Key takeaways:
- The number one reason that shoppers abandon their carts is extra costs – like shipping expenses.
- To maintain a healthy bottom line while offering free shipping and free returns to your customers, you will likely have to increase prices to cover these expenses.
- You will have to decide whether you’ll offer free shipping, free returns, or both, based on your products, operations, and financial feasibility.
- You may consider offering one or the other as a way to attract customers while keeping costs down and margins wider.
Today’s online shoppers want free shipping and free returns from eCommerce sites. In fact, because of the popularity of Amazon, many buyers have come to expect those perks when they make online purchases. If one seller doesn’t offer free shipping, or if return policies aren’t lenient enough, many shoppers will head to another website or online shop instead.
While free returns and free shipping are great for shoppers, they’re not always so simple for merchants. The cost of shipping and potential returns can eat into your profits. But offering them to customers also makes your products and brand more appealing, which should lead to more sales. To help you figure out whether to offer free shipping and free returns to your customers, we’ve put together a list of the benefits and drawbacks of each.
Pros and cons of offering free shipping
Like many aspects of running an eCommerce business, there are advantages and disadvantages to covering shipping costs for buyers. Here are some of the pros and cons:
Pros of free shipping:
1. Online shoppers love it.
Customers love to save money. That’s the bottom line. When there is no added expense for shipping, customers are often more likely to buy your product. Statistics show that 73% of consumers are more likely to purchase online items when shipping is free.
2. It reduces shopping cart abandonment.
Perhaps the biggest issue that eCommerce retailers face each day is shopping cart abandonment. The average cart abandonment rate has been hovering at about 70% for the past few years, which isn’t what you want to see when looking at your data. Furthermore, the number one reason that shoppers abandon their carts is extra costs – like shipping expenses. It isn’t a stretch to determine that offering free shipping will help reduce shopping cart abandonment for your online store.
3. It keeps you competitive.
Offering free shipping used to be a great way to set your business apart in an oversaturated market. Today, about 71% of eCommerce sellers offer some type of free shipping. So, to say it’s going to put you ahead of your competition no longer rings true. It will, however, help you stay in the game with your competitors.
4. Free shipping can improve your brand’s image.
Offering free shipping helps with customer retention and word of mouth. If your store offers quality products, competitive prices, free and fast shipping, and great customer service, your customers will be happy. What’s even better, happy customers will keep coming back and may even become advocates for your brand.
Cons of free shipping:
1. You may have to increase your prices.
Free shipping isn’t actually free – someone has to pay for it. To maintain a healthy bottom line, you will likely have to increase prices to cover shipping expenses.
2. You’re subject to shipping cost changes.
If you’re covering shipping costs for customers, you are subject to any changes in carriers’ prices. When there are unexpected changes, it can lead to complications in shipping strategies and affect your revenue.
3. It sets a precedent.
There’s no turning back once you’ve offered free shipping. Customers will want to keep it once they’ve experienced it, so you have to make sure that your profit margins will support the expense long-term.
Pros and cons of offering free returns
About half of online retailers offer free return shipping to their customers. Should you do the same? Here are the pros and cons of offering free returns:
Pros of offering free returns are:
1. Customers love it.
Customers want the security of knowing that when they buy something online and it isn’t what they thought, or they don’t like it, they can return it without losing any money. In fact, 58% of online shoppers want a hassle-free no-questions-asked return policy, and 79% want the process to be free.
2. It can improve sales conversions.
Offering free returns may increase your conversion rate. That’s because 67% of eCommerce shoppers check return policies before they make online purchases. When customers know that they can return items for free, they are more inclined to hit the Buy button.
3. It increases customer loyalty.
While your bottom line may not like a free return policy in the short term, there are some long-term benefits that come along with keeping your customers satisfied. 73% of online buyers agree that the overall return experience impacts the likelihood that they will buy from that retailer again.
Cons of offering free returns are:
1. Someone has to pay for returns – you.
Like free shipping, free returns aren’t really free. There is an expense, and someone has to foot the bill, and in this case, that someone is you. Return shipping isn’t the only expense; costs can include restocking, returning the product to your supplier for repair, and more.
2. Some customers will take advantage of your return policy.
Unfortunately, there will always be some customers who will abuse free return policies. Serial returners may intentionally over-order products so they can keep what they want and return the rest. It’s reported that 30% of shoppers practice this type of serial returning. Additionally, 19% of shoppers self-reported that they order multiple versions of an item so they can decide which one to keep when they are delivered.
If you are already operating with lean margins, you will have to consider whether your business can sustain the expenses of bad actors who take advantage of lenient return policies.
3. You may be unable to resell returned items.
One of the upsetting return-related expenses occurs when you can’t resell the returned product. Depending on the type of items you sell, you may not be able to offer them to others for purchases, so you will lose the cost of the item as well as shipping to and from your customer.
Should you offer free shipping, free returns, or both?
Ultimately, you will have to decide whether you’ll offer free shipping, free returns, or both, based on your products, operations, and financial feasibility. You may consider offering one or the other as a way to attract customers while keeping costs down and margins wider.
Another solution is to offer free shipping and free returns with certain qualifications. For shipping, you can offer free shipping for orders over a specific threshold. This may encourage customers to spend more on additional items to meet the dollar requirement for free shipping. Instead of offering free returns across the board, you can divide your policy into product exchanges and product returns. Then, by offering free product exchanges and paid refunds, you’ll reduce returns and the impact on your income while your customers still receive peace of mind.
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