Free delivery has become close to a default expectation in online retail. Surveys consistently find delivery cost among the leading reasons for cart abandonment, and offering free shipping reliably increases conversion.
The cost of moving a parcel hasn't changed. Somebody is paying it, and understanding who and how is central to whether an ecommerce business works.
Why the expectation formed
Largely because very large retailers with structural advantages made it standard, and everyone else had to match.
Those advantages are real: enormous shipping volume negotiating rates nobody else can access, distribution networks close to customers reducing final-mile cost, and membership models where delivery is bundled into a subscription rather than into product margin.
A smaller retailer matching the offer without those advantages is absorbing a cost their competitor has engineered away, which is a structurally difficult position.
Where the cost goes
Four options and each has consequences.
Into the price. Raise product prices to cover average shipping. Honest and it makes you uncompetitive on price comparison, which is how a lot of online purchasing decisions get made.
Into the margin. Absorb it. Straightforward and it's how a great many ecommerce businesses have quietly become unprofitable.
Into a threshold. Free above a minimum order value. The most common approach and the most defensible, because it changes behaviour in a useful direction.
Into a subscription. Customers pay annually for unlimited delivery. Works at scale with high purchase frequency and doesn't work for most retailers.
Why thresholds work
The threshold approach deserves attention because it does something genuinely clever.
Shipping cost is largely fixed per parcel rather than proportional to value. Sending a parcel worth 30 costs roughly the same as sending one worth 80.
So a threshold that pushes average order value up improves the economics twice: more revenue per parcel, and the same shipping cost spread over more margin.
Setting it correctly matters. Too low and you give away shipping on orders that would have happened anyway. Too high and it doesn't influence behaviour.
The usual guidance is somewhat above current average order value — enough that a typical customer has to add something, not so much that it seems unattainable. Testing at several levels is worth doing properly.
The returns interaction
The part that most damages the economics, and it compounds with free shipping.
If outbound delivery is free and returns are free, an item that's ordered and returned costs you two shipments plus processing and generates nothing. In categories with high return rates that's a substantial drag.
The combination of free outbound and free returns also encourages ordering multiple variants to choose from, which multiplies the effect.
Several large retailers have introduced return charges or restricted serial returners for exactly this reason. It's unpopular and the arithmetic is difficult to argue with.
Speed versus cost
A related expectation that's grown alongside. Next-day delivery has become normalised in some markets and it costs meaningfully more than standard.
Evidence on what customers actually want here is more nuanced than the arms race suggests. Reliability and clarity frequently matter more than raw speed — knowing precisely when something will arrive is often valued above it arriving sooner.
Which suggests an option many retailers underuse: a clearly communicated, reliable standard delivery at no cost, with paid express for those who need it. That serves both groups without subsidising speed for people who didn't need it.
Some retailers have gone further and offered incentives for choosing slower delivery, which reduces cost and consolidates shipments. Uptake has been reasonable where it's been tried.
The transparency question
An argument worth taking seriously: is hiding shipping in the product price better or worse than showing it?
The behavioural evidence favours hiding it. Costs revealed late in checkout cause abandonment out of proportion to their size, and a single all-in price performs better than a lower price plus a fee.
The counter-argument is that it obscures comparison and means customers with low shipping costs subsidise those with high ones.
My own view is that the behavioural evidence is strong enough to follow, provided the total price remains competitive. What's clearly worst is the middle option — a low headline price with delivery revealed at the final step. That combines the disadvantages of both.
What I'd do
Know your actual delivery cost per order, by weight band and destination. An astonishing number of retailers don't and are pricing on a guess.
Set a threshold above current average order value and test it.
Be explicit about delivery cost and timing from the first product page, not at checkout.
And model the effect of returns before committing to free returns as well as free delivery. The two together are the combination that turns a viable margin into a negative one, and it happens gradually enough that nobody notices until the annual accounts.
Packaging as a cost lever
An area with more room than most retailers realise. Carriers price on dimensional weight as well as actual weight, meaning a large light box can cost as much to ship as a small heavy one.
Businesses shipping small items in oversized cartons are paying for air, on every order, permanently. Reviewing box sizes against a typical order profile is unglamorous and frequently produces a saving that dwarfs anything achievable through negotiation.
There is a customer dimension too. Excessive packaging generates complaints and looks careless, and the correlation between right-sized packaging and perceived competence is stronger than you might expect.