Using free shipping to increase conversions and maximize sales
We love deals and discounts, and clearly we’re not alone. Shoppers are expected to drop an eye-popping $45 billion this Black Friday, with some of them camping out overnight or waking up at dawn to jostle fellow shoppers for cheap electronics, appliances, and clothing.
But slashing prices isn’t the only way to incentivize sales this time of year. In fact, discounting can actually hurt your business in the long run, diminishing the perceived value of your products and setting an unsustainable precedent.
What’s a merchant to do? Besides highlighting your brand’s value and unique selling points — things you’re no doubt already doing — there is one thing that’s practically guaranteed to boost your Black Friday sales without compromising your margins or your integrity.
It’s a little something we like to call free shipping.
ICYMI: We just launched Smart Shipping Bar, a Shopify app that motivates customers to add more cart value to receive free shipping or some other special offer. You should definitely give it a whirl!
What’s so great about free shipping?
For starters, people love it. According to a 2016 survey from Walker Sands Communications, 88% of consumers said free shipping was the incentive they wanted most, while UPS found 58% would actually add items to their cart in order to qualify for shipping.
Another reason free shipping is great? It reduces cart abandonment. While the latest statistics pin the average abandonment rate around around 70%, research from UPS and comScore indicates the lion’s share could be recovered by improving the shipping experience. They found six of the top 10 cart abandonment culprits to be shipping-related, with high shipping costs topping the chart.
But our favourite thing about free shipping is this: it works. Just look at Amazon. Sure, their net shipping costs soared to $1.75 billion in the third quarter of last year, but they were also able to increase signups to their Prime program by 35%, with more than half of US households now belonging to the not-so-exclusive club. (Notably, Prime shoppers have been found to spend more than double what non-members spend annually.)
How *not* to offer free shipping
Shoppers want free shipping, Amazon offers free shipping and turns a pretty profit, so all you need to do is slap a “free shipping” banner on your site and you’ll be laughing all the way to the bank—right?
Not exactly. For most small to medium-sized businesses, free shipping still represents a significant financial burden. As a recent article in Fast Companyexplains, “Amazon’s massive size means the company benefits from an economy of scale that most of its competitors don’t.” This includes the profits of Amazon Web Services, a huge proportion of online shopping transactions, and “extremely close” relationships with shipping companies.
The fact is, the average merchant simply can’t afford to bankroll their customers’ shipping bills — especially when those bills are getting bigger and bigger every year (UPS and FedEx have raised package rates by between 4.9% and 5.9% annually since 2009).
Free shipping — with strings attached
Fortunately, free shipping doesn’t have to be an all-or-nothing proposition. Instead of offering free shipping as standard on all orders, try setting a threshold and offering it only on orders over a certain dollar amount.
For example, if you know your customers tend to spend around $40 per transaction (AKA average order value), try setting a free shipping threshold at $50. Assuming shipping costs you around $6, you’ve just found a way to make an extra $4 (minimum) off each and every order. Ka-ching!
Not only will setting a threshold mitigate the pain of subsidizing shipping costs, but it will actually increase conversions and order values, encouraging customers to add items to their cart in order to qualify for that sweet, sweet free shipping offer.
Calculating your AOV and free shipping threshold
For this to work, you have to have a good handle on what the average value is for your store currently. Fortunately, most basic analytics tools — including Google Analytics — can provide you with this information. (You can find it under Conversions>Ecommerce>Overview on the dashboard.)
If you don’t use GA, or if you get a thrill from crunching numbers, you can also do the calculation manually using a couple metrics from your Shopify dashboard. Just divide your store’s annual revenue by your total number of orders (you can use the last month or the last year) and, boom, you’ve got your average order value.
With your AOV in hand, the next step is to determine what your free shipping threshold should be. You want this number to be above your AOV but not so far above that it seems out of reach.
According to conversion optimization expert Aaron Zakowski, “The golden number in most cases across most verticals is usually around 30%… So if on average they spent $108, you would offer something at $140.” As with all things ecommerce, the best policy is to run some A/B tests to find what works best for your store.
Maximizing your free shipping mileage
Once you’ve calculated your AOV and set your threshold, it’s time to promote it. You’ve probably seen how most retailers do this, advertising the offer in a prominent area of their site — like the header — as well as on product and checkout pages.
This approach is fine, and many businesses have seen results from simply adding a line of text like “Free delivery on orders of $50+” to their sites.
But you can increase the impact by personalizing messages to show exactly how much more a customer has to spend in order to qualify for free delivery. This is exactly what Free Shipping & Discount Bar does, allowing you to create elegant, eye-catching promotion bars that update in real time. Once a customer has reached the free shipping threshold, you can show them a congratulatory message and direct them to the checkout.
These kind of personalized “progress to incentive” tactics can deliver an uplift of up to 95%, according to Yieldify— and that’s on top of the benefit of increasing average order value.
Wrapping up and shipping out
Amid the Black Friday hullaballoo, it can be tempting to jump on the bandwagon and start slashing prices indiscriminately.
Resist! Beyond capturing the sale at hand, free shipping comes with a whole slew of added benefits, including higher order values, increased competitiveness, and perhaps most importantly, the favour of your customers.
By giving shoppers what they want, you’re laying the groundwork for brand loyalty and customer advocacy— things even the deepest of discounts couldn’t hope to achieve.
We’d love to hear what you think, so leave us a comment below, and share some of your own Black Friday conversion strategies!