Free Shipping vs Threshold – At What Point Should Delivery Cost? | Shoptimized

We’ve all clicked onto an e-commerce store, found something we wanted, popped it in our shopping carts and then got to the checkout, only to discover the cost of shipping is nearly as much as the item itself or just unreasonably high.

At which point, the site exited at high speed in sheer disgust, right?

It’s no secret that this kind of “sticker shock” or surprise shipping costs will massacre your conversion rate.

In fact, research from the University of Pennsylvania revealed that a lack of free shipping will turn your customers away in droves.  On the other hand, free shipping in some form is a hugely successful conversion booster.

The research also showed that approximately 60% of e-commerce store owners cite free shipping with a threshold as their most successful marketing tool. This makes total sense because a lack of free shipping is the top reason consumers abandon their virtual shopping carts.

Furthermore, the e-tailing group found that free shipping topped the list of online tactics that would influence a customer to engage with a brand or make a purchase on a social networking site.

And if you’re still not convinced, Accent published a study that shows 88% of consumers would be more likely to shop at an online store if they were promised free shipping.  Another study shows that more than half of your customers will abandon their carts because they were presented with unexpected costs like delivery charges.

If you think “Free Shipping” isn’t something your store can offer, this article on Web Marketing Today gives some solid advice on how to handle offering free shipping realistically. And this backs up my experience of setting the threshold slightly above your current average order value (AOV).  So, if your AOV is $40, offer free shipping for orders over $49.

And to prove this works, one of the many findings in a joint study by Harris Interactive & UPS was that 39% of customers reported they’ll often purchase enough to qualify for free shipping when there’s a threshold to meet.

But here’s what’s really interesting, in his March 2009 talk at SXSW, Zappos CEO, Tony Hsieh tells us that the bulk of their marketing budget is actually spent on customer experience.  This is mainly to delight their customers with surprise free overnight shipping.  This is an interesting contrast to most other e-commerce stores that focus the majority of their marketing efforts on inbound traffic.

Hsieh says they do this under the premise that people aren’t shopping with Zappos because of their prices, but instead on the superior customer experience.  By surprising and delighting customers they get significantly higher than average word of mouth marketing.

This savvy strategy worked because, by July 2009, Zappos was sold to Amazon for 10 million Amazon shares (worth $888 million at the time) plus $40m in cash.

So, we know that free shipping is king but which tactic is the better one to use? Free shipping, no matter what you spend, or having a threshold where you must make a minimum spend to qualify for free shipping?

Here’s a helpful case study from e-commerce store NuFace, they tested adding a free shipping threshold and it increased its orders by 90%.

They simply placed a “free shipping over $75” slogan above the “Shop NuFace button” – an intelligent move, which took into account where the target customer would be looking on the page and placed the incentive near it.

Image source.

What’s more, Shopify store 2bigfeet.com saw a 50% uplift in conversions after implementing a $100 free shipping threshold.  But crucially only after they removed the requirement for users to enter a coupon code to qualify.

Here’s another case study that’s interesting for Shopify Plus stores, Western-ware retailer, Sheplers, used Monetate’s powerful segmentation tool to offer free shipping to underperforming geographical locations.  Clever stuff, but only for enterprise level stores.

Offering free shipping is a fine line to walk, as shipping can come at a costly price to you as a merchant.  But these costs can be absorbed with a threshold…

Shopify upsell app

The UpliftHero App leverages your free shipping threshold to boost average order values.

If you’re selling products that are relatively low cost and can be bought pretty much anywhere, this is where you should impose a threshold.  This is because price sensitivity plays a big part and upping your prices to absorb the shipping costs will mean you might price yourself out of the market.

The good news is that, like I said earlier, when you impose a threshold, it typically increases your average order value because shoppers will buy additional items to reach your threshold.

On the other hand, if the product you are selling is unique or has a premium price, then you can absorb the shipping cost into the higher margin or increase the selling price to cover the real cost of free shipping.  This removes the need for a threshold and lets you add “Free Shipping on Everything” to your value proposition.

My advice here is to still test a threshold if you have logical cross-sells for your products.  You might still find that the increased AOV outweighs the conversion lift you get from free shipping on everything..

So, in conclusion, when it comes to free shipping in one guise or another is, without doubt, one of the best ways to convert visitors to customers.  But the secret lies in getting it right for the product and the person who is buying it.  As a Shopify store owner, you must test what works best for your visitors, products, and store as there’s no proven rule for everyone.

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