How to Offer Free Shipping to Dropshipping Customers Without Sacrificing Profits - Top 4 Strategies
Over the past few years, the logistics and supply chain industry has witnessed incredible advancements. For instance, same-day delivery is now not a foreign concept to many online shoppers anymore. As the industry standards have significantly risen over time, consumers also have higher expectations from their merchants, namely free shipping for their orders. However, the nature of dropshipping business models might be a major obstacle for store owners to implement this because it takes advantage of low-cost shipping methods. Nevertheless, it does not mean offering free shipping is impossible. In this blog post, we will take you through some important considerations and strategies with regard to this matter.
First of all, let us introduce to you some benefits of offering free shipping.
1. Enhance conversion and lower cart abandonment rates
It is without a doubt that the word ‘free’ hits many people’s sweet spots. In other words, everyone loves free stuff. In particular, a recent survey conducted by BigCommerce revealed that 50% of consumers will not purchase goods from stores who do not offer free shipping. What’s more? FuturePay reports that the shipping cost is the biggest cause of cart abandonment.
2. Increase Average Order Value (AOV)
Offering free shipping encourages customers to buy items from your stores because these products are not shipped for free at other places. Besides, for businesses who require a threshold for free shipping, shoppers are likely to check out more items to avoid shipping charges on their orders.
3. Improve repeated order rate
Consumers remember a store for 3 main things: product quality, customer service, and shipping policy. This suggests that if you provide free shipping alternatives, past purchasers are likely to come back to your store, given that you sell products of high quality and provide good customer support.
4. Keep you competitive
As shipping is among the most influential drivers in customers’ purchasing decisions, free shipping helps you compete with other stakeholders in the marketplace, especially in the e-commerce world. Offering free shipping encourages customers to purchase from your store instead of others’ where this option is not available.
Although you might already be persuaded that shipping packages to customers for free is a good idea, adopting this might be counterintuitive given the rising shipping rates. However, it does not mean this is impossible. In fact, many dropshippers have been successful with several strategies, which will be discussed shortly. These are the tactics that you could implement to cover or offset the cost of shipping, which is provided to customers for free.
1. Raise the product price
This method works for stores that sell items priced at middle to high ranges, such as high-end apparel or consumer electronics. In particular, you could merge the shipping cost into the listed price of the products. For instance, if you plan to put a particular product out for sale at $45, and the shipping fee is $5, you could put the price tag at $50. In some cases, you don’t have to cover the entire shipping cost; the product, for example, could be sold at $48 instead. This does not necessarily mean that you’ll be suffering from a loss. A small difference in price might drive more sales than you expect, which compensates for the shipping fees paid by you. Another thing to consider is that the final price should still be attractive enough to help you stay competitive with other competitors.
2. Offer free shipping on certain items
If you are reluctant to offer free shipping site-wide, this is something for you to consider. This can be implemented on goods that bring you a high profit level, such as electronics, because the margin could easily offset the shipping cost. This is even more advantageous for you if the items are relatively light, such as jewelry and beauty products, because shipping them does not cost much. Additionally, this tactic could also be done for items that are not moving fast in your inventory. It brings customers’ attention to them and encourages them to purchase it. You are encouraged to consider this option because many other issues, such as damages and obsolescence, would arise if you leave the goods in your inventory for too long. Last but not least, this strategy could also serve as a test that allows you to assess whether offering free shipping is beneficial to your ecommerce store.
3. Offer free shipping during holiday sales or promotional campaigns
Many online businesses make shipping free during festive seasons because competition tends to be more intense. Other occasions include their flagship campaigns such as new product launches. If you want this to be effective, you should have a specific time frame for the offer (e.g. 2 days or 1 week) and announce it to your customers before and during the periods. For example, you could put up a banner on your website to draw people’s attention. Moreover, you should also utilise other marketing tools to promote it, such as email, SMS, and social media.
4. Set a minimum purchase amount
This is the most common and realistic technique used by many players in the retail sector. By incentivising customers to place orders with greater values, it can help to reduce logistics costs per order for your business. However, it is crucial that you dedicate your effort into finding the right threshold. If it is too low (e.g. almost identical to your current AOV), it might not be enough to offset the shipping fees that you pay and not worth executing. On the other hand, if it is too high (e.g. 200% of your current AOV), customers probably won’t spend that much just to get free shipping. Although this varies across different sectors, a good goal that you can aim at is to increase your AOV by 20-30%. For instance, if the current AOV of your apparel store is $20, you are suggested to set the minimum requirement for free shipping at $25.
If you are planning to scale your dropshipping business, besides following the guide above, you are also encouraged to work with a reliable dropshipping agent. This is because they would be able to provide your significant support and resources when it comes to back-end issues. These range from product & supplier sourcing to warehouse storage and ecommerce order fulfillment, or branded packaging & private labelling to quality inspection & product certification. With 30+ years of experience in logistics industry and 5+ years in dropshipping sector, Xianchao Logistics could help to bring your ecommerce store to a new horizon. Contact us today to find out more!
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