Why Offering Free Shipping for Your Business is Easier Than You Think

December 13, 2022 at 10:14 AM — Jen Deming
Why offering free shipping is easier than you think

As a consumer, the words “free shipping” can create a huge incentive that pushes you to purchase. The expectation for most shoppers is that there will be some sort of free option. However, many retailers are still hesitant to offer free shipping, or stuck on how to make the choice available to consumers while still protecting their bottom line. Let’s take a look at the three most common misconceptions about offering free shipping, and how you can implement strategies to make it work to your business’s advantage.

Misconception #1 – Absorbing shipping costs will cut into my bottom line

If we’re really being honest here, it’s important to note that free shipping isn’t really “free”. Transportation services require time and effort from the carrier, so someone has to pay for it. If it’s not your customer, then it will have to be you. If not addressed correctly, you will have to absorb costs, and this will decrease your margins, overall.

The good news is that offering free shipping to your customer can have a major positive impact on your sales because it’s viewed as a huge value-add. In fact, most consumers are willing to spend up to 30% more online if they know they won’t be paying for shipping. As a top incentive, a further 93% of shoppers say they will take action to qualify for free shipping by adding more items to their order. By offering free shipping, you are going to boost sales and increase your average order spend. In time, the increase in revenue will ideally offset your shipping costs.

Pro tip: Set a minimum amount threshold to qualify for free shipping. 

To make free shipping a viable strategy, it’s probably not smart to offer the service on just any order that is placed. Because shipping costs fluctuate, it can be hard to predict consistently. By setting a minimum order amount, you’ll help ensure that the revenue from the sale will offset the costs of transportation. Determine your minimum order value in advance, and be strategic about communicating that minimum amount during every step of checkout.

Misconception #2 – Building shipping cost into product price will scare customers

Why offering free shipping is easier than you think

To counter the cost of shipping, it may make sense to increase your product price. But this can sound like a scary notion. Raised prices turn off customers and decreases your competitive advantage, right? The truth is, by increasing prices even minimally, while offering a high-value service like free shipping, you will see a boost to your net margin. 49% of all cart abandonment occurs due to sticker shock at the shipping point of checkout, not due to product price. Moderate price increases are generally justified by the customer, as long as fulfillment expectations are being met.

Pro tip: Product pricing should match what your customers are willing to spend and the type of customer you are trying to attract.

When building shipping costs into the price of your products, it’s always important to keep in mind who your target consumer base is. For example, a premium, brand-name shoe retailer can get away with a higher minimum price point than a book seller. Adding the cost of shipping into product price is a legitimate tactic that ensures you're covering your bases, just keep your price points fair and realistic.

Misconception #3 – The demand for free shipping isn’t there for my business 

Unless you’ve been living under a rock, you know that free shipping has pretty much become the industry standard. Thanks to large ecommerce companies like Amazon, consumers expect shipping to be fast, free, or a combination of both. No matter whether you’re selling t-shirts or toolkits, the demand for free shipping is there for any industry. In fact, 66% of consumers want free shipping on all orders, regardless of the total, and 88% expect it when their order exceeds a certain amount. Even more alarming, 61% of shoppers say they are “somewhat likely” to cancel their order if free shipping isn’t offered – that’s a big old ‘yikes’. In short, when the majority of your consumer base expects some type of free shipping, it’s time to stop stalling and decide how to offer the service instead.

Pro tip: Explore ways to “test out” free shipping with offers and promotions.

You don’t have to jump right into a committed strategy right off the rip – dipping your toes in can help determine which tactics work best for you. Consider offering new customers, or rewarding existing ones, with a free shipping promotion. Implement VIP or loyalty programs that allow your customers to sign up and receive free shipping as an incentive. You may even benefit from offering free shipping on select items (perhaps those with a higher price point). By testing out different methods, you can really look at the shipping costs you incur, what your minimum order threshold should be, and refine your strategy from there.

Discounted shipping options help you and your customers

No matter which tactic you decide is best when offering free shipping to your customers, it’s extra important to keep your shipping costs low. You might not know that there are often shipping discounts available through memberships within trade associations, chambers, and industry groups. PartnerShip works with over 130 groups to provide their members with discounts on FedEx services. Contact our team to find out if you qualify.

Contact Us CTA
LinkedIn Twitter Facebook Instagram SlideShare YouTube Google
Permalink | Comments (0)

Your Essential Guide to the 2023 FedEx and UPS Rate Increases

December 6, 2022 at 11:35 AM — Leah Palnik
The essential guide to the 2023 FedEx and UPS Rate Increases

FedEx and UPS will be increasing their rates by an average of 6.9% in 2023. That’s a heavy statement for a couple of reasons. First, this is the highest General Rate Increase (GRI) the carriers have taken in recent years. And second, your actual shipping costs will likely go up more than 6.9% in the new year. Oof. Unpacking the new changes is complicated, but essential if you want to understand how your costs will be affected and what you can do about it.

Here's your guide to the FedEx and UPS rate increases for 2023. Jump to:

A look back at the FedEx and UPS GRIs 

FedEx and UPS have a long history of mirroring each other’s pricing. They typically announce the same GRI and appear to have very similar pricing strategies. Bottom line, published rates aren’t a major differentiator between the two carriers.

For 2023, both FedEx and UPS are pointing fingers at inflation as a contributing factor to the higher-than-usual rate increase. 2022 already saw an uptick with a 5.9% GRI, thanks to all of the supply chain disruptions and surges in demand that resulted from the pandemic. For several years prior to that, both carriers had been raising their rates annually by an average of 4.9%.

Some important quick facts about the new FedEx and UPS rates:

  • The new FedEx rates take effect on January 3, 2023, while the UPS rates take effect a week earlier on December 27, 2022.
  • The 6.9% average doesn’t take surcharges into account - many of which are increasing by more than 6.9%.
  • How much your costs actually go up in 2023 will depend on several different factors. The services you use, your shipment dimensions and weight, and how far your shipments are traveling all have an effect.

Important changes

So you already understand that FedEx and UPS rates are going up in the new year. What does that look like exactly? First, you'll want to review the released service guide previews: 

If all of those tables and numbers are making your head spin, you're not alone. But there are some key takeaways. Let’s take a look at a few of the general observations from the base rate changes:

  • Across all services and weight breaks, longer zones are getting hit with higher increases than shorter zones. Many of those increases are higher than the announced average. 
  • For Ground services, many of the rates for shorter zones are lower than the 6.9% average increase.
  • For each service, the rate increases are similar across most weight breaks. Zones are the biggest difference-makers this year. 
  • For the 3 Day services, you'll see a higher increase from FedEx than UPS. However, the actual rates are comparable. That is because UPS took a larger increase with this service the previous year. 
  • Both FedEx and UPS have increased their Ground Minimum charge to $10.10

When you are reviewing your shipping costs, you can’t look at the base rates alone. Surcharge fees often make up a significant chunk of the amount you end up paying. Here are a few noteworthy surcharge updates:

  • Fees for larger, more difficult to move packages continue to rise to hefty prices. You could be paying an extra $1,150 for a shipment that qualifies for the Unauthorized Packages fee by FedEx or the Over Maximum Limits fee by UPS.Common FedEx and UPS Surcharges
  • Both carriers are increasing the late payment fee from 6% to 8%.
  • FedEx created a Remote Delivery Surcharge. Almost 4,000 zips will now incur a $13.25 fee. UPS originally introduced a fee for this in January 2022.
  • Many common surcharges are increasing, with a significant amount increasing by more than 6.9%.Common FedEx and UPS Surcharges

There are also a couple of other changes that are important to be aware of:

  • UPS announced that it will be renaming “peak surcharges” to “demand surcharges”. Several years ago FedEx and UPS started implementing these fees to address the increased demand the holiday season brings. Then, the pandemic hit. Both carriers have struggled to meet the surge in demand amid all of the supply chain disruptions and decided to use peak surcharges in response. The decision by UPS to rebrand these surcharges signals that it is viewing them slightly differently. Instead of implementing fees based on seasonal predictability, “demand surcharges” suggests usage anytime there is an uptick in demand. In short, they’re likely here to stay.
  • The list of zip codes for zones is changing. Depending on where you’re shipping, you may have to pay based on a longer zone than before. It’s changes like these that make budgeting for your annual cost increase very challenging.

How the FedEx and UPS rate changes will affect your costs in 2023

You can’t take the announcement of a 6.9% increase at face value, unfortunately. You’ll need to determine what services you use the most, how far your shipments travel on average, and how much of your invoice charges can be attributed to fees.

Many shippers will see their costs go up over the announced 6.9% average. With that in mind, let’s look a few factors that could put you at risk for higher-than-average cost increases:

  • If you’re shipping larger packages or your packages require special handling. For the past several years, FedEx and UPS have been raising these fees at an alarming rate. Any shipment they can’t run through their normal systems costs them more time and money, and these fees are a way to discourage those types of shipments from entering their networks.
  • If you ship a higher percentage of residential shipments. Residential shipments cost the carriers more because they require more stops and are a less efficient use of their driver’s time. Residential fees continue to climb because of this.
  • If you ship a lot of low density packages. The pricing structure that FedEx and UPS have put in place punishes lighter shipments that take up a lot of space. The carriers prefer denser packages that take up less space because they’re able to fit more packages on their delivery vehicles.
  • If a high percentage of your shipments go to longer zones. It’s always been true that the further your package travels, the more expensive the rate. This year that’s especially true. Longer zones are seeing more increases above the announced average than shorter zones.

What you can do to mitigate the effects of the FedEx and UPS rate increases

  • Right-size your packaging. While FedEx and UPS rates are based on weight, that’s not actually the whole story. If your dimensional weight is higher than the actual weight, your package will be rated using the dimensional weight - meaning you’ll be paying more. This makes any excess space within your package extra costly. Focus on packaging that allows space for the items you’re shipping and the necessary cushioning and nothing more.
    • DIM Weight Calculation
  • Consider opening or using a new distribution center. Shipments with the longest distance to travel cost you the most every year. But in 2023, this will be even more important as the longest zones are seeing the highest increases. Getting closer to your customers could be a great strategy for keeping those costs down.
  • Take advantage of discounts available to you. Many trade associations and chambers of commerce will offer FedEx or UPS discounts to their members. Oftentimes the annual cost savings from those discounts more than make up for the cost of joining. PartnerShip works with over 130 groups to provide their members with discounts on FedEx services. Contact our team to find out if you qualify.

Wrapping your head around all of the changes for 2023 FedEx and UPS rates can be challenging. But, using this guide to understand what's behind the announced average and published service guides is a good first step. Use this information to properly budget for the new year and set up any mitigation tactics that work best for your business.   

LinkedIn Twitter Facebook Instagram SlideShare YouTube Google
Permalink | Comments (0)