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How to Determine if Free or Reduced Cost Shipping can Boost Your Online Sales

Let’s be frank, competition is tougher than ever and with the state of the current economy, it’s only going to get tougher.  Many online stores and brick-and-mortar retailers are offering additional incentives to get people to spend money.

One incentive that has always been a staple of eCommerce is free or reduced-cost shipping.  Consumers tend to believe that online retailers who charge for shipping are doing so at a profit when many times, in reality, it’s a loss.

Many consumers tend to abandon carts due to “sticker shock” when they see just what it will cost to have their order delivered to their door.  By offering reduced-cost or free shipping, you can try to reduce cart abandonment, gain a sale, and make a minor dent to your profit margin.

Today, we’re taking a look at some ways to determine how to use shipping as a means of gaining customers.  The first step is to establish a shipping strategy for your business based on the industry best practices:

  • Define and Measure Goals

There are several goals to be set when it comes to shipping.  Do you want to: expand your market reach, increase your conversion rate, offer more value and customer satisfaction, or improve overall operational efficiency?

If you want to reach out to a new audience or customers, you can offer free shipping or discounted rates to them specifically. It’s one way to attract them to your business or make your presence known in those particular markets.

Is your goal to increase conversions? Then shipping can also play a major role in this goal. After all, it’s one of the most significant considerations of buyers when making online purchases. If you offer free shipping or low-cost shipping, this could also show a relevant gain in order value, giving the impression of “more bang for the buck.”

Customer satisfaction is certainly a huge goal that covers several different areas. Shipping is one of them. It’s all weaved together. You get to create greater perceived value with a good shipping strategy while also making more customers happy.

Streamlining your shipping will surely help improve overall operational efficiency in the long run. With the proper information and planning, fulfillment teams will be able to pack and deliver orders better.

  • Create a Shipping “Task Force” 

Don’t take shipping for granted. Treat it as an essential part of your eCommerce business – because it really is!

Various departments are actually involved when planning and implementing any shipping strategy. Consider assigning point persons from the marketing, web design, customer service, and fulfillment departments of your eCommerce business. This way, everything is organized and aligned, providing a solidified shipping strategy from promotions up to actual delivery and even customer support.

  • Select the Shipping Strategy that Best Suits You

Contrary to popular belief, free shipping isn’t always the best solution. It may actually hurt your business later on. What you need to do is to take several factors into consideration in order to decide on the best and most fitting shipping strategy for your business.

Think destination, size and weight, type of product, and carriers. These factors are crucial to your shipping decisions. Make sure to gather rates from all the major carriers and ask for discounts based on your volume.  Find out different elements that affect shipping rates, such as dimensions and weight. Also, take into consideration additional fees and surcharges that carriers often “hide” in rates that can significantly increase costs.

Destinations are also vital. You may be able to offer flat-rate or free shipping only for certain zones and discounted rates for others.

Tests to Maximize Shipping Profits

A lot of eCommerce store owners have no idea how to make their shipping offers more profitable. It’s important for you to run several tests to see which offer could actually increase your net profit by at least 15%.

  • Compare Conversions

This is a simple A/B test you can run to check how much your profit is affected when you have a free shipping offer in place and when you don’t have one. Be sure to look into the average order value as well as the actual percentage of conversion improvement. This is how you’ll be able to determine the net margin.

Remember that not all free shipping offers are profitable. They may actually end up hurting your business big time if you don’t conduct these tests prior to long-term implementation.

  • Raising Thresholds

One way for you to make the most of free shipping is to raise the minimum order threshold. For instance, instead of just $100, you can make it $150. This way, you motivate consumers to buy more because they feel they’re saving money on shipping.

You need to conduct several tests to find out what threshold actually works for you, as it differs greatly from one store to another.

  • Setting Restrictions

You can also set restrictions on the items that are included in the free shipping offer. If you’ll be testing this, make sure to pick items that have low-cost shipping rates.  This only works to your benefit if you apply it to your fast-moving items.  As a result, the majority of your buyers will appreciate the offer and this could create a nice boost in profits.

  • Focus on High-Priced Products

You could also try to offer free shipping for items that have higher-priced alternatives. (Example: computer cables with lifetime warranties -vs- low cost, cheaper constructed cables.)  Although people are generally turned off by higher prices, the free shipping offer could actually drive them to check out the items and determine if they could save money over buying lower-priced items with shipping fees.

This method has been proven effective by several online retailers already, so it’s certainly worth a shot.

Whether you’re considering changing your store’s shipping policies or not, it’s worthwhile to learn how shipping profitability works and how you can apply it to your business. After all, shipping is a major concern among online buyers. It’s also a must to research and test the various methods involved in order to come up with the perfect shipping solution for your own store.

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