Free Shipping? How Much To Charge Customers To Maximize Conversions!

It used to be a case that free shopping was optional, but it’s practically a requirement in today’s online market. With the market saturated as it is, there are countless other options, and if one has free shipping and the other does not, it’s a relatively easy choice to make.

Why Is Offering Free Shipping Crucial?

Two of the biggest concerns for online buyers are, ‘How much is shipping?’ and ‘When will my package arrive?’ If you provide answers to your customers they don’t like, they’ll look elsewhere for their online needs – it’s that simple.

A recent McKinsey report found that 90% of US consumers expect two- to three-day delivery as the bare minimum, while a 2021 Consumer Trends Report from JungleScouts found that 80% of consumers expect free shipping when ordering orders total or exceed a certain amount and 66% expect free shipping for all online orders.

Can It Boost E-commerce Conversions?

A conversion means that a customer passes through your website or online shop and purchases something. It may sound simple, but a lack of conversations can be maddening for those just starting out, as it often gives the sense of being close but not quite close enough.

Free shipping can undoubtedly boost your e-commerce conversions as it effectively removes one of the potential stumbling blocks that may cause somebody to not buy from you. According to a recent study by UPS and ComScore, online customers, on average, purchased $200 more when they had access to free shipping.

Several other surveys report similar findings, but you shouldn’t take this as an automatic given. The quality and uniqueness of your product and its price are also vital factors for achieving more conversions.

How Does Free Shipping Enhance the Customer Experience?

The word FREE tends to jump out at people. It grabs their attention and makes them feel like you are rewarding them for something. It also adds a sense of convenience, significantly improving the overall customer experience and making them more likely to stay on your site and purchase from you.

What Strategies Should You Adopt for Free Shipping?

Many online sellers worry that offering free shipping will seriously affect their gross profit margin, but there are a few ways you can provide it without wrecking your overall takings.

Steps To Set Up Effective Tests

Before you start thinking about the long-term effects of free shipping, why not run a few tests to see how you do and how it affects your profit margins? You might be surprised. Here are a few steps you can take to set up effective tests:

  • Establish a suitable Baseline – Compare conversion rates with and without a free shipping offer to see how they measure up.
  • Put Thresholds into Place – Gradually increase the minimum order value needed for free shipping and test the margin improvement.
  • Set Restrictions – See what kind of improvement you’ll get by offering free shipping only on select products where it is profitable.
  • Price Increases – Increase all your product prices to compensate for the loss you take on free shipping and see how your profit compares.

Short-Term vs. Long-Term: Which Is Better?

Focusing only on the short term rarely works. Maximizing your profits in the early days may bring immediate rewards, but you might need to see the bigger picture. Online businesses often start slow and may even cede profit in the short term to attract more customers and build a solid foundation of loyal customers. Offering free shipping in the early days of your business might lead to a reduction in overall profit, but the long-term benefits could be substantial.

However, if you’re just starting, you might want to focus on a few short-term free shipping strategies to see how things play out:

  • Consider an introductory period where every order includes free shipping for a specific amount of time and then charges an additional percentage afterward.
  • Offer a promotional code for a certain percentage of their order, which can be redeemed once per customer.
  • If you have seasonal or clearance items, consider offering free shipping on these select items.

If you want to dive straight into long-term strategies, consider the following steps:

  • Offer free shipping on all orders over a certain amount, such as $100 or $150. This will encourage customers to purchase more and help iron out any losses due to the shipping.
  • Include free shipping on high-value products with a high profit margin. If customers are spending big, free shipping almost becomes a given.
  • Ideally, you want to get to the point of offering free shipping on everything you stock. Be careful here, and make sure you are not going to be running at a loss. Be sure to include all costs in the prices stated, and you could well be on to a winner.

Is Free Shipping the Right Model for Your Business?

Free shipping isn’t necessarily the right option for every business. If you have a profit margin below 25% or are selling low-cost items, offering free shipping might not make sense. However, you should still run a few tests and see what they do for your business.

Evaluating the True Impact of Free Shipping

Once you’ve run some wide-ranging free shipping tests, you’ll need to sit down and carefully evaluate whether it’s worth it and if you want to continue. Continuing with a free shipping policy when you are losing money rapidly doesn’t make sense.

How Do You Establish a Reliable Baseline?

Your free shipping threshold isn’t set in stone and will almost certainly change as your business grows. However, it’s essential that you start with a reliable baseline. You can do this by running several tests, including free shipping thresholds, and then comparing them afterward, along with potential profit loss.

You’ll then need to find that sweet spot where you saw a big enough jump in conversion to make offering free shipping worthwhile that comes before the point where the alarm bells start ringing and all of your profits disappear into thin air.

Is It Affecting Your Profit Margins?

This is the big question on every online seller’s mind. You’ll only know this once you’ve run some tests and then implemented a specific trial period using your established baseline. You might take a hit in the short term, but you are gathering loyal customers and growing your business organically in the long term.

Final Thoughts

Selling online is both simple and complicated. Getting everything up and running, designing products, and selling your first few items can be straightforward, but optimizing your online shop and growing your business can be significantly more complicated. Offering free shipping can feel daunting for those in the early stages, but it can also lead to substantial short- and long-term gains.

Whether you’re looking to sell patchespins, beanies, hats, socks, or personalized medals, The/Studio offers a comprehensive service that helps you design and manufacture custom products as easily as possible. We’ll make whatever you want, but from there, it’s up to you. Think big – sell wide.

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