Boost Sales With A Free Shipping Threshold
With Amazon’s fast delivery option, business owners have to offer something just as intriguing or they may be lost in the holiday shopping mix. Since studies have found that over 65% of shopping cart abandonment rates are directly linked to shipping and handling prices, what you charge for shipping often means the difference between a conversion or another cart abandoner.
In addition to a large percentage of consumers demanding free return shipping, e-tailers should also consider using free shipping thresholds and offering hassle-free returns. When these costs are viewed as a marketing expense, and are factored into the profit margins, sales can (and do) soar, and abandonment rates substantially decrease.
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The Proof Is In The Pudding
A recent survey conducted by eConsultancy that polled over 5,000 respondents found that four in five consumers see free shipping as an important part of the online shopping experience. 58% said they would take actions to qualify for free shipping, namely, adding more items to the shopping cart.
Retailers can establish free shipping thresholds by carefully assessing their profit ratio on certain products that are above the threshold value – e.g. $49, $79, $99 – to get free shipping.
Doing the Math
For example, say a retailer knows that their average shipping cost is $7.50 using Priority Mail. And say a retailer knows that their average sale is just $25 with a 50% profit window, or $12.50 profit average per order. By integrating a free shipping threshold at $79, they can still earn a profit while also factoring in the cost of shipping.
The math would read as follows here:
- Base Cost of $79 minimum order: $37.50
- Base Profit Margin: $41.50
- Shipping cost: $15.00
Gross Profit Margin: $26.50
Things To Keep In Mind
Certainly, base cost, profit margin and shipping cost can and will vary, and these numbers are based upon average order value, average product cost and average shipping cost. But as you can see, there’s a lot of wiggle room in there for a healthy profit when a free shipping threshold is being offered to consumers. It’s a smart way to encourage a higher average order value while appealing to the consumer demand of free shipping and simultaneously spurring sales.
Priority Mail is a good example for a free shipping offering, because the large flat rate boxes have a weight limit of 70-pounds, and the medium flat rate and small boxes have a weight limit of 20-pounds; often accommodating enough for most ecommerce shipments.
Economy Shipping is Popular
Given that UPS has found that the average shopper will wait up to 8 days for a product with free shipping, economy shipping is a viable method here. What’s more, the same UPS report has found that over 80% of consumers desire free shipping, or at least a threshold, or they will abandon the cart.
Setting a free shipping threshold puts a small business in immediate competition with larger businesses that are already offering the same thing or that feature free shipping. If you think that you are unable to offer such a lucrative free shipping threshold, think again. Crunch the numbers in the calculator that we’ve provided above, and see for yourself.
Featuring a free shipping threshold helps you attract sales in more ways than you may imagine. In fact, it’s such an important part of your online offerings that we’ve already covered it in our related guide, How To Increase Average Order Value. But by how much? And will this really help you attract more higher value orders?
In a related study that was conducted by Red Door, they found that they were able to increase orders by 90% for NuFace by adding a free shipping threshold. The threshold was set at a minimum order value of $75. The results found that orders increased by 90% and that consumer confidence improved by 96%, while the average order value (AOV) increased by a healthy 7.32%.
What Shoppers Want
We leave you with this detailed infographic. It serves to illustrate the direct connection between shipping prices and your customers. Learn more about how customers react to shipping prices, and how these prices influences or detract from your conversion funnel. Don’t forget to check out the video at the end to learn how you can instantly tap into the lowest prices on USPS Priority and Express Mail every time with no volume requirements.