The Hidden Cost of “Free Shipping”

Most brands underestimate the true cost per shipment. They look at base rates — maybe dimensional weight — but overlook the full stack of charges:

• Residential delivery surcharges
• Delivery area surcharges (DAS)
• Fuel surcharges (which fluctuate constantly)
• Additional handling fees
• Saturday delivery charges
• Signature requirements
• Oversize/overweight penalties

Even a package that starts at $10 can balloon to $18+ once accessorials are added. Now multiply that by hundreds or thousands of shipments per month — and your “free shipping” perk starts draining your profits.

🧮 A Quick Example:

Let’s say your AOV is $100, and your margin is 40%. That gives you $40 to work with.

Your average shipment starts at $11, but fluctuates between $13 and $18 due to fuel and DAS fees.

You’re not running weekly audits, so billing mistakes and late deliveries are going unchecked.

Suddenly, you’re spending $14.50 per order on shipping, and your margin is down to $25.50 — and dropping.

Now add return shipping for exchanges, or repeat deliveries due to carrier errors, and your “free shipping” strategy just nuked your profitability.

🛠 How Smart Brands Keep Free Shipping Profitable

Here’s how to keep the conversion benefits of free shipping without killing your margins:

1. Run Weekly Audits

Don’t wait 30+ days to look at shipping spend. Carriers allow just 15 days to claim refunds.
RCS Audit automatically checks every shipment weekly — catching:

• Late deliveries
• Duplicate charges
• Invalid accessorials
• Incorrect addresses and weather delays

And you don’t have to touch a thing.

2. Understand Your True Cost Per Shipment

RCS data helps you understand actual cost per order — not what you think you’re paying.
This lets you refine your free shipping threshold (e.g., $50 minimum vs $100) with real financial data.

3. Renegotiate Smarter Carrier Contracts

Once you know your spend patterns, you can go back to the carrier with leverage.
Negotiate to:

• Reduce or cap surcharges
• Eliminate specific accessorials
• Improve incentives on your most-used service levels

We help you do this too — and most clients unlock 15–30% annualized savings just through contract tuning.

4. Use Refund Dollars Strategically

What you recover in refunds should be reinvested. Many of our clients use that recovered capital to:

• Fund free shipping thresholds
• Cover return shipping costs
• Offset peak surcharges

💡 The Bottom Line:

Free shipping works — but it only works when your shipping spend is optimized, your invoices are audited, and your contracts are working for you.

If you’re not doing this, “free shipping” is just a margin drain with good marketing copy.

We’ll help you fix that.

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