By Rosalie Murphy
Customers expect free shipping. Here's how you can make it pencil out — and how to charge for shipping if you must.
This article is reprinted by permission from NerdWallet.
After more than a decade with Amazon Prime, online shoppers have gotten used to receiving their purchases in a matter of days for free.
Not every e-commerce business has to be Amazon (AMZN), but small businesses may want to use free shipping as a tool to drive sales without wrecking their bottom lines.
Remember, “shipping isn't free,” says Danielle Malconian, CEO of clothing line Vikki Vi and online store Plus by Design. “It's included in the price.”
Here's how your business can make free shipping work — and how to tell customers if you decide to charge for shipping after all.
1. Track your costs
Shipping costs can be hard to predict. Prices vary by package size and weight, how far each parcel is traveling and how fast it needs to get there.
“If you have light, expensive items, that's where you're going to be able to offer free shipping because you're going to have it in the margin,” Malconian says. “It gets much harder when you're either shipping inexpensive items or you're shipping heavy items or large [items], because those prices are really, really high.”
You can use accounting software or inventory software to track your shipping expenses over time and develop an understanding of your business's unique costs.
2. Set a free-shipping threshold
Once you have a sense of how much shipping costs, you can use free shipping as a marketing tool to increase sales.
Grace+Love Candle Co., a candle and fragrance company based in Virginia, started by offering free shipping for orders over $50. But after looking more closely at shipping costs, founder Jamahl Grace says he decided to raise the threshold to $75.
“That's a very, very comfortable spot for us to not feel like we're losing too much money,” Grace says. “Being able to stay on top of our analytics and our books is important to us to really be able to optimize the customer experience, really give them the best offers we can.”
Make your free-shipping threshold prominent on your e-commerce website and in customers' carts, adds e-commerce expert Liz Kressel, CEO of Lizard Strategy. If customers are only a few dollars away from qualifying, they're much likelier to spend a little more.
Related: These 3 tips help small-business owners make better money decisions
3. Find ways to save
There may be ways to reduce your shipping costs before passing them on to customers.
First, explore different shipping providers. Malconian suggests Priority Mail Flat Rate from the U.S. Postal Service, which charges a flat rate based on package size for goods weighing less than 70 pounds no matter how far they're traveling. UPS (UPS) publishes its small-business rates so you can ballpark costs in advance. And FedEx (FDX) offers account holders discounts on a variety of other services, including office supplies and business insurance.
Second, right-size your packaging. Since shipping costs are usually based on both size and weight, make sure your most popular order quantities aren't shipping in boxes that are too big.
“You can't have just one size as if you're shipping the exact same product [in] the exact same quantity every single time,” Grace says. “Understand the cost associated with shipping in those boxes and the weight, because then that's where your efficiency comes into play.”
Third, Kressel suggests higher-volume sellers consider third-party fulfillment services. These companies negotiate bulk shipping contracts on behalf of lots of small sellers, getting cheaper rates than individual sellers could qualify for on their own.
Lastly, if you have a brick-and-mortar store, encourage customers to pick up their orders in person instead.
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4. Adjust your prices
When Grace+Love's costs increase, Grace says he absorbs what he can. But eventually, prices need to rise too.
“At the beginning of this year, we did a price increase after increased shipping costs and things of that nature,” Grace says. “As opposed to trying to inflate the cost of shipping, we just raised the cost of our candles to try and sort of offset that.”
And while it's important to monitor your business's performance closely, pricing isn't an exact science.
“Pricing is so emotional,” Malconian says. “It just has to make sense for you, for your store.
“We have to be unapologetic about staying in business,” Malconian adds.
Also see:4 ways small business owners can use AI, no experience required
5. Consider charging — but communicate
If you're losing money on shipping and can't raise your prices any further, there's one last option: Charge your customers.
“Customers are reasonable,” Kressel says. Shoppers typically don't mind paying to ship heavy or bulky items, and they don't usually expect free expedited or international shipping.
But don't surprise them. Find out whether your e-commerce website builder offers a tool — often available as a third-party app — that can show customers an estimated shipping cost. Display rules like minimum order sizes prominently on your website and remind customers often.
Customers will decide to pay for shipping “as long as you give them the time to make that decision,” Kressel says. “The time to make that decision is not at checkout — that's too late.”
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Rosalie Murphy writes for NerdWallet. Email: email@example.com.
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