Table of contents
1) What is free shipping?
2) Why your business should offer free shipping
3) How do you offer free shipping?
4) The psychology of free shipping
5) How to create a free shipping minimum threshold
No matter what you offer your customers; nothing beats the idea of “free.” In a competitive marketplace, incentivising customers in every way possible is always a great decision. Exploring the idea of free shipping is the optimal way to ensure customers follow through with their sale at checkout for your online store. The average abandoned cart rate in 2021 is just below 70%, so, this needs to be paid attention to. No one likes any surprises when purchasing online, especially extra-large fees for shipping.
Extra costs are the number one reason shoppers abandon carts at checkout
The latest polling has concluded that customers prefer free shipping. With more and more online businesses offering this option it has become the standard in the eCommerce industry. To simply not offer this option to your customers begs the question, why not?
Orders with free shipping average 30% higher in value
We want to explore the statistics and options around free shipping and free delivery so that your business can benefit from it.
What is free shipping?
So, what is free shipping technically? The exact free shipping definition means that the customer does not pay any extra cost on top of what they’re already paying for the product. So, if the price of the product is £20, that is all they will pay in total. They will not pay £20 + £5 for shipping.
90% of customers view free shipping as the top incentive that encourages them to shop online more often.
One of the reasons free shipping has increased in popularity for online shopping because it increases conversion rates. Offering simple pricing structures is a competitive advantage.
Why should I offer free shipping?
Other than the competitive advantage and the attractive pricing structure for customers, here are 3 other strong reasons for free delivery in 2021.
1) Ecommerce brands lose £12 billion in sales revenue each year because of cart abandonment.
2) A business insider report revealed that companies offering free shipping see an average sales growth increase of 10% .
3) 86% of shoppers abandon their cart because of the cost of shipping
This is across all industries. Typical shopping cart abandonment for retail specifically is 72.8%.
How do I offer free shipping?
There are many creative ways to offer free shipping. Asos, the largest fashion retailer in the UK for example was one of the first companies to offer a delivery subscription that ensures premium delivery.
Fashion is and continues to be the most popular category to be sold online. 20% of all products sold online are clothing related. 67% of those sales are apparel.
Asos is a popular brand with a large online presence, therefore, they already have a strong and loyal following of customers. Offering free and fast delivery to their base ensures the brand’s continued support. Just like the popularity of other subscription services such as Netflix or Prime. They were smart to offer this option.
If you have a loyal following of customers, you can offer a similar loyalty program.
Product price vs shipping cost
Being able to offer free delivery can be more challenging if you offer cheaper products. Here is how we do the math.
The simplest way to offer free shipping is to increase the product price. If your shipping cost is £5 and your product is £15, simply change the product price to £20. This simple addition makes it easy for the consumer, so long as it is priced moderately. However, if you offer very inexpensive items cheaper than the cost of shipping itself, then that will be more challenging, or impossible.
This creative approach helps you, the seller, to drive sales. People like free, so be sure to take a close look at your numbers and implement this method.
This is what is known as an “unconditional” shipping option. The price has no conditions attached to it.
Unconditional free shipping is the number one motivator for making a purchase.
The next is a “conditional” shipping option.
Conditional shipping option
This option means that some sort of condition is attached to the sale to qualify for free shipping. Most typically, many companies offer free shipping when the customer spends over a certain amount of money. The higher price tag allows more wiggle room to inject shipping costs. One such company that does this is Boots.
Their website states that free shipping is available to all customers who spend over £25.
Another UK company that participates in this conditional scheme is Zalando. They are a clothing and apparel brand that offers free delivery for all its customers when they meet a minimum order of £19. Anything below that amount the customer is charged £3 delivery.
As you can see, this is a practice that many large companies have adopted to try and entice customers to spend more money.
However, there are other conditional shipping options as well.
1) Free shipping on all orders in the UK
Worrying about the costs of free shipping are understandable. What about international customers? Shipping to other countries will be expensive, especially as far as the United States. One option is to make it exclusive to your country or territory. Crunch the numbers based on the average order size minus packaging and weight to see if your business can offer this.
2) Free shipping when you buy 2+items
Another good option is to offer free shipping when customers order multiple items. If a shopper adds 1 item to their shopping cart, it would be prudent to offer an automatic prompt that reads “add one more item to be eligible for free shipping.” Not only does it encourage them to spend more money, but the term “free” incentivizes them to complete the purchase.
3) Free shipping when sign up with email
As many digital marketers will tell you, acquiring customer emails is the same as acquiring cash. This is because the company can now follow up with customers for sales and exclusive offers, creating a potential lifetime customer. Email marketing helps to build relationships with prospective customers. Email marketing is a wonderful way to convert customers.
Custora eCommerce pulse released findings that concluded email marketing accounted for 19.8% of all online transactions.
4) Free shipping to first-time customers
Some companies prefer to only target new customers, believing that once they try the brand or product, they will stay. The first conversion many feel is the most crucial time to entice customers to join and stay. One such company that does this is Vision Direct, an eye care company.
An effective way to implement this strategy is by offering one-time use coupons. It is a popular incentive to attract customers to your store.
All these strategies are useful to offer free shipping. Deciding which strategy is precisely right for your business is up to you.
The psychology of free shipping
People like to shop online because of the convenience. When customers first start doing their research for products they often start on Google. In fact, 63% of shopping occasions begin online. This further emphasises the importance of optimising a company’s online presence. This is important because it highlights how and why people begin to search for products. It’s the immediacy effect.
However, one of the main reasons some people prefer shopping in person at a store is because of instant gratification. This further draws the idea of avoiding barriers to sales success online.
When customers shop online, free shopping helps them to further rationalise online shopping. Again, it’s the convenience aspect.
Maybe they don’t feel like getting into their car and sitting in traffic to go to a store. Maybe it’s 9pm and they are shopping from their couch, reasons differ.
However, if the shipping costs on an item turn out to be too expensive (which could easily be bought for cheaper at a store), this rationalisation fails.
60% of ecommerce companies cite “free shipping” as their most successful marketing tool.
As an eCommerce brand, learning how to optimise your free shipping threshold works because of customer psychology. It’s amplifying a shopper’s psychology of “choice,” and the inherent value we place on the concept of “free.”
When it comes down to making decisions for a customer, they’re going to choose the most convenient solution while also paying attention to costs.
How to create a free shipping minimum threshold
The truth is that free shipping is not even free, is it? Just because we’re offering free shipping doesn’t necessarily make it true. However, to improve the customer experience with the option of choice, this makes it easier for them to make online selling decisions. Just because we create the illusion of free shipping doesn’t mean it’s a deceptive business practice. You can still be transparent with your customers by including details on your website saying something along the lines of “all shipping costs included within our product pricing.” You can add it to your “frequently asked questions (faq)” tab. This way everything is transparent. So, how do we calculate our selling threshold?
The free shipping minimum threshold that you set cannot be arbitrary. It needs to be calculated and defined. Simply thinking “what are my customers willing to pay for shipping,” will not suffice. We must create a smart money methodology around our pricing.
Typically, your free shipping minimum threshold is high enough above your median order value, or average order. This way, it encourages customers to add one or two extra items.
The first step is figuring out your average order value.
Ex. Average order value is £25
This is before shipping costs
The second step is figuring out your average shipping cost.
Ex. Average shipping cost is £$5
Remember that this should be calculated along with the costs of products and supplies such as boxes and tape.
The third step is calculating your gross profit margin
Ex. Gross profit margin is 80%
You want to subtract the cost of producing the product from the total sales. Then, divide that number by your total sales.
So, if your total product sales are £50k, you then subtract the cost of producing the product for those items (let’s say £10,000).
£50,000 – £10,000/£50,000 = 80% profit margin. That’s really solid.
The fourth step is proposing a minimum cart value
Ex. The minimum cart value is £30 (Average order value plus shipping)
Now, let’s calculate the proposed minimum cart value test.
1) Let’s determine the difference between the proposed minimum cart value and the average order value.
£30 – £25 = £5
2. Multiply that difference (£5) by the gross profit margin of 80%.
£5 x .8 = £4
3. Subtract the result from the average shipping cost
£5 – £4 = £1
As you can see, you will only be paying £1 for your shipping on qualifying orders at the £30 threshold. That is a good number! You will have to do the math on your own numbers, but it is worth it if you can discover the perfect threshold for your products. If you’re paying more than £5 for shipping, you should probably propose a different minimum cart value or find a less expensive fulfilment provider.
Offering free shipping to your clients is the best way to encourage them to shop online. Understanding the costs associated with your business to offer this should be a critical step that should be handled immediately. Figure out how to remain profitable without taking a hit to your bottom line. You will be rewarded for it.