Here’s the bottom line: Free shipping is now the standard, and your sales will suffer if you don’t offer it. Below, I’ll show why free shipping is essential for increasing your sales.
Focusing on customers who abandon their shopping cart is extremely valuable, because you know that they’re interested in purchasing something from your store. When you identify and remove the barriers that stopped them from completing their purchases, your sales will increase.
Imagine that you’re currently losing 50% of your customers during checkout because your shipping costs are too high. If you manage to convert half of those people into sales, you’ll see a huge increase in your profits. Let’s say your average sale is $10, and you make 100 sales per month. Enticing 25% of your potential customers with free shipping will result in an extra 50 sales at $10 each—in other words, you’ll end up with an extra $500 each month that you were previously leaving on the table.
If that money is enough to cover your shipping costs, it’s worth giving free shipping a try.
A study by Retention Science determined that free shipping offers convert twice as often as price discounts. In other words, if you send a free shipping promotion to a group of your customers, twice as many of them will make a purchase in your store than if you sent them a coupon for a discount in your store.
Incredibly, this still holds true in cases when the price discount would save the customer more money than free shipping does. To understand this, you need to understand Perceived Value Theory. The theory says that a customer determines the value of a purchase by looking at the benefits and the costs associated with it.
Mathematically, it would look like this: Value = Benefits / Costs. If you bring down the costs (free shipping, price discounts) and offer the same benefits, then the customer perceives a higher value in the purchase. Don't worry, the math doesn't get more complicated than that.
So why does free shipping make a customer see a purchase as more valuable, even when it isn’t? The reason is that perceived value is subjective, and most people don’t know the true cost of shipping. People tend to assume that shipping costs are higher than they actually are, so when free shipping is offered, they see an increase in value that doesn’t correspond with reality.
That’s good for you as a business owner, because you end up making more money and your customers are happier.
Figuring out exactly where to set that threshold is an imperfect science, but a little experimentation with that value can really benefit your business.
Let me first explain why free shipping thresholds work. First, you need to know that 23% of online shoppers will only purchase from a store with free shipping. Second, a UPS report found that three out of four shoppers will add items to their cart to qualify for free shipping.
What does this mean for you? It means you can target a group of people who will purchase more items just to qualify for free shipping. To do this, you need to find the ideal free shipping threshold for your store.
Divide your total revenue by the total number of sales you’ve made and you’ll come up with the average value of a sale in your store.
That number is going to vary a lot depending on what sort of products you’re selling. For our example, I’m going to pretend the average value of a sale in my toy store is $25.
By setting the threshold for free shipping a bit higher than my current average sale value, I’ll likely be able to encourage people to purchase items that they otherwise wouldn’t have.
If I take this a step further, I can cleverly price my items to ensure that my margins don’t suffer from offering free shipping. Let’s say, for instance, that most of the items in my store cost around $15. If I set my free shipping threshold at $35, it’s likely that some people would rather spend $45 to get free shipping instead of spending $30 and having to pay for the shipping costs.
Your homepage should prominently announce that you have free shipping on all orders, or all orders above a certain threshold. Each of your product pages should also include a mention of free shipping.
If your competitors aren’t already offering free shipping, use it as a way to differentiate yourself. Whether you incorporate it into your social media strategy or mention it as part of your email marketing efforts, make sure that your customers know the extra value they’ll get by shopping in your store.
Social Media and Content Strategy at Jimdo
Dan joined Jimdo in October 2012 after returning from a year of teaching English in Dresden, Germany. He can't grow a beard, but he loves strategic board games, Victorian novels, and strumming the seven chords that he knows on guitar.