In today’s ecommerce landscape, shipping is one of customers’ biggest considerations. “How much is shipping?” and “When will my order arrive?” are make-or-break questions that determine whether a buyer completes their purchase or not.
Customers expect free shipping and super fast delivery. A McKinsey report cites that more than 90% of US consumers expect two- to three-day delivery as the baseline, and 30% expect their orders delivered the same day. Click here to start selling online now with Shopify
On top of that, JungleScout’s 2021 Consumer Trends Report states that 80% of consumers expect free shipping when ordering a certain dollar amount of products, and 66% expect free shipping for all online orders.
If free shipping isn’t offered, they’re happy to walk away.
Shipping fees are frequently given as one of the main reasons why shoppers abandon their carts—with an average overall abandonment rate of 69.9%. With these numbers in mind, let’s talk free shipping. Does it increase sales? And how can you make it accessible to your customers? Below, we break down the free shipping strategy so you know when and how to use it to increase conversion.
Let’s get started.
Does free shipping increase sales?
The age old question of whether free shipping increases sales is best answered by looking at the data:
- Shipping costs cause 48% of online shoppers to abandon their carts.
- 78% of consumers are willing to buy more to qualify for free shipping.
- Free shipping is the number one driver of online shopping.
- 27% of people will shop in-store to avoid shipping costs—a risk to online-only businesses.
Short answer: Yes, free shipping can increase sales. Customers will buy more to get it and will take their business elsewhere if they can’t.
Long answer: There are different ways to offer free shipping. You need to be strategic about the type you use to make it work for your business.
8 types of free shipping
If you want to try offering free shipping, there are a number of ways. Each has its benefits, depending on your business goals, what type of shopper you’re targeting, and those shoppers’ expectations.
Free shipping across the board might not work for your business. After all, you only want to offer it as an incentive if it won’t put you in the red.
Here are eight options to consider:
1. Build free shipping costs into pricing
One of the easiest ways to offer free shipping is to include the shipping costs into your price. This way, you’re offering free shipping on every single item you sell, increasing the chance customers shop with you and complete their purchases.
To make this work, you need to calculate your profit margin to ensure free shipping won’t cut into your profits. Use Shopify’s profit margin calculator to help.
For example, let’s say an item costs you $20 and you charge $30 for it—your markup is 50%.
This means you profit $10 per product, with a gross product margin of 33.33%. To offer free shipping, you’d need to take a slight cut in your profits or mark up the products so the shipping costs are included. You could do a bit of both.
We’ve already mentioned that the vast majority of people are willing to spend more in order to get free shipping. Even if your products are slightly more expensive than your competitors’ products, if they’re free to ship, you have an advantage.
2. Offer free shipping at a certain spending threshold
Another option is to offer free shipping if your customers spend a certain amount. For example, Wayfair offers free shipping for orders over $35. Yeti offers free shipping on orders over $25.
There are a few ways to go about calculating the threshold number that’s right for you. One important metric is your average order value (AOV).
Let’s say your most recent orders are for the following amounts: $86, $112, $71, $65, $105. If you add them all up and divide by the total number of transactions (five in this case), you’ll get your AOV of $87.90.
You could also use the median order value (MOV) to calculate a free-shipping threshold. The median is the midpoint in a set of values that has an equal number below and above it. In other words, the median order value means half of all your orders are more than the median value and half are less than.
Using the example orders above, you’ll get an MOV of $86, which is right in the middle. The MOV has an advantage in some cases when the average order value may be skewed due to orders that are either super high or super low.
Once you’ve done the math, you could choose to offer free shipping on orders slightly above your MOV or AOV. In this example, you could offer free shipping on all orders over $100. This could incentivize your customers to buy more to get free shipping, while increasing your average order, and help cover your shipping costs.
Ideally, the free shipping threshold is set just high enough above your MOV or AOV to nudge customers to add extra items to their cart, which they might not have done otherwise.
3. Free shipping for first-time customers
If consistently offering free shipping simply isn’t feasible, consider it only for new shoppers as an incentive to get them to make a purchase.
You can test this out by creating a one-time use discount code for new accounts making a purchase. Acquiring new customers is much more difficult than getting existing customers to come back—even if they have to pay for shipping. So this can be a great tactic for increasing new sales.
4. Limited-time-only free shipping promos
You can also offer free shipping for just a short period of time to boost sales. Consider creating a promotion for one weekend every month or for major holidays like Christmas, Mother’s Day, or Father’s Day.
Doing this creates a sense of urgency for your customers—a tactic proven to increase sales by as much as 332%. Create a promo code that lasts for a few days and promote it on your website and social media.
By offering free shipping for just a few days, you incentivize customers that have been putting off a purchase, potentially boosting sales and increasing revenue.
5. Location-based free shipping
If shipping far away gets too expensive, consider only offering free shipping in certain states, provinces, territories, or countries. Location-based free shipping can be one way to appeal to a large segment of your audience, even if you can’t offer it to everyone.
You can also try to store your inventory close to where data shows your customers are buying. Storing your products closer to your customers helps you reduce carrier costs and offer free shipping, as well as faster shipping speeds.
Keep in mind that by relocating your inventory, you’ll incur new storage costs that will impact your profit margins. Speak to a third-party logistics provider, to better understand the costs of outsourcing the pick, pack, and shipping process.
6. Free shipping on select items
Shipping fees for larger products can be pretty hefty, so at some point there’s no way it would make sense financially to offer free shipping. However, if you sell a mixture of products, you might be able to swing free shipping on some of the smaller ones.
7. Incentivized free shipping
You can also incentivize free shipping through other actions that help your business—like having customers sign up for a store credit card or create an account.
For example, Sephora’s website has the call to action (CTA) “Sign In for Free Shipping” on its navigation bar. Anyone who has created an account with Sephora is eligible for free shipping.
Free shipping is a powerful incentive. Use it to your advantage by enticing customers to create accounts, sign up for your newsletter, or follow your social media accounts.
8. In-store/local pickup or delivery
If you can’t offer free shipping on an ongoing basis, consider adding local delivery or curbside pickup if you also have a storefront. Data from Shopify shows online shoppers spend 23% more and have a 25% higher cart size when local pickup and delivery are offered.
Customers actively look to support local businesses to help sustain their communities and economy. They’re also interested in local shipping and curbside pickup options because it offers enticing advantages.
For ecommerce retailers, there are still some shipping delays caused by the pandemic—21% of consumers report delays compared to 53% in 2021. Local delivery and pickup can offer a price and delivery speed advantage.
Local delivery also offers a way to create a personalized brand experience. Customers who shop locally are looking for that personal connection, and local delivery is a way to do it.
You can leverage this to connect with existing customers and attract new ones. For example, you can include a personalized packaging insert or a unique message in the delivery notification to thank them for their purchase.
Your customer’s impression of free shipping
Why do customers love free shipping? And why will someone put a $10 product in their cart simply to avoid paying $7.99 to ship their original order?
Forty-seven percent of customers say they will spend the minimum amount to get free shipping. And if they want to spend $10 to receive an additional physical product rather than $7.99 simply to get their initial purchase delivered to them, they’re going to do it. That’s because they feel like they are getting more value by purchasing an additional item, than paying for shipping.
Fast or free?
Amazon has started promoting “fast and free” to its customers, with 55% of US online shoppers subscribing to the retail giant’s Amazon Prime plan. With Prime, certain products are available for free two-day shipping—and even one-day or same-day shipping in some cases.
It can be challenging for small businesses to offer both free and fast shipping. Many brands have to choose between the two. While it can seem like a tradeoff, a recent survey found that 85% of customers prefer free shipping to fast shipping when given a choice.
Often, your best bet is offering standard shipping first, then faster shipping. Especially considering 65% of people will pay more for faster shipping if they need it.
3 benefits to free shipping for sales
Free shipping can seem like a race to the bottom. It’s no longer a benefit or a competitive advantage—it’s a requirement. However, there are other benefits free shipping can provide for your business and its bottom line.
1. It increases your average order value
A free shipping threshold can boost your average order value from $35 to $50 or $85 to $100, depending on the amount you set. This will boost sales overall by increasing the average amount customers spend.
2. It reduces your cart abandonment rate
If a potential customer hits checkout then gets a look at your standard shipping rates, they’re likely to exit the webpage right then. However, if you offer free shipping, your shoppers are much more likely to finalize their purchase without issue.
3. It leads to increased sales
Free shipping can help increase sales. There are many ways to offer free shipping, but each one tends to lead to an influx of even more sales in your shop.
Should you offer free shipping?
Free shipping is becoming more and more of a must-have in the eyes of customers. You can experiment with different types of free shipping to see which one leads to the highest profit margins.
Keep in mind your free shipping threshold is not a “set and forget” number—your strategy will, and should, change as your business grows. Revisit your shipping policies at key selling periods and growth milestones.
We at ShopShipShake have been working with businesses like yours with fulfilling experiences. We offer one-stop services, including an efficient supply chain, over 10 thousand of China’s suppliers, over 1,000,000 SKU and more. With a successful track record of over 100,000 clients, we are sure to deliver your orders requirements.
Let’s get in touch to build, sustain, and grow your businesses! If you would like to know more details about us, please contact us: blog.shopshipshake.com. If you are interested in cooperating with us. Please register on: https://bit.ly/3Cfdu4w
The article originates from: https://www.shopify.com/blog/free-shipping-and-conversion