As e-commerce dominates a huge percentage of businesses around the globe, owners and managers continue to scramble to find ways to separate themselves from their competition.
A popular and successful strategy is to offer customers free shipping once their online purchases reach a designated amount. A key component to this plan working in your favour is the free shipping threshold.
Definition of the free shipping threshold: the dollar amount a customer must spend before you offer free shipping.
Many members of the virtual marketplace dismiss the idea of free shipping. Frequently, they believe that shipping products with no additional charge will end up costing the company significant amounts of money. This idea is definitely false, provided you set the proper free shipping threshold.
Can free shipping really help boost sales and profits?
The answer to the question is, yes. Consumers generally agree that shipping costs are one of the pain points of online shopping. There are numerous studies that demonstrate the impact of free shipping, including:
- Research demonstrates that companies who offer some form of free shipping see an upswing that results in an increase in sales.
- Shipping giant Fed Ex revealed that 73% of shoppers expect to find free shipping when they reach the checkout.
- A study by Marketing Land points out that nine out of ten online shoppers named free shipping as a reason for choosing to shop online.
- Consumers are not shy when admitting that the number one reason for abandoning their shopping cart at checkout is shipping charges.
- In a study published by Accent shows that 88% of consumers would shop from an online retailer promising free shipping.
- Over half of all online shoppers abandon their carts because of what they perceive as hidden fees.
How do consumers respond to the free shipping threshold?
Generally speaking, the free shipping threshold will successfully influence the purchases of your customers. The word free is still a powerful enticement to shoppers. With Internet giants routinely offering free shipping, consumers simply expect to see free shipping when placing orders.
Here are several statistics about customer response to a free shipping threshold:
- When considering a free shipping threshold, keep in mind the fact that 59% of consumers will add items to their cart if buying a little more if that makes them eligible for free shipping.
- A UPS study discovered 80% of shoppers abandoning their carts if there was no way to get free shipping.
- 60% of e-commerce sites say that their most effective tool is the free shipping threshold.
- More than half of all of your competitors offer a way for customers to get free shipping.
- Customer acquisition increases by 48% when using a free shipping threshold.
- 68% of consumers would recommend a site with a free shipping threshold to family and friends.
Is free shipping too expensive for my business?
It is important to remember that free shipping under certain conditions can be a useful tool that encourages customers to buy a bit more to reach that free shipping threshold.
A powerful example discussed by author Dan Ariely looks at the case of Amazon offering free shipping over Europe, except in France. The French customers paid a shipping fee of 20 cents. At a glance, 20 cents seems like a negligible amount. However, when looking at their sales in Europe, Amazon discovered sales were up everywhere except in France, which saw a decrease in sales.
How do I know what free shipping threshold is right for my business?
There are components of math and consumer psychology involved when setting your company’s free shipping threshold. However, it is a concept most business owners easily grasp.
When looking at where your threshold for free shipping should land, you will need to examine your sales data. However, it will be helpful for you to have examples of what you are looking for in your numbers.
1. Your free shipping threshold is set too low
When your threshold is too low, customers easily get free shipping, and it feels a bit less valuable to most people. To tell if your free threshold is set too low, look for the following patterns in your data.
- The threshold for free shipping falls below your median order value.
- An inordinately large number of orders are shipping free.
- You do not see many add on sales because customers easily reach the free shipping threshold and are not motivated to buy more.
The clearest remedy for this situation is raising the free shipping threshold. The chances are good that your customers may not like the change, but normally people adjust to the difference. The strategy also results in a healthier bottom line.
2. You have your free shipping threshold set too high
The trend you will see when looking at your company’s numbers will essentially be the opposite of the threshold that is set too low. In this case, you will see the following:
- You see very few customers attain free shipping.
- There is an increase in abandoned shopping carts.
- The distance between what customers spend and how much is necessary to get free shipping is too daunting. Your customers feel no need to add on items to reach the free shipping threshold because it seems unreachable.
To fix this situation, you will need to focus on lowering your free shipping threshold. Your customers will like this move, so be sure you point out the new policy.
3. The free shipping threshold is set correctly
When you align the threshold properly, there will still be some minor outliers. However, the bulk of your orders will be in the acceptable range.
Details like a correctly set free shipping threshold are far too vital to your business for you to ignore or let slide along haphazardly. Your competitors are enticing customers with this strategy and getting left behind cannot be an option for you if you want to succeed.
Do you feel as if you do not have enough hours in a day to sift over the statistics that go into setting a free shipping threshold? You are not alone. Scores of businesses of all sizes find that guidance from professionals with vast experience in the area of e-commerce is the best way to keep this strategy on track.