Free Shipping: Is it Possible when Drop Shipping?
As an online retailer you are always searching for ways to increase sales and conversion of your website visitors. Free shipping is a popular strategy that can almost immediately have an affect on sales and your bottom line.
There are many case studies and surveys available that show why you should offer free shipping:
- For 81% of customers, free shipping is their #1 concern when checking out.
- 93% of shopper take action to qualify for free shipping and the leading action is adding items to cart.
- 50% of consumers will choose a slower transit time to qualify for free shipping and 83% of buyers are willing to wait an additional 2 or more days to get free shipping.
However offering free shipping can erode your margins and your business if the costs and shipping scenarios are not properly accounted for and analyzed. Therefore in order to realize the benefits of offering “free shipping”, it takes careful planning and consideration, especially when you are drop shipping.
Free Drop Shipping?
For those that are not familiar with “drop shipping”, it is when a retailer purchases products individually from their supplier (as they are sold), instead of making bulk wholesale purchases. The supplier then ships the item direct to the consumer on behalf of the retailer. This supply chain strategy requires faith in your supplier to ship your products in a timely and cost effective manner.
The margins are typically slim in a product that is drop shipped. Depending on your shipping arrangements and any applicable dropship fee from the supplier, free shipping may be difficult to offer without pricing the product outside of what is feasible.
You cannot typically control the supplier’s dropship fee, however you can usually control the shipping arrangements. The key to offering free shipping is gaining a better understanding of your shipping fees and getting creative in finding ways to reduce them.
My Shipping Carrier Account or My Supplier’s?
Many suppliers offer the option to ship your products using their own shipping carrier accounts (Fedex, UPS, USPS, etc.). However suppliers often allow retailers to use your account upon request. The benefit of using the supplier’s carrier account is that they may have negotiated rates and can ship at a lower cost than what you may be able to. The downfall in this is that you have less control and insight into the shipping costs. This can make it difficult to analyze and control these costs to ensure you are profitable on each individual product sale.
Whether you decide to use your own carrier account or the supplier’s account, you will likely want to answer a few question to help gain insight into the cost and feasibility of offering free shipping.
What shipping methods does your supplier offer and which method will you offer for free shipping?
- Does your supplier have cheaper shipping rates than what’s available with your carrier account?
- Does your supplier have multiple warehouses? How does this affect shipping costs?
- Does your supplier ship internationally? If so how does this affect the shipping rates?
- What are the “break points” in which size and weight of the product significantly increase shipping.
- What is likely the most expensive shipping cost you could incur from an order?
- What is likely the average shipping expense you’ll incur on a “free shipping” order?
Answering these questions is a good first step in determining what products and what “ship to” locations you feel comfortable offering a free shipping option.
Limiting “Free Shipping” to Specific Products/Locations
One thing you will want to avoid when offering free shipping for customers is confusion around which products are eligible and which are not. A key benefit of free shipping is eliminating the extra decision of calculating costs that can often prevent a sale. If the customer still needs to spend time determining which products have shipping costs versus those that don’t, it reduces the effectiveness of this strategy.
With that in mind, it might only make sense to offer free shipping for certain products and certain “ship to” geographical locations. After you have gained insight into your shipping costs and methods you want to offer, I would recommend outlining a simple “free shipping” offering. Ideally it is as simple as possible and you are able to keep it to 1-2 product categories or price ranges that do or do not offer free shipping. You will also want to clearly outline the locations as well.
Here is an example of a clearly thought out free shipping offering from a kayak e-commerce store, that appears to avoid unprofitably shipping items while still offering free shipping.
Multi-Warehouse Supplier with Location Based Order Routing
When selecting a supplier to dropship products for your e-commerce store, their shipping and logistical capabilities should factor in greatly. A logistical advantage that some suppliers (typically distributors) will have is multiple warehouses and location based order routing.
Suppliers that are able to minimize the shipping distance for your orders and reduce your shipping costs, give you a stronger chance of offering free shipping.
Simply asking, “how many warehouses do you have?” and “do you route orders to the closest warehouse based on shipping address?”, will allow you to determine if your supplier can save you on shipping costs by reducing the shipment distance.
Avoiding Split Orders
A shipping cost killer for dropship retailers is the dreaded “split order”. A split order is when your customer’s order requires to be shipped in two separate boxes, typically doubling the shipping cost.
This is most common in two distinct e-commerce scenarios.
Scenario #1: The supplier stocks a product across multiple warehouses, and they receive an order that has a quantity that requires them to pick and ship the product from multiple warehouses. This means two separate orders need to be sent out and will arrive at the customer’s door in different boxes... likely at different times.
One way to avoid sending split orders is to start with how many you show on your website. When syncing inventory from your supplier’s warehouse, you will want to display the average product quantity of the SKU across the warehouses rather than displaying the “sum” of products in stock. This will greatly reduce the chances of sending an order that needs to be split, in this scenario at least.
Here is a quick example:
Your supplier is providing a product quantity of 1 in the first warehouse and 3 in the second warehouse. Instead of summing the total to 4, you would want to display a quantity of 2 on your e-commerce website, so that it would bring down the probability of a split order scenario. In order to accomplish this at scale often requires Dropship Automation Software.
Scenario #2: The customer orders multiple products that come from multiple warehouses or suppliers. This is pretty much unavoidable without a) limiting your store to one supplier with one warehouse, which is less than ideal or b) limiting products that can be purchased together in the same order, which is not really feasible for most e-commerce stores.
Although most dropship retailers can’t prevent the possibility of a split order there are ways to minimize the probability.
A strategy to hedge against this scenario is to work with a handful of larger distributors that carry relatively different products from the others and each stock thousands of SKUs, across several brands and product lines. Also important is finding distributors that have a large overlap in the same products being stocked in their multiple warehouses. Choosing your suppliers wisely here can prevent the amount of split orders you will receive.
Offering free shipping to your customers can be done when dropshipping, however it just needs to be a very calculated and monitored decision. Understanding what your margins and shipping costs are, as well as what strategies and scenarios can affect those numbers will help you decide if free shipping is right for your business.
Travis Mariea is the Director of Sales & Marketing at InventorySource.com, the dropship automation software that connects your dropship supplier’s inventory and orders with your eCommerce Website and Marketplace Accounts.
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