How to make free shipping profitable—even during the coronavirus

Determining how to offer free shipping and still make money is something that all business owners grapple with, even when we’re not in the middle of a global pandemic. Free shipping has become a hot topic in the last few years, as Amazon has created a customer expectation for free two, and now even one-day shipping for Prime members. This means that if you don’t offer free and fast shipping, your customers will go somewhere else for it. Fast and free shipping may be great for your customers, but it means you have to absorb additional shipping costs internally. We’ve put together some strategies on how to make free shipping profitable during disruptions in your supply chain like COVID-19.

How to offer free shipping and still make money

There is a plethora of ideas behind the best way to do this. Below we’ve outlined a few strategies to help you figure out where you may be able to find efficiencies in your supply chain to make free shipping less of a burden.

Ship from your brick and mortar store

If you have a brick and mortar store that you’ve had to close due to social distancing and non-essential business regulations, you can use the store as a fulfillment location for online orders. This is especially great if your store location or locations are in different regions than your fulfillment center. You can reorganize the items in your store for efficiency and have store associates pick, pack and ship online orders. This can also help your stores regain some profits during this difficult time. If you have a current warehouse management system (WMS), you can even set your store up as a fulfillment center and have the WMS keep track of inventory levels from each location.

Buy online, pick up in-store (BOPIS)

While traditional shopping has seen better days, in-store pickup is still an option that’s being widely used. This allows customers to make purchases online and pick them up at the store instead of having the items shipped to them. Store associates gather and bag the items, so customers don’t need to search for things themselves. Chains like Walmart and grocery stores have been doing this for months, but it’s particularly useful during the COVID-19 outbreak, as it allows shoppers and employees to limit their contact with others and stores can continue to stay open. Because of the coronavirus, BOPIS shopping has grown 62% year-over-year between February and March 2020, according to the Adobe Digital Economy Index. As coronavirus concerns remain, some businesses have even introduced curbside options, to limit contact even more. As an extra plus, you don’t need to worry about shipping the items and the associated costs.

BOPIS shopping has grown 62% year-over-year between February and March 2020

Optimize your fulfillment locations

As you customer base grows and you start making ecommerce sales across the country, having a single large centralized warehouse makes fast and free shipping much more difficult and expensive. A better alternative is regional warehousing. With multiple warehouses across the country that are close to major urban areas, you can delight your customers with fast and free shipping, and it will be much more affordable for you. It’s important to choose the locations of your fulfillment centers carefully, taking into consideration any government incentives or tax breaks, as well as where your vendors are located to ensure maximum efficiency.

Optimize your inventory management

Determining how much inventory to keep on hand can be complicated. Having more inventory in stock allows you peace of mind that you will not run out of best-selling items. However, it’s hard to predict demand, and having too much inventory just sitting around can be costly. Other options such as drop shipping or just-in-time fulfillment can help with cost control. Effective ecommerce inventory management is key to happy and loyal customers and it has been an issue during the coronavirus crisis. Items like hand sanitizer, non-perishable foods and toilet paper have been constantly in and out of stock, and there remains uncertainty as to when people will be able to get these items consistently again. The issues that companies are experiencing may change how they deal with inventory management in the future and we may see more stockpiling in case of another crisis like this.

Negotiate with carriers

The majority of your shipping costs come from carrier label fees, which means getting a good deal from your carriers can save you a chunk of change. You must first understand your shipping profile, before determining how to offer free shipping. For example, consider your typical package size. A carrier contract may have a low per-pound shipping cost, but it could have a minimum package charge, so if most of the packages you ship are smaller than the minimum stated in the contract, you could end up paying more. It’s also important to look at the fees that will impact your business the most. If a carrier offers large discounts on expedited services, but you don’t use it, there’s no benefit to having it. It’s also worth noting that if you use a third-party logistics provider, you may be able to save some money on shipping through them, since they often get a discount.

Set a minimum order value

The thing that can hurt your business most is delivering a very low-cost item for free, which shrinks your already thin margin. You can avoid this by having an order minimum that must be met for customers to get free shipping. Studies have shown that many shoppers will add items to their shopping carts in order to qualify for free shipping. By doing so, you can spread the shipping cost across multiple items and sell more items. It is important to set this amount in a thoughtful manner. You don’t want to drive customers away by setting an order minimum that’s too high. Look at your average cost of goods and use that to set an appropriate minimum order value so you can offer free shipping and still make a fair margin.

Partner with ITS Logistics for help making free shipping profitable today

We know that figuring out when and how to offer free shipping can be a difficult decision. It’s a balancing act between keeping your customers happy and your profit margins healthy. At ITS Logistics, we have supply chain experts who will review your current operations in great detail and craft a creative logistics solution for you. We have a great network of carriers to get you fair shipping rates, as well as seasoned team members who are well-versed in free shipping best practices. Give us a call to learn how to make free shipping profitable for your business today!

Looking for more information about free shipping? Check out “How to make free shipping profitable (part 2)“.