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Free Shipping or Returns: What Can Online Retailers Afford?

by Jake Rheude
As an online retailer, you know three things. One, your customers want free shipping (thanks, Amazon!) Two, they also want free returns (thanks, Zappos!) Three, you probably can’t give them both. Sigh.

At the end of the day, it simply isn’t feasible for most small- to medium-sized businesses to offer free shipping and free returns—not unconditionally, anyway. Free isn’t actually free; it’s another expense for you. You want to make your customers happy but you also need to stay in business. So what should you do? Which order fulfillment strategy will actually sway more people to shop at your online store?

The argument for free shipping

According to the latest Walker Sands Future of Retail Report, free shipping is the most effective incentive to attract online shoppers. Almost 80 percent of consumers said that free shipping would make them more likely to buy online. This beat out same-day shipping, next-day shipping and, yes, free returns.  On the flip side, a major reason shoppers don’t follow through on a purchase is shipping costs, which account for 86 percent of cart abandonment. Ouch. So if you’re looking to grab the greatest number of customers who will complete a purchase, free shipping is the logical choice.

What about free returns?

The Walker Sands report cited above says that free returns made consumers 54 percent more likely to buy online, a 10 percent jump from the previous year. While not as big an incentive as free shipping, it isn’t too shabby and it’s apparently becoming more important. In other words, free returns will draw a crowd. A lack of free returns, however, is not as big a risk factor as no free shipping because the hassle of returning an item accounts for only 22 percent of cart abandonment.

While free returns may seem like the underdog, consider that, according to a UPS study, 68 percent of shoppers check a company’s return policy before making a purchase. It sure seems like a lot of consumers care about your return policy, but does it actually need to be free? Not necessarily.

A few things to consider

Before you commit to either, ask yourself:

1. Can you afford it? Take an honest look at your profit margins and consider what would happen if you offered free shipping and free returns. Could your business sustain itself? Recent data indicates that more than 11 percent of Black Friday purchases will probably be returned. Making returns totally free means adding significant costs to your operating budget.

2. Can you handle an increase? Make sure all your processes are as efficient as possible before implementing any sort of policy that might lead to a sudden increase in sales. The only thing worse than paying for shipping is the disappointment of receiving a “sorry, we’re out of stock” email.

3. How can you offset the cost? Look into ways that you can make up the cost in other areas, whether this means increasing prices, investing in better software for long-term savings or putting limits on your policies. More on that below.

And the winner is…

Free shipping! Based on the studies we reviewed, customers seem to care about both but care about free shipping more. Not surprising. As much as we love feeling like we can recover our money if we experience buyer’s remorse, we love instant gratification even more. We feel like we’re saving money without doing any work.

But be aware that you can appear to offer both while setting limitations that save you from drowning in all that “free.” We suggest:

1. Free shipping on orders slightly above your average order total. This will incentivize customers to add just a little more to their cart and hopefully bump up your average order at the same time. And you won’t lose out on single-order shipping costs.

2. Free shipping on full-price items only. Excluding sale items from free shipping is almost a given at this point; your customers won’t be turned off by it and you won’t lose even more money on that inventory you’re trying to clear out.

3. Limited-time free shipping. Try offering free shipping during promotions or holidays to see if it’s a good fit for your business. It’s a great marketing tactic and doesn’t bind you to offering it long-term.

4. Free returns within a certain grace period. This common practice lets you limit returns while saving you the inconvenience of receiving inventory you don’t even sell anymore.

5. “Hassle-free” returns. Follow eCommerce best practices by making returns as clear and easy as possible without making them actually free. Customers will appreciate your being upfront about your policies.

Tell us what you think

We’ve read what the surveys say, but where do you stand? Do your customers seem to prefer one over the other? Do you offer one, both or neither? Weigh in with your thoughts.

About the Author
Jake Rheude is the Director of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse born out of eCommerce. He has years of experience in eCommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experiences with others.