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Offset the Cost of Holiday Shipping While Keeping Customers Happy

Article - 11 Min. Read -

Start preparing for the holiday season. See how you can offset the cost of free shipping to make your customers happy without breaking the bank.

Shipping packages arranged to create Christmas tree shapes.

Make this your best holiday sales season yet.

During the holiday peak season, including Black Friday, your sales can quickly go from first gear into overdrive. This peak period can be a make-or-break time for your business to meet its financial goals for the entire year.

While e-commerce competition can be fierce, the holiday shopping season can actually help level the playing field for smaller businesses, as customers look for specialty gift items that big-box stores don’t offer. This is the time for your business to turn new customers into loyal customers. Don’t let shipping stand in your way.

Free shipping has become a powerful incentive for customers to shop online. And today’s shoppers expect it. In a recent survey of online shoppers, 85% of respondents said that free shipping was important to them.[1] That’s why it’s so important to put your best shipping offers on the table, offsetting shopping cart abandonment and helping to ensure customer satisfaction.

While your business might not be able to afford to offer free shipping all year long, there are some options that can help you offset the cost during the all-important holiday season.

Let’s take a look at seven ways you can offer free shipping, as well as some alternatives, to help make the holiday season extra merry—for both your business and your customers.

Roll Shipping Costs Into Your Profit Margin

Integrating shipping fees into the price of your product and promoting a limited-time free-shipping offer can be an effective way to drive more traffic to your website and generate sales during the holidays. If you’re selling a one-of-a-kind item, this can be especially useful, as customers are often willing to pay more for unique gifts.

The goal is to raise the price of your product by the amount it costs to ship it, not to increase your profit margin. In this scenario, it’s important to increase the price just enough to offset the cost of free shipping. Although many customers are willing to pay a little more for your item if it includes free shipping, they may go elsewhere if they feel you are grossly overcharging.

Pro Tip

Know what your shipping costs are upfront. This way, you can make an informed decision on exactly how much you will need to roll into your profit margin in order to offer free shipping without taking a loss. USPS Priority Mail Flat Rate® shipping is a good option for many businesses, offering one rate to any state—with no weighing or calculating needed—for packages up to 70 pounds. If Flat Rate options don’t fit your shipping needs, check out the USPS® Business Price Calculator to help you accurately determine what your shipping costs would be for a wide variety of package sizes and delivery options.

Manage Shipping Surcharges and Holiday Surge Pricing

During peak holiday periods, some shipping carriers may tack on surcharges to help pay for extra workers and increased volume. Left unmonitored, shipping surcharges can add up quickly and take you by surprise.

That’s why it pays to shop around. Choosing a shipper who does not apply surcharges during the holiday season can result in significant savings, allowing you to offer free shipping options to your customers.

Pro Tip

USPS offers a free surcharge calculator to help you estimate the surcharges you may be paying with your current carrier.

Establish a Minimum Order Threshold

To encourage larger orders, establish a minimum order value for customers to qualify for free shipping during the holidays. For example, you could promote a free-shipping offer for all orders over $100. You could also add an incentive in which customers earn free shipping if they add $X amount more to their order. With some careful calculations and goal setting, the increase in sales could offset the expense of free shipping.

Pro Tip

To help you determine the minimum order value that works for your business, analyze your finances based on:

  • $ Average Order Value
  • $ Gross Profit Margin
  • $ Average Shipping Costs

Once you have pulled together these numbers, you can apply them to the formula below. This will help you set realistic minimum threshold values that make sense for your business.

Minimum Threshold Value Formula

Here are two scenarios that demonstrate how to use the formula:

Scenario 1 Minimum Value Is Not Viable. Minimum Cart Value minus Average Order Value equals A. A multiplied by Gross Profit Margin equals B. B minus Average Shipping Costs equals C. If C is less than 0, threshold is not viable. Example Minimum Cart Value equals 50 dollars. 50 dollars minus Average Order Value equals 35 dollars. The difference equals 15 dollars. 15 dollars multiplied by 40 percent Gross Profit Margin equals 6 dollars. 6 dollars minus seven dollars Average Shipping Costs equals negative 1 dollar. Negative 1 dollar is less than 0. Not fiscally smart. Scenario 2 Minimum Value Is Viable. Minimum Cart Value minus Average Order Value equals A. A multiplied by Gross Profit Margin equals B. B minus Average Shipping Costs equals C. If C is greater than 0, threshold is viable. Example Minimum Cart Value equals 60 dollars. 60 dollars minus Average Order Value equals 35 dollars. The difference equals 25 dollars. 25 dollars multiplied by 40 percent Gross Profit Margin equals 10 dollars. 10 dollars minus 7 dollars Average Shipping Costs equals 3 dollars. 3 dollars is greater than 0. Fiscally smart.

Ideally, the free-shipping threshold amount should be low enough to be perceived as a promotion and attract new customers, but high enough that you aren’t losing money on your transactions.

For example, if your average customer is spending $45 per order, consider setting the free-shipping threshold at $60 to increase the number of orders you receive above $45. And remember, it’s important to remain realistic when determining how much more customers are willing to spend to get free shipping.

Offer Free Shipping on High-Profit-Margin Items

Offering free shipping on select products that already have a high profit margin is a common practice for retailers of all sizes, as it allows you to more easily absorb the shipping cost. If free shipping won’t put you in the red for specific items, the extra sales incentive could help you bring in new customers.

This technique works especially well with smaller, high-profit items that are relatively inexpensive to ship. For example, if a piece of jewelry costs $1,500, absorbing the $5 shipping fee is a small price to pay for the promotional benefit of free shipping. While a low shipping fee is unlikely to deter someone spending $1,500 on jewelry, offering free shipping can draw more customers to your website.

Pro Tip

Create a spreadsheet and list the profit margin for each of your products. This will help you define which products would allow you to offer free shipping without taking a hit to your profits. For example, if your profit margin on select items is more than 30%, you could offer free shipping for those items only. Be sure to update and review your numbers regularly as prices and products change.

Include Paid Advertising in Your Packages

Earn revenue on every package you ship by including paid advertising for a noncompetitive, third-party advertiser. These win-win partnerships can help you offset the cost of free shipping: You simply include their ad in each package you ship. Over time, this revenue can add up to a nice bonus.

Pro Tip

Choose a company that will pair you with advertisers who complement your offerings and enhance value for your customers. Make sure that this company allows you to maintain control over and preapprove everything you ship, including the ad itself. This will help ensure you are only including ads that are a good match for your business goals and values.

Ask Your Manufacturers About Drop Shipping

Drop shipping is another cost-effective option that may allow you to offer free shipping. If your manufacturer is willing to partner with you, it can be as simple as sending them an email whenever you get an order, instructing them to ship the item on your behalf. In return, you can offer to include a complimentary ad or promotion for your manufacturer in each shipment.

You may also want to consider outsourcing fulfillment. In some cases, outsourcing the process of packing and shipping goods can dramatically lower your shipping costs, especially for packages over 10 pounds. Fulfillment companies are often able to negotiate better terms with shipping carriers because of the volume of packages they send, and you can pass those savings on to your customers.

Pro Tip

One of the most common pitfalls is choosing a fulfillment company based solely on price. While price is important, finding a company that is a good fit for your business is also crucial. To get started, consider specialization: Many fulfillment companies specialize in certain industries or types of business. Shop around to find one that already works with businesses similar to yours. Call and talk with a service manager or arrange a face-to-face meeting. Don’t be afraid to ask questions and ask for references, and be upfront about your needs so there are no surprises down the road.

Offer Free Shipping in Exchange for Engagement

Getting customers to sign up for an e-newsletter is a surefire way to help you increase lead opportunities. By emailing them new product information, special offers and discounts, and exciting announcements, you can build on your initial engagement. Free shipping can also be a powerful incentive to turn your customers into brand evangelists and advocates on social media.

Pro Tip

Once a customer “likes” or follows your company page and shares your product within their own network, send them a special code that allows them to access free shipping on their next order. This can give you broad, credible exposure to prospects you may not have reached otherwise.

When Free Shipping Just Isn’t an Option

Offer a faster delivery option in addition to standard delivery.

Offering expedited shipping can offset customer dissatisfaction over having to pay for delivery.

Pro Tip

Promote a one-day turnaround time so that orders are ready to ship quickly, or offer free-shipping upgrades from ground to express. Offering customers free shipping on their next purchase can be another effective way to encourage repeat business. Existing customers are 31% more likely to have a higher average order value with your business.[2]

Offer flat-fee shipping.

Flat-fee shipping means that your customers pay one shipping rate, regardless of the actual shipping cost. For example, you could charge a minimum of $10 per order instead of per item. This could act as an incentive for them to buy more items in a single shipment.

Pro Tip

USPS offers free Priority Mail Express® and Priority Mail Flat Rate boxes and envelopes. Take advantage of this perk to help control shipping costs and reduce the cost of packaging materials.

Know What Shipping Policy Works Best for You

Analyze your e‑commerce shipping data and evaluate your results.

Whichever shipping policies you decide to implement, it’s important to follow up and gather data so you can get a clear picture of what works and what doesn’t. Make sure you test your promotions one at a time so you can isolate the variables. To help you figure out which policy is best for your business, collect and analyze the following data:

  • The percentage of users leaving your checkout page without completing payment.
  • Increases in revenue against the cost of shipping fees.
  • Repeat-usage levels: Increases indicate that your changes had a positive effect on collecting repeat customers.
  • Customer reviews, to gauge which promotions led to the highest satisfaction.

Pro Tip

Right after the purchase, present customers with a survey following checkout or via email to get feedback about their experience. It’s important to do this in a timely manner, while it’s fresh in their minds. Be sure to ask about their shipping preferences and how alternate policies might impact their purchasing behavior.

Key Takeaway

A smart shipping strategy can help make this your most successful holiday season yet. Remember to test different tactics as far ahead of time as possible so that you find the most profitable option for your business.

Whether you decide to set a minimum threshold, include paid advertising in your packages, or ask your manufacturers to ship directly, there are numerous ways your business can offset the cost of free or expedited shipping—and, in turn, help you remain competitive.

Delivering the best possible experience for your customers, at the best possible price, can significantly boost your bottom line—not only during the holidays but year-round.

  1. [1]“2021 Deloitte holiday retail survey,” Deloitte, October 2021.
  2. [2]Elizaveta Pavlovskaya, “70 Powerful Customer Retention Statistics You Need to Know in 2021,” Semrush, April 16, 2021.

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