Top 10 strategies for free shipping — An essential guide for online sellers

OHMYGOSSIP — If you are not offering some type of free shipping today, research shows that you’re losing sales, customer loyalty, revenue per sale and product margin. There’s no question free shipping is a virtue when it comes to creating a climate of excellent customer service.

Two thirds of online shoppers report being actively annoyed by shipping costs, according to a recent Harris Poll. Meanwhile, up to 85% of shoppers prefer free standard shipping promotions above any other common online promotion, independentretailer.com mediates. 

Shipping costs eat away at profits, but rather than avoid free shipping, leading online sellers employ multiple strategies to keep shipping costs as low as possible. Here’s how you can, too:

1. Deferred Only. Offer free delivery only for lower cost deferred shipping services. 85 percent of shoppers are willing to wait 5 days for an online order, and if free shipping is offered, 83 percent are satisfied with 7-day delivery. FedEx SmartPost, UPS SurePost, UPS Mail Innovations, Newgistics, DHL Global Mail and OSM Worldwide are some of the larger postal consolidators that offer two-seven day delivery to the residence at significantly lower pricing than Air and Ground services.

2. Go Postal. Shippers that add the US Postal Service (USPS) to their carrier mix can significantly drive down costs and improve service. The USPS enjoys many unique advantages over private carriers. They already go to every door, every day. Other carriers often need to make an additional stop, especially to residences. Many USPS products are competitively priced, especially when compared with fully landed costs, with special handling and surcharges included, with UPS and FedEx. Rates are offered at several pricing options: Retail, Commercial Base, Commercial Plus and custom Negotiated Services Agreements (NSA). There are also many flat, unlimited weight and Regional Rate options.

A pricing analysis reveals that the USPS is particularly competitive for lightweight, residential packages, especially to close-in zones. It’s a low cost choice for offshore shipments to AK/HI, as well as US Territories. It offers free packaging, free pickups, and free Saturday delivery.  It is the only carrier that offers First Class pricing for parcels that weigh under a pound, with delivery service standards within 1-3 business days.

3. Ship-to-Store. Shipping consolidated packages to a single location is significantly cheaper than shipping individual, lightweight packages to multiple residences. Here’s how ship-to-store strategies work: The customer makes a purchase on the retailer’s website and chooses to pick up their order in-store; the retail location is notified of the incoming order, and fulfills it using in-store inventory. Alternatively, if an item is unavailable at the local store, it can be shipped directly from a distribution center, another store, or even a vendor location. Lastly, the customer picks up the item at their convenience.

And it’s another great way to increase order value. In a study of Shop-a-Tron merchants, once in a store, more than 40 percent of in-store pickup orders resulted in additional sales.  According to Forbes, in-store pickup is emerging as one of the most prominent ways to blend the online and offline shopping experiences. More and more retailers are beginning to launch in-store pickup programs as a way to boost sales and increase online conversions: 70 percent of the top 10 retailers offer in-store pickup of online orders. However, only about one quarter of the remaining 30 percent provide the same option.

4. Build into Product Cost. Remember the BCG study that found shoppers want free shipping more than they want lower prices on the products they are buying. Simply build shipping charges into the product cost for certain items. Let’s say the target product price at desired margins is $90. Sell it at $95 and include free shipping. Companies like Zappos are able to collect close to 100 percent margins in an extremely competitive, and in many cases, low margin shoe industry, in part by offering free shipping & returns.

5. Limited Products. Advertise free shipping, promote free shipping, and do free shipping, but limit it to those products that make the most economic sense.  Do not offer free shipping on items for which you’ll incur dimensional or oversize charges, assembly costs, high insurance fees, or other extraordinary costs.  Conversely, offer free shipping only on higher margin products that can absorb the additional shipping expense. According to Baird Equity Research, only about 10 percent of Amazon’s physical items are available for Prime.

Still feel you can’t afford to offer free shipping? The good news for business owners worried about taking on this added expense is that there are ways around high shipping costs. So without further ado, here are 5 more methods you can use to hold down shipping costs and pass along those savings to your grateful customers:

6. Dollar Threshold. Offer free shipping if the dollar value of the purchase exceeds a set threshold. This is another page out of the Amazon playbook. If you’re not an Amazon Prime member and still want free shipping, Amazon says, “No problem. Just increase your order size to more than $35, and we’ll throw in the shipping.” It’s a great way to increase order value: 58% of shippers will actually add items to their cart to qualify for free shipping (comScore, 2014).

7. Improve Parcel Discounts. Use benchmarks to understand how your rates compare with other shippers. Small changes to your carrier agreement can have a large impact on overall savings. Quantify which extra charges affect your company the most and target these charges for waivers or reductions during negotiations. In addition to pursuing lower accessorial charges, don’t overlook opportunities to reduce overall discounts and minimum shipment charges.

8. Go Regional. Regional carriers like Eastern Connection, LSO, OnTrac, Spee-Dee Delivery, Pitt Ohio, LaserShip, Prestige Delivery, Courier Express and others offer reliable parcel delivery services at rates as much as 40% less than national carriers. Regional carriers are ideal for shippers with multiple distribution centers, especially if the distribution centers are aligned to the regionals’ delivery footprint.

9. Mine Parcel Invoices. According to industry estimates, each year more than $3 billion in “guaranteed” service claims are not refunded because claims are never filed. Companies that take the time to audit invoices realize the benefit from this often overlooked savings opportunity. And it’s not just late shipments entitled to money back guarantees, but also missing discounts, overcharges, shipments manifested but never shipped, and other erroneous charges common with parcel invoices. For companies unable to audit internally due to a lack of resources, there are a number audit and payment firms with weekly savings ranging from 1% – 15% of the total invoice amount. A qualified freight audit firm ensures you never overpay your carriers.

10. Least Cost Routing. Modal optimization—choosing the right carrier to derive the fastest delivery at the lowest cost—requires enabling technology. The right technology will take the guesswork out of routing packages. Explore ERP, TMS and/or multicarrier options that allow for multiple-carrier rate shopping. Be sure the technology searches includes package dimensions, weights, zones, surcharges, and includes the unique terms and incentives of your parcel pricing agreement.

In summary, there are multiple strategies you can explore offset the cost of shipping so you can provide low cost or free shipping, for at least some of your products. The right combination of these strategies will help you reduce costs, improve delivery transit to your customers, increase cart conversions and order values, and enhance customer loyalty.