locate the shipping profile you want to edit.
- Click Add Rate, give it a name, and set the value of the Price field to 0.
- Click Done and press Save.
You can also use this method to define which orders don’t qualify for free shipping if that’s something you offer as standard. For example, you could reserve free shipping for orders that are cheap to ship, such as lightweight packages that weigh less than 5lbs. This method automatically removes the shipping discount if the products in a customer’s cart weigh more than this amount.
Free shipping discount codes
A free shipping discount code removes the price of shipping when an online shopper enters the coupon code at checkout.
Here’s how to create a free shipping discount code from your Shopify admin:
- Head to the Discounts tab in Shopify.
- Click Creatediscount.
- Choose Free shipping from the Select discount type menu.
- In the “Method” section, choose Discount code.
- Create the code manually or using the Generate code tool.
- Review the details and click Save discount.
Free shipping discount codes are great if you want to reward specific customer segments, such as first-time customers or loyalty program members. Only the people who’ve received the code can redeem the free shipping offer.
The downside is that people might forget to use the discount code at checkout or only realize it was an option after they’ve paid for their order. Both can result in unhappy customers contacting support for a shipping refund.
Conditional free shipping discount
Conditional free shipping deducts the cost of shipping without requiring customers to enter a discount code at checkout. They’re used when price or weight conditions are not what you're trying to achieve.
To do this:
- Sign into Shopify and go to Discounts.
- Choose Creatediscount.
- Go to Select discount type and press Free shipping.
- Choose Automatic discount.
- Create the free shipping code.
- Review the details and click Save discount.
Automatic free shipping solves the issue of unhappy customers who forgot to enter the code manually at checkout. However, it does apply to everyone. You might end up covering the cost of shipping for customers who were otherwise happy to pay an additional fee.
Configure free shipping conditions
If you’ve decided that conditional free shipping is the best strategy for your online store, Shopify lets you manage discount eligibility from the Discount tab.
For example, you could:
- Set a minimum purchase or quantity threshold
- Make the free shipping coupon exclusive to a particular segment, such as VIP or first-time customers
- Apply a free shipping coupon to specific transactions (i.e., only one-time purchases and not subscriptions)
- Set a usage limit that only lets a certain amount of customers redeem the free shipping code
- Exclude specific countries or regions for free shipping
- Configure start and end dates for a time-sensitive free shipping promotion
Should you offer free shipping?
Free shipping is becoming increasingly necessary to maintain customer satisfaction. You can experiment with different types of free shipping to see which one leads to the highest profit margins.
Keep in mind your free shipping threshold is not a set-and-forget number; your strategy will, and should, change as your business grows. Revisit your shipping policies at key selling periods and growth milestones.
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Free shipping FAQ
Is free shipping really free?
Free shipping can be completely free for customers or come with conditions. In some cases, retailers offer free shipping on orders that meet a minimum purchase amount or get shipped to a specific geographic location. In these cases, the business owner absorbs the costs of shipping. Some retailers incorporate the cost of shipping into the product price or only require customers to pay extra shipping fees for expedited shipping options.
Do people buy more with free shipping?
Yes, people buy more when free shipping is available. Free shipping increases perceived value, reduces buyer hesitation, increases average order value, and boosts sales overall.
Does free shipping make a difference?
Yes, free shipping can change how customers view a product or service. Customers who receive free shipping are more likely to shop with a business that offers it, as it saves them time and money. Free shipping can also help increase customer loyalty and satisfaction, as customers appreciate the convenience of not having to pay for shipping.
Who pays for shipping when it’s free?
It depends. In some cases, the seller pays for the shipping when it’s free. This is typically the case if it’s a free shipping promotion for a limited time or a selection of products. If it’s always free, many businesses bake shipping costs into the product price, and the consumer actually ends up paying for it when they make the purchase.
Do customers care about free shipping?
Yes, customers care about free shipping. Many studies and surveys show that shoppers prefer free shipping to fast shipping and are open to things like minimum orders, loyalty program membership, and other requirements for free shipping promotions.