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How can shipping costs help your e-commerce results?

This article has been updated since it was originally purchased in early 2017. With Christmas coming up fast, e-commerce sales are expected to grow strongly on last year. And while most of us will have heard that Free Shipping is one of the best ways to drive conversion, it's not always easy for retailers to deliver on this. What if there was a magic formula for working out how much shipping is the right amount to charge? The amount that won't harm conversion, and helps with cost recovery....

How much shipping is the right amount?

It turns out that customers are OK to pay something for shipping, they just don't want to pay too much. And while it's tempting for a business to go for cost recovery on freight, depending on what the product is, that might not always work. A really good rule of thumb to use, is a super simple calculation.

Generally speaking, customer's are happy to pay up to 20% of the purchase price of the item on freight, above this level and they are way more likely to abandon their cart. Below this, its not a problem. Are there exceptions to the rule? Absolutely! If you've got a desirable, well known, widely sold product that's got a significant discount applied people are happy to pay more than 20% of the purchase price? Why because they'll still be saving overall.

Try this simple trick and see how well it works on your site.

Free Shipping on House of Home

Earlier this year we added a couple of new features to the site that helps customers right when they are at the time when they are ready to buy – shipping and free shipping flags.

These appear on the product tiles when the customer is searching for a specific product:

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The two flags are “Ships within Australia” and “Free Shipping within Australia”.

These two key messages are then reinforced again within each product tile:

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With these enhancements released on the site we thought it was a good time to examine how freight and shipping costs affect your e-commerce conversion.

Abandoned Carts

An abandoned cart is when someone visits your online store, finds what they like, presses the ‘add to cart’ button, but then stops…generally without leaving their details. Its so frustrating - you’ve done so much of the hard work – you’ve got that customer to your site, you’ve put the product in front of them that they like, they’ve indicated that they like it, but no sale.

Rates of abandoned cart are higher than the global average at nearly 75% - for every four things that are added to cart only one is bought, and the bad news is that in our category, it can be even higher.

So the question is why?

In an insightful article from Rejoiner they gave the following list of reasons why people didn’t follow through on their purchase:

  • 37% of people wanted to touch or see the item before purchasing

  • 36% thought the cost of delivery too high

Other reasons for abandoned carts included concerns about the ease returning the item, concerns about loss or damage in transit, concerns about size or fit, and so on.

When we analyse the abandoned cart data on House of Home, and the emails we get from customers, questions about freight are without doubt the number one driver.

Think about it – Mr & Mrs customer find the item they love, but the only way they can find out the total cost to them (ie how much shipping will cost) is by adding it to cart. And if the total checkout cost is too high, then they’ll leave that item in their cart and move on.

Can you use your freight policy to help you drive conversions?

The answer is absolutely. But, for most of our members they stock a wide variety of product types and sizes which means that it is very hard to come up with a one size fits all freight policy. But that’s not a good enough reason to give up thinking strategically about the items that you want to sell online and come up with tactics that will help you increase the sales of those items.

So lets talk about this in two parts –

  • Generally, what are the ways that you can use freight as a promotional opportunity

  • Specifically, how can you apply that to your House of Home account

Using Freight as a Promotional Tool

Free Shipping is probably the best known of any freight offer. It helps to think about what Free Shipping is –

The guys from Crazy Eggs define it as: Free shipping is a marketing technique that removes the stated cost of shipping charges for qualifying purchases.

What’s important about this definition is that it’s not a blanket offer, its not giving away margin, its not losing on every sale. Here are some ways they suggest you could apply free shipping:

  • Free shipping, no qualifications. Buy anything, and it gets shipped to you for free. No limitations.

  • Free shipping if you’re a member. If you join the merchant’s club, only then do you qualify for free shipping.

  • Free shipping if you spend enough money. Some merchants provide a minimum order threshold. If you spend above a specified amount, you qualify for free shipping.

  • Free shipping if you buy the right stuff. With this approach, buyers qualify for free shipping only when they purchase select items.

  • Free shipping if you have it shipped to a brick-and-mortar store. This effectively Click & Collect - this pseudo-free shipping lets you have products shipped sans cost to the store, ideally serving as a double carrot to get you to spend more.

  • Free shipping if you buy before a certain time or during a certain time. Many free shipping promotions are constrained by time, meaning that you have to buy during a certain promotion in order to qualify.

So the key thing is that “Free Shipping” it doesn’t apply to everything, all of the time. Use it wisely and use it to drive profitable outcomes for your business.

How to use freight without it adding to your cost base?

So what are some of the ways that you can make sure that your shipping policy is helping your overall profitability?

Here are four things that you can do

  1. Run a test to establish a baseline: Compare conversion with and without a free shipping offer.

  2. Create Free Shipping Thresholds: Experiment with the minimum order value required for free shipping,

  3. Set Restrictions: See what kind of improvement you’ll get by offering free shipping only on select products where it is profitable.

  4. Increase your prices: Increase your prices on the products that you are offering free shipping on to compensate for the loss you take on covering the shipping costs, and see how your profit compares.

Want to know more? Here is a detailed article on putting these four free shipping experiments: into practice.

Next Steps - How can you make sure your shipping policy on House of Home is driving sales for you?

First up – We get it – not everything in your store might be suited to selling online and shipping around the country. That’s why we’ve set it up so that you can have different shipping offers for different products.

  • Bulky Items – if you have items that you really don’t want to ship – don’t mark them as Buy Online. Offer them only as Instore or Click and Collect.

  • If you have items that are really well suited to selling online or you have particularly good margin in, consider offering them with Free Shipping – this can be selected at an individual product level:

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  • Or if your goal is to increase the amount that a customer spends with your store, then try using a Free Shipping Threshold – this means that you set the minimum spend required before a customer receives free shipping – this amount will be different for every business – maybe $75, $100, $150 or $250.

To set this navigate into your account, click on My Details and then scroll down to Shipping Details:

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We hope you’ve found this article helpful – we’d love to work with you to grow your online sales, so don’t hesitate to call and talk to us about what you’d like to achieve.

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