October 5th, 2007 by Kyle West
It seems like everyone is doing it, from big names like amazon.com all the way down to the smallest of shops competing online. FREE SHIPPING. It’s a great promotion and you can use it too, not only to boost revenue but also to increase profit.
Profit? Is he crazy? How can we give things away for free and earn more profit? The answer is simple: make your customers earn their free shipping! We’ll get back to this later.
First, why does free shipping work? It works because it gives the customer the feeling they are getting a good deal even if the total price is the same or even higher than the competition. It’s a mental game and he who plays the best will win.
Think of all those late night infomercials. They’re not selling based on quality or even the promise of the product. They close the deal with the FREE gift. Nobody needs an 18 piece knife set and nobody’s buying an 18 piece knife set, but once they throw in the free knife block and a pair of scissors the phones light up. The product didn’t change and the $2 in extras isn’t all that compelling, but the feeling is great. The customer knows they are getting a great deal.
It’s All Perception Your customers buy on their perceptions, in fact all customers do.
Most perceive free shipping as a “good deal” and will choose it over paying for shipping. Many will see $5 Shipping the same way and you can recoup some of your shipping expenses. Remember at this point it’s not about the final price, it is about the perception of the final price.
Every shop is different and you’ll have to experiment to see what your customers limits are. I used to run $3 shipping. When we told people on the phone they actually perceived it better than if we had told them free. Free is commonplace. Stand out.
Don’t be Shady Don’t offer free shipping then tag on a $5 handling charge. Be upfront and honest about what it costs to do business with your company.
Profit! Remember I told you free shipping could boost your profits? It wasn’t totally a ploy to keep you reading, you really can and it is pretty simple. Make your customers earn their free shipping. Most shops offer free shipping for orders over a certain amount. How do you come up with that total? I’m guessing you grabbed a number out of the air and decided it sounded good. Try this instead:
Figure out what your average order amount is then add $30-50 and round down. For instance if your average order was $260 you’d end up with $260 + 50 = $310 (round down) $300. Set that as your free shipping amount.
Why? Two reasons:
The increased high-profit revenue will offset the cost of offering free shipping and in many cases can actually become a profit center.
Your Results May Vary There’s no one answer to any problem and promoting your business is no different. You’ll have to start experimenting with the techniques we’ve identified here and adjust as you gather data. Remember to give each technique a chance to work before you dismiss it. And always remember to talk to your customers. You’d be surprised how much insight they have. Trust them.