If you’re an online-savvy consumer, these three words are commonly enough to sweep you off your feet and win your wallet’s approval. To an eCommerce business on the other hand, these words tend to make them quiver in their boots, and make their profit-margins shed tears.
While the world of eCommerce eliminates a lot traditional friction points that traditional brick and mortar stores face (including lease costs & merchandising headaches), the online decision of whether or not to offer free shipping continues to daunt online sellers.
Last month, two of our clients tested free shipping upon our advice. The results? Let’s say they’ve committed to free shipping now for good. In the next 7 minutes worth of words, we’ll convince you that the choice is one worth taking seriously for any online business.
Past studies constantly echo the importance of promoting free shipping while selling online, largely due to consumer research alleging that…
“9 out of 10 consumers say free shipping No. 1 incentive to shop online more”
This incentive triumphs above both one-day shipping and free returns. Enough theory… What’s it like in practice?
Two clients tested free shipping throughout the month of February, rolling out the test in varying ways. It should be taken into consideration that the clients varied in nature significantly, of which in theory should have influenced varying levels of success:
Expectantly, the results of the test impacted influenced the ROI of both businesses differently, with the client of a lower average order value (client 2) having a significantly higher conversion rate. Since the first client's average order value was much higher than the second, they experienced larger increases in revenue. Despite these differences, a common trait of the test remained present in both businesses, leaving external factors & differences aside:
A Strong Positive Influence In Conversion Rate, Transaction Quantity & Revenue.
Comparing February 2018 to February 2017, consistent strong increases were experienced by both businesses, particularly in areas of conversion rate, transaction quantity and revenue.
Client 1 experienced significant revenue growth, as a result of a 12.58% increase in conversion rate. Despite advertising spend decreasing for client 1 in 2018 compared to 2017, the introduction of free shipping enabled a snowball effect:
Since the average order value of the Client 1 is significantly higher than Client 2 ($590.25 compared to $137.23), a marginal increase of conversion rate (12.58%) influenced a strong exponential growth in revenue. Despite Client 2’s increase of conversion rate growth being HUGE at 61.91%, and influenced a 64.50% increase in transactions, the business still only experienced a 28.56% increase in revenue. Let’s be real though: that’s still a pearler of an improvement.
Observing these wins, it reinforces the initial question posed towards eCommerce businesses:
Is free shipping really worth it?
If you’re an eCommerce business and we’ve presented this blog correctly, we hope that you’re considering to implement free shipping. How would you approach it? Before even considering the venture, you have to establish your baseline and strongly consider whether bearing the expense of shipping costs is lighter than the benefit from increased conversion rates. For example, if your margins are slim, and your product prices are low, it genuinely might not be worth testing free shipping. If you’ve established your grounding and are sure that you have plenty of leeway within your margins, it’s time to take the leap and consider what type of test is ideal for your business:
“Spend $50, Receive Free Shipping!”
Introducing a shipping threshold introduces the notion of free shipping to your customers without jeopardising your margins. This test is particularly viable if you must meet a particular average order value to meet costs. Surfstitch, a heavily-discounting clothing eCommerce store, is a leader of this free shipping method. The business likely implements a $50 threshold to maintain an average order value over $50 to meet costs.
“Use the code “FREESHIPPINGFEB” during February only for free shipping on all orders!”
Introducing free shipping site-wide for a limited time period. In doing this, you’re testing the free shipping over a set time period long enough determine its viability for positive conversion rate growth. If you want trial this method of free shipping on steroids, enable the test during a sale season, like Barbara Gerwit did during Christmas!
Short-term risk for the chance of strong potential growth.
“Free shipping on all shoes, this month only!”
A final way to test the viability of free shipping, is to offer free shipping on a particular category of product that you offer. For example, if you sold clothing and accessories, trial free shipping on a high-cost product category (for example, shoes) for a month. Over the duration of the test, closely monitor traffic and sales performance of your chosen product category compared to its historical performance. Following the month, you should have a strong enough indication of whether the change in conversion value and revenue outweighs the cost of absorbing shipping costs.
Shipping costs are inevitable for eCommerce businesses to face, and can develop either into a competitive advantage, or a burden upon your margins. Devote Digital strongly predicts that free shipping is the future. While we’re not going to force any client down any path, we think it’s in the best interest of all eCommerce businesses to consider testing free shipping, before it becomes the norm.