Extra costs cause abandonments
Extra costs too high (shipping, tax, fees) is the #1 reason for cart abandonment, according to Baymard (source).
Free shipping is the best kind of shipping. You get bonus points if it’s also fast. It eliminates a major pain point for ecommerce customers and helps you conquer a lot of that initial buyer reluctance.
Popular as it may be with consumers, every adult knows that nothing is ever truly free. If you offer free shipping someone will have to pay for it. The money will either have to come out of your pocket or your customers’ pockets, albeit unknowingly on their part.
There are three general approaches to offering free shipping without bankrupting yourself:
- Paid memberships
- Free shipping on orders above a certain dollar amount
- Factoring shipping costs into pricing
Customers pay a monthly or annual membership fee and get free shipping as one of the perks. Amazon prime is a good example of such a program.
The trick is in setting a membership fee low enough to encourage adoption yet still high enough to cover shipping costs for the set duration. Elsewise, you could do as Amazon does and lose money on the membership while making up for it with increased orders (this isn’t recommended unless you have enough financial muscle and the product diversity to make it work). You can also couple this with minimum order amounts for free shipping.
Free shipping on orders above a certain dollar amount
In this case you’re paying for shipping out of your margin. While an increase in the volume of orders is expected to cover the reduced level of profitability per order, you should ensure that the margin you have left after paying for shipping can cover your other expenses.
Factoring shipping costs into the pricing
This is the easiest to implement provided your customers are not price sensitive. Instead of selling a product for $54.99 when shipping costs $5, you can just list it for $59.99 and offer free shipping instead. The example above might seem a little unethical to some people but that is the basic idea.
Building your shipping costs into your product is actually recommended for manufacturer operated stores, single-product stores, those that have exclusive distribution rights, or those that sell high-end goods. It’s not advisable to build shipping costs into your products if there are other stores selling identical products because your list price will appear higher by comparison.
Let’s say you sell handmade violins at $1400 for example. There is no point in charging $50 for shipping when you could just list the violin for $1450 and ship it for free. The separate $50 for shipping is an additional cost while the difference between $1400 and $1450 is basically a rounding error to your average customer. Free shipping will be perceived as a perk even if the customer is unknowingly paying for it.
For more information on free shipping, see best practice #80.
From members of my Ecom Convert group:
Typically that threshold is placed just above your average order size if AOV is low… otherwise it’s just high enough to prevent a loss on paid shipping. Threshold is dependent on your audience, products, and competitive market
From personal experience, I’d say that I often try to buy more stuff to get above the free shipping threshold. But if there is free shipping on the only item I want, I won’t buy anything else. However, I’d say that the nature of the item matters. For example, if it’s something that is an appliance or takes a long time to perish, I won’t mind buying more. If it’s something that perishes quickly or has few uses, I’ll try to find the site that gives me free shipping from the get go. I’d say the 50-100$ range would make most sense.