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Wyoming Business Tips for Feb. 26-March 4

February 17, 2017

A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.

By Lisa daCosta, WSBDC business adviser

“Do I really have to offer free shipping on my website product sales?” Eileen, Weston County

According to a consumer survey done by Jupiter Media Matrix Inc., 67 percent of those polled would cancel or not complete an online order if shipping costs were excessive.

Statista consumer surveys indicate that 56 percent of shoppers abandoned their online shopping carts because they encountered an unexpected cost, and 16 percent abandoned if delivery options were unsuitable. Consumers are increasingly expecting free and timely shipping.

Amazon Prime’s unlimited free shipping, and sites like Zappos, which offer free delivery and returns, have led a broad-based movement toward free shipping. Walmart recently abandoned its $49 Shipping Pass subscription for free two-day shipping to all customers, in order to compete more directly with Amazon.

Depending on your products, free shipping may be necessary to stay competitive, rather than be an amenity that will increase your product sales overall.

Absorbing the cost of shipping is certainly expensive for online merchants. Amazon recently reported that it spent $5 billion on shipping in 2016 and, in the fourth quarter, shipping costs exceeded shipping revenue by $1.85 billion. However, free shipping is valued as better customer service by online shoppers. Retailers are betting that they may build greater customer loyalty and recurring customer purchases with free shipping.

There are ways to offer customers more perceived value around shipping besides a completely free option. If the business goal is to increase sales, setting a free shipping threshold above the current average order size may be an effective tool.

Example: If the average order is $50, set free shipping at orders of $75 or greater. If the product is sufficiently unique, can the selling price be increased to offset shipping? Though this is not “free” shipping, it is a means to recover some or all of the shipping costs. This is part of the strategy for many Amazon Prime products, with the disclosure that an item is available at lower prices from other merchants.

Small merchants are finding that in order to compete effectively online that, yes, they may have to offer free shipping.

A blog version of this article and an opportunity to post comments are available at www.wyomingsbdc.org/blog1/.

The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email wsbdc@uwyo.edu, or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.


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