The Power of Free Shipping

61% of shoppers will abandon their cart if shipping, taxes, and other fees are too high,

Offering free shipping has a major impact on shoppers’ behavior and it definitely will improve your conversion rate. But, it also can kill your profit margins if you’re not careful.

You don’t necessarily have to offer free shipping on everything in order to increase sales or become more competitive. Here are a few important considerations:

  1. Consider Your Margins. Your profit margins will be an important consideration when it comes to the type and level of discounted shipping you can offer your customers. In all likelihood, your margins vary by product, which can also play a role.
  2. Consider Your Products. Beyond margin, consider the size and weight of your products. Larger, heavier items are more expensive to ship, which is the reason many retailers have certain restrictions with their free shipping offers.
  3. Consider Your Orders. A common goal among sellers is to increase average order value by offering free shipping with certain thresholds. For example, if your average order value is $50, you may decide to test free shipping on orders that are a bit higher, such as $60.
  4. Consider Your Customers. Where are your customers located? Do you ship internationally, or have customers in Alaska or Hawaii? If so, you’ll have to absorb more costs with shipping to these locations, which is why many retailers will exclude all areas outside of the contiguous United States with their free shipping.

So, how do you make free shipping profitable?

  • Establish a Baseline: Compare conversion with and without a free shipping offer.
  • Create Thresholds: Increase the minimum order value required for free shipping, and test the improvement in margin.
  • Set Restrictions: See what kind of improvement you’ll get by offering free shipping only on select products where it is profitable.
  • Enact Price Increases: Increase all your product prices to compensate for the loss you take on free shipping, and see how your profit compares.

Offering free 2-day shipping helps lessen cart abandonment rates and get more shoppers to your checkout page in the first place; but the goal is to do this without increasing your returns rate.

Testing different offers is key to finding the most profitable free shipping strategy for your business, and even though it’s an overall positive, it’s not the panacea to all e-commerce woes.

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