The Truth About Free Shipping: Is It Costing Your Business?

Free shipping is a powerful marketing tool. It attracts customers, boosts conversions, and makes your e-commerce store more competitive. But is it truly “free”?

For businesses, shipping is one of the most expensive costs in the online selling process. While customers love the idea of paying nothing for delivery, the reality is that someone—usually the seller—still foots the bill.

A recent survey found that 66% of consumers shop for free shipping online. While offering it may seem like a no-brainer, the real question is:

Can your business afford it? And if so, where can you cut costs to make it work?

@steve_orenstein A great delivery experience is vital to business growth. No hate intended! But here's what Myer could have done differently… #smallbusiness #Delivery #LastMileDelivery ♬ original sound – Steve Orenstein 🚚

What Are the Different Types of Free Shipping?

Before deciding whether to offer free shipping, it’s essential to understand how businesses implement it.

1. Unconditional Free Shipping

Every order qualifies for free delivery, regardless of size, price, or location. It doesn’t matter of the size or the location.

2. Threshold-Based Free Shipping

Threshold-based free shipping is is when customers get free delivery only if they meet a minimum order value. This is often seen by businesess trying to cover the bulk of their expenses.

3. Membership-Based Free Shipping

Membership-Based Free Delivery is an exclusive offer to loyalty programs or subscription services. These offers are often seen by the likes of Amazon Prime.

4. Limited-Time Free Shipping

Limited-Time Free Shipping is when a business offers temporary promotion of free delivery to boost sales during holidays or special events.

5. Product-Specific Free Shipping

Product-Specific Free Shipping applies to certain items or categories within the store.

How Do Businesses Afford Free Shipping?

If free shipping were genuinely free, every company would offer it. The truth is businesses use different strategies to make it work:

• Building shipping costs into product prices – The customer technically pays for shipping, just without seeing an extra fee.
• Negotiating lower shipping rates – Partnering with carriers for volume-based discounts.
• Using delivery management tools – Optimizing routes to reduce logistics expenses.
• Limiting free delivery to certain conditions—offering it only for profitable items, specific regions, or loyal customers.

How To Determine If You Can Afford Free Shipping

Offering free delivery can cost your business more than you imagine. Here’s a checklist to help you determine whether it works for your business.

Understanding Your Shipping Costs

Every shipping method has its price tag. The big question is, do you know how much you pay per order? The next question you should consider is how much is left of your margin after offering to deliver for free.

Here’s what you need to ask yourself:

• Do I know your exact shipping costs per order?
• Have I calculated your average order profit margin after shipping expenses?
• Are my packaging and handling costs included in my shipping cost analysis?

Evaluating Customer Impact Of Free Shipping Delivery

There’s nothing worse than paying for customers’ shipping costs but not seeing any results. You need to determine if it’s even worth the sacrifice.

Here’s what you need to ask yourself:

• Do I see higher order volumes since free delivery is offered?
• Have customers increased their average order value to meet free shipping thresholds?
• Are customers returning items more often? This increases your reverse logistics costs.

Checking Your Financial Health

You must always try to keep track of your financial health when offering free deliveries or services. If you absorb too much of the shopping costs, you must ask yourself whether it’s still worth it.

Here’s what you need to ask yourself:

• Have my overall profits decreased since implementing free delivery?
• Am I absorbing too much of the shipping cost instead of passing it on in product pricing?
• Am I struggling to negotiate lower rates with carriers to offset shipping expenses?

Analyzing Competitor Strategies For Free Shipping Offers

You need to monitor your competitors’ activities. If they offer free shipping, you must find ways to save money elsewhere in the business and continue to offer it.

Here’s what you need to ask yourself:

• Are my competitors offering free delivery, and are their prices similar to mine?
• Do I have to compare shipping policies with those of top industry players?
• Do you need free delivery to stay competitive, or could other incentives (discounts, loyalty programs) work better?

Reviewing Alternative Free Delivery Offers

Behold, there are ways to rethink the delivery fees to ensure they don’t eat into your profit. You can save money elsewhere—plenty of wasteful expenditures you can save if only you knew where to look.

If your drivers use inefficient routes to drop off deliveries, you can save significantly by only using route optimization software. You can save further by minimizing your fuel expenses through fleet management software to ensure no more harsh breaking or unnecessary idling.

Here’s what you need to ask yourself:

• Have I considered threshold-based free delivery, for instance, free shipping for orders over $50?
• Can I limit free delivery to specific products, regions, or membership plans?
• Have I tested offering free local delivery instead of nationwide free shipping?
• Can I offset costs by using delivery management, route optimization, and fleet management software to reduce expenses?

Final Check: Should You Keep Free Delivery?

If your profits are shrinking, you should seriously consider adjusting your free delivery policy. If you aren’t receiving more customers placing orders, you need to start implementing a minimum threshold. But if your shipping costs are unpredictable, you should try to negotiate with carriers.

Free shipping should be a strategic tool, not a giveaway. 

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