Free shipping looks like a no-brainer to boost sales online. Customers love it. Sellers think it’s a win. But it’s not that simple. I’m Raj Jha, and I’ve spent years advising companies on real strategies that grow profits—not just sales numbers. Today, I’m breaking down why free shipping might be costing you more than it’s worth, and what you should do instead.
Why Free Shipping Isn’t the Golden Ticket
At first glance, free shipping seems like an easy way to remove friction and get more buyers. You drop the shipping fee, customers don’t feel the extra cost, and they buy more, right? The research tells a different story.
Researchers at Dartmouth’s Tuck Business School studied this in depth. They published their findings in the Journal of Marketing Research under the paper titled Free Shipping and Product Returns. The takeaway: free shipping encourages customers to make riskier purchases.
Riskier purchases mean customers buy things they usually wouldn’t. Why? Because the shipping cost, which acts as a small brake, disappears. Without that friction, customers gamble on products they’re unsure about.
More buyers sound good until you realize what happens next: returns shoot up. Riskier purchases lead to more returns. Customers try things out and send them back because they weren’t fully committed to the buy in the first place.
Here’s the problem: returns eat into your profits. They cost you shipping fees, restocking, and sometimes the product can’t be resold at full price. So, free shipping boosts sales but also boosts returns. You have to weigh these two forces.
High-Risk vs. Low-Risk Products: What You Sell Matters
The researchers divided products into two buckets:
- High-risk products: Items hard to evaluate without seeing or touching them. Think jeans, bras, cosmetics, anything with fit, feel, or quality questions.
- Low-risk products: Items where customers know exactly what they’re getting. Vacuum cleaner bags, storage boxes, mirrors—products with little guesswork.
Free shipping mostly pushes up purchases in the high-risk category. Customers are more willing to gamble on that $250 pair of boots if they don’t have to pay shipping. But they also return more of those risky buys.
If you sell products that need to be tried before buying, free shipping is a double-edged sword. You get more sales, but you also get more returns.
The Numbers Don’t Lie: Free Shipping’s Hidden Costs
The research showed free shipping increases order volume by 11%—a decent bump in sales.
But here’s the kicker: when you factor in the lost revenue from shipping fees and the cost of increased returns, your profits drop by 0.7%. That’s a net loss, not a win.
Compare that to other promotions like coupons, which have a very different impact.
Coupons vs. Free Shipping: What Actually Works
Coupons don’t just push high-risk purchases. They boost sales across the board—high-risk and low-risk items alike. That balanced growth means you’re not skewing your basket toward items prone to returns.
Because coupons don’t disproportionately encourage risky buys, your return rate doesn’t spike like it does with free shipping. That keeps your profit margins healthier.
The bottom line: coupons stay profitable for sellers. Free shipping often doesn’t.
How to Decide What Works for Your Business
Don’t assume free shipping is right for you just because it’s popular. The key is to test and measure.
Step 1: Classify Your Products
Go through your product catalog. Split your items into high-risk and low-risk buckets. Ask yourself:
- Which products need to be seen or touched to evaluate?
- Which have fit, style, or color issues that are hard to judge online?
- What does customer feedback and complaint data tell you about returns?
If your inventory leans heavily on high-risk items like fashion or gadgets with subjective quality, free shipping might do more harm than good.
Step 2: Run a Controlled Test
Run an experiment with your customers:
- Offer free shipping to one group.
- Offer a coupon (say, $10 off) to another group.
- Track sales, returns, and net profit per customer over a month.
This isn’t guesswork. It’s data-driven decision-making. The Dartmouth study ran this on over 700,000 customers and proved it works. Your data will tell you what’s better for your shop.
Step 3: Adjust Your Strategy
If free shipping leads to higher returns and lower profits, pivot. Use coupons or tiered discounts instead.
Tiered discounts are simple: spend $50, get 10% off. These incentives keep sales up without flooding you with returns like free shipping does.
Measure, scale what works, and drop what doesn’t.
Don’t Default to Free Shipping
Free shipping looks like a win until you see the hidden costs:
- Higher return rates
- Lost shipping revenue
- Lower net profits
- Unpredictable, unsustainable growth
Instead, focus on smarter incentives like loyalty rewards, tiered discounts, and targeted promotions that build lasting customer value and steady profits.
What Comes Next
If you want to grow your online business, don’t fall for the free shipping trap. It’s not about more sales. It’s about better profits. Use data, test your offers, and most importantly, know your products. The right strategy depends on what you sell and how your customers behave.
For more insights on scaling your business the scientific way, visit the CEO Workbench. And if you want to dive deeper into improving sales and customer loyalty without sacrificing profits, check out my guide on testing your way to success.
