Free shipping: when it pays and how to offer it
Shoppers like free shipping, and many abandon an order when a shipping charge appears at the end. But someone always pays for the postage, and if it is not the customer, it is you. This post covers three ways to offer free shipping and shows the math on a simple example.
Free shipping is a cost you choose to carry
When a parcel costs $7.00 to send and the customer pays nothing, that $7.00 comes out of your profit, unless you raised your prices to cover it. So the question is not whether free shipping is good. It is whether the orders it brings in are worth more than the postage it costs you.
Free shipping tends to pay when:
- your products have a healthy margin and shipping is a small share of the price;
- shoppers compare you with stores that already offer it;
- you want customers to add one more item to reach a limit.
It tends to hurt when your items are cheap, heavy, or sold at a thin margin, because the shipping can eat the whole profit.
Three ways to offer it
1. Build it into the price
Raise the item price by roughly the shipping cost, then offer free shipping on every order. Shoppers see a clean price with nothing added at checkout. The risk is that the item looks more expensive when it is compared with others, and that near customers pay for far ones.
2. Free over a minimum order
Offer free shipping above a set order total, and charge a flat rate below it. This encourages larger orders. In Payly, give the zone two methods: a flat rate for every order, and a free shipping method with a minimum order amount. Small orders see only the flat rate, and large orders see both. The minimum is measured on the order total before shipping and tax, after any discount code.
3. Free in some places only
Postage costs more the farther it goes. You can offer free shipping in your home region and charge elsewhere. In Payly, each zone has its own methods, so one zone can have free shipping and another can have a flat rate. Payly uses the first zone that matches the shopper's address, so put narrow zones above broad ones.
A worked example
Say you sell a candle for $20.00. It costs you $8.00 to make, $1.00 to pack, and $7.00 to ship. Here is what you keep on one order in four setups:
| Setup | Customer pays | Your costs | You keep |
|---|---|---|---|
| Customer pays $7.00 shipping | $27.00 | $16.00 | $11.00 |
| Free shipping, price unchanged | $20.00 | $16.00 | $4.00 |
| Free shipping, price raised to $26.00 | $26.00 | $16.00 | $10.00 |
| Free shipping, price raised to $27.00 | $27.00 | $16.00 | $11.00 |
Free shipping with no price change cuts your profit on this order from $11.00 to $4.00. Raising the price to $26.00 wins most of it back, so the customer pays $1.00 less than before and you keep $1.00 less. Raising it to $27.00 is the same as charging shipping, just with a different label.
Now take a minimum. Say free shipping starts at $50.00, and a customer has two candles ($40.00) in the cart. Your costs for the two candles are $18.00 to make and pack, and the parcel costs $7.00 to ship.
- If they check out as they are, they pay $7.00 shipping. They pay $47.00 in all, your costs are $25.00, and you keep $22.00.
- If they add a $12.00 item that costs you $3.00 to make and pack, the order reaches $52.00 and shipping is free. They pay $52.00, your costs are $18.00 plus $3.00 plus $7.00, which is $28.00, and you keep $24.00.
The extra item earns you $9.00 ($12.00 minus $3.00), and the free shipping costs you $7.00, so you come out $2.00 ahead. If that item had cost you $5.00 or more to make and pack, the gain would be gone. A threshold pays when the extra items carry more margin than the postage you give up, or when it keeps shoppers who would have left at the shipping charge. Set it a little above your average order, then watch your order sizes in Dashboard & Analytics.
Setting it up in Payly
Open Settings, then the Shipping & Tax tab. If you ship at one price to everyone, the Free shipping over box applies the minimum to every order. For anything more detailed, add shipping zones and give each one the methods you want. Leave the minimum empty on a free shipping method to offer it on every order in that zone. See Shipping methods and rates and Set up shipping zones.
A discount code does not discount shipping, so a promotion on products and free shipping stay separate decisions. See Create discount codes if you also run codes.
Say it on your site. A short line in your header or on product pages, such as "Free shipping over $50", helps shoppers plan their basket before checkout.
Questions
Should I always offer free shipping?
Not necessarily. It suits some products and not others. Run the numbers on your typical order, as in the example above, before you commit.
Where do I find out what shipping costs me?
The Shipping tab in Dashboard & Analytics shows what customers paid for shipping. Compare that with your carrier bills to see whether you are covering your costs.
All amounts in the worked example are made up to show the arithmetic. Use your own costs.
