Why your financial director hates free delivery (but you should probably do it anyway)

Free delivery is great for customers. Is it good for businesses too? In our experience, opinions can be mixed. But when you take a closer look at the long-term benefits, a compelling argument unfolds. 

What your customers think

Customers don’t just want free delivery, they expect it. Demand it, even – as evidenced by the number of carts abandoned on delivery pages. This is not to say that you need to offer free delivery across the board. One free option can be enough to earn sales in the short term and build loyalty in the long term.

This doesn’t just apply in the D2C space. Consumers' personal expectations carry over into their B2B purchases too. In our experience, the best B2B ecommerce experiences are those that combine traditional B2B-focused functions, such as order forms, tiered pricing and quote functionality with D2C favourites including free delivery options, product personalisation and user-generated reviews.

What your financial director thinks

Few financial directors are immediately convinced of the benefits of free delivery. It’s their job to focus on the numbers, of which the biggest worries tend to be: 

• Cannibalisation of sales you would have made anyway
• Increase in returned items
• Impact on profitability
  

All valid concerns in the short term. And most financial directors will be looking for an initiative like free delivery to break even within 12 months. That’s possible, but can't be guaranteed.

• Let's say, you charge an average of £5 per delivery.
• You ship 10,000 orders a month
• Your profit margin on each product is 20%
  

 In the case above, you would need a £3 million annual increase in sales to cover your increased outgoings. You can see why your FD is sceptical.

But we haven’t yet considered the whole story.

Free delivery becomes easier for your FD to support when you introduce long-term, indirect ROI into your projections:

• Cost of customer acquisition
• Opportunity of increasing Customer lifetime value
• Marketing activity in which ‘free delivery’ is a key message
• Increases conversion rate while reducing abandonment rate
• Opportunity to increase (AOV) Average Order Value.

What the big brands think

Retailers like Amazon and ASOS have understood that the overriding benefit of free delivery is its impact on the long-term customer relationship and lifetime value.

Let's say, someone sees your paid advert on Google shopping for a product that was out of stock on Amazon. The ‘free delivery on orders over £x’ message helps to overcome her objections and she visits your site. She browses and decides to buy Product A.

Her on-site experience is frictionless and she qualifies for free delivery. This ensures she doesn’t experience any disappointment or frustration at seeing the cost increase between choosing her product and making her payment. 

A few months later, she needs Product B. Remembering how good she felt about her last experience on your site, she returns and makes her second purchase.

And again a few months later for Product D.

And so on. A lifetime of regular sales without any additional marketing or customer acquisition costs.

What your competitors think

In an industry where paid delivery is the norm, any retailer that offers free delivery has identified an opportunity to seize market share. If your competitors have done so and can match your product like-for-like, you’re almost certainly losing out. The pressure is on you to level the playing field.

If you're the first in your industry to recognise the opportunities of free delivery, move quickly to get ahead. Where you go, others will have to follow. Only they'll have a harder time doing it because you got there first.

What do you think?

To be clear, free delivery isn’t right for every business. For example, it may not be prudent for retailers whose products are especially expensive or difficult to ship.  Or if the majority of your customer base is overseas. On the other hand, free delivery could present an incredible opportunity for these businesses to stand out in a competitive landscape. The important thing is to consider both the short and long-term implications and make a decision based on your individual audience needs and business objectives. There are clever ways to test free delivery, to understand if it’s going to cannibalise or grow sales. 

Want to talk more about delivery strategy or conversion rate optimisation?

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