How to offer free shipping without losing profits

Balancing what shoppers want with what your business can afford

In 2025, consumer expectations and economic caution are colliding. Inflation, tariffs and a cooling job market have made shoppers more careful with their dollars, but not less demanding. According to a Capital One Shopping survey, 66% of U.S. consumers now expect free shipping on every order and what’s worse, 70% have abandoned a cart because of high shipping costs.

Big retailers like Amazon have made free, fast delivery feel standard. For SMBs, that’s a tough act to follow. But free shipping doesn’t have to be a profit drain. With the right approach, it can become your competitive advantage.

Related: Luxury-level shipping on a small business budget

Set smart minimums to protect margins

The simplest way to protect your margins is to put guardrails around free shipping. Set a minimum order value that nudges consumers to add a little more to their carts. A common rule of thumb is to set your threshold for free shipping 15-30% above your current average order value — high enough to cover costs but attainable enough that customers will stretch to meet it.

And they do stretch. Shopify found that 80% of online shoppers are willing to add items to qualify for free shipping. That can mean turning a $35 order into $50, which both boosts revenue and helps offset the cost of shipping.

Offer free shipping that works for your business

Most customers don’t need lightning-fast delivery if it comes at a cost. In fact, surveys show the overwhelming majority would rather wait a few extra days for free shipping than pay for speed. Offering a slower, no-cost option while keeping faster methods available as a paid upgrade helps you satisfy expectations and manage costs.

Geography matters, too. Shipping a package across the country can cost up to $15 more than sending it locally. Consider limiting free shipping to zones or regions where it’s cost-effective, or adjust your thresholds based on distance.

Make free shipping part of the price

Sometimes “free” shipping is really just about presentation. Shoppers are more likely to buy a $50 product with free shipping than the same product at $45 plus $5 shipping. It feels like a better deal — and perception matters.

Small pricing adjustments, product bundles and “buy two, ship free” promos let you spread out the cost of delivery without taking a loss. Done right, these tweaks make free shipping feel like a perk, while still protecting your margins.

Cut costs with smarter packaging

Oversized boxes and wasted space are silent profit-killers. Carriers charge by dimensional weight, which means you pay for air if your packaging is too big. Studies show that smarter, right-sized packaging can cut shipping costs by as much as 30%.

Better packaging also protects your products. More than half of online shoppers say they’ve returned an order because it arrived damaged. A sturdier, well-fitted box might cost a few cents more, but it saves you the expense — and frustration — of replacing broken items.

Insure shipments to safeguard profits

Even with optimized packaging, some shipments will be lost, stolen or damaged. Studies estimate that around 10% of packages encounter issues in transit, which can add up quickly if you’re offering shipping for free. But even one incident can wipe out the profit from dozens of successful sales. While carriers may offer limited liability (usually $100), claims are frequently denied due to exclusions like “improper packaging” or restricted items.

Parcel insurance gives you a backstop. With Parcel Insurance Plan, lost or damaged shipments are reimbursed, allowing you to make things right for your customers quickly and without hesitation. Ultimately, shipping insurance is the safety net that makes free shipping feasible.

Related: The cost of being underinsured

Turn free shipping into a growth driver

Free shipping is a powerful conversion tool, but offering it blindly is a fast track to shrinking margins. In today’s cautious economy — where shoppers are scrutinizing every dollar — free shipping can be you competitive advantage, but only if done smartly.

Set thresholds to encourage bigger carts. Offer free shipping where it makes financial sense. Build the cost into pricing and bundle promotions. Cut waste with smarter packaging. And most importantly, protect your shipments with insurance, so that one step doesn’t erase your hard-earned profit.

With PIP, free shipping doesn’t have to be a gamble. It can be your next growth driver. Ready to make free shipping sustainable? Start here.

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This material has been prepared for general informational purposes only, is intended to apply generally rather than to any specific company and presumes appropriate discretion will be exercised regarding any particular situation.