Looking to offer free shipping on your ecommerce site? Free shipping is guaranteed to increase your conversation rates (yay!), but unfortunately-if not done right-it can harm your profit margins. Since a loss of profit is definitely NOT what we want, there are some basic tests that you can perform to help you maximize your revenue.
Before you enact any of these tests, you should first establish what you want to optimize your site for, net profit or lifetime value. It’s suggested that you optimize for net profit per visitor as that will give you the most accurate and detailed results, even though it is a little more effort to set up.
Once you’ve decided how you’d like to optimize your site, you may continue onto the tests.
- Set Up a Baseline
To create a baseline you should compare your conversion rates with and without a free shipping offer. By determining just how much free shipping will increase your conversion, you can decide if the effort is worth it or not. If the benefits don’t outweigh the negatives, then a free shipping offer is probably not the best path for your ecommerce store.
- Devise a Threshold
Try increasing the minimum order value required for free shipping, and review to see if there was an increase in margin. By creating a minimum such as “Free shipping over $150”, you are forcing consumers to spend more in order to save. It’s important to try a few options so as to decide which threshold will garner the most marginal increase without hitting the “tipping point” of consumer drop-off.
- Establish Shipping Restrictions
When you offer free shipping on only certain products, you can easily control our profit margins. For example, if you offer free shipping on products where the shipping is already low, it makes it easier and safer to offer it long-term. This type of shipping offer typically works best when you have a specific product that has a lot of sales but does not cost a lot to ship.
- Enact Higher Prices
You could also try just a general increase of all your product prices to compensate for the possible loss you’d take with free shipping. The combination of both the higher prices and free shipping will most likely decrease conversion, but increase total net profit. This strategy is best used if your company is in a unique niche that’s not very competitive. Consumers are less likely to price shop if your site is one of the only ones that sell a specific product.
While you don’t need to perform all of these tests, it’s helpful to at least try a few. You could possible save your company a lot of time and money by making sure that free shipping is the right choice for you.
