Online shopping is now a common part of everyday life for most Americans. Thanks to online retailers like Amazon, customers are now used to receiving free shipping on their orders. Can you compete?
For small business owners, offering free shipping can be a powerful tool to boost sales and compete with the e-commerce giants. However, it’s important to evaluate whether free shipping is affordable.
What does shipping really cost you?
Shipping expenses can be challenging to predict because they depend on various factors like package size, weight, distance, and speed of delivery. If you sell lightweight, high-margin products, offering free shipping is probably cost-effective.
In contrast, shipping heavy or large items or inexpensive goods can be cost-prohibitive. Use accounting or inventory software to track your shipping expenses over time to gain insights into your unique costs.
Before passing shipping costs on to customers, consider other ways to reduce your expenses. For example, different shipping providers, such as the U.S. Postal Service’s Priority Mail Flat Rate, UPS, and FedEx, each offer different pricing plans. Next, reevaluate your packaging to ensure you’re not using oversized boxes—that can increase costs, too. Finally, if you have a physical store, encourage local customers to pick up their orders in person.
How to budget for free shipping
Once you have a clear understanding of your shipping costs, consider setting a free shipping threshold. This is the minimum purchase amount that customers must meet to qualify for free shipping. Prominently display this threshold on your e-commerce website and in customers’ carts to encourage higher spending. Don’t forget to reevaluate your free shipping threshold periodically to ensure free shipping is still a profitable option.
Absorbing some of the increased shipping costs is necessary to maintain customer satisfaction, but there may come a point where you must adjust your prices, too. It’s important to stay competitive and profitable while considering the emotional aspect of pricing—especially as the cost of living rises.
Is it time to charge?
If free shipping is no longer sustainable for your business, don’t hesitate to charge customers. Most customers understand that heavy or bulky items may come with shipping costs.
However, transparency is key to retaining these customers. Use tools on your e-commerce website to show estimated shipping costs, and display rules like minimum order sizes prominently. If you communicate these shipping costs to your customers throughout their shopping experience, they won’t be surprised at checkout.
Remember, the goal is to find the right balance between offering attractive shipping options to your customers and maintaining a healthy bottom line for your business. By understanding your unique shipping costs and making informed decisions, you can find the right incentives for your customers.
Tracking and analyzing your shipping costs starts with great bookkeeping records—and you don’t have to do it alone.
Contact MCG Solutions today to learn more about outsourcing your bookkeeping to our team.