People will pay $200 for that cute dress, but if you ask them to pay $5 for shipping, the deal’s off. Isn’t this all of us? As customers, we don’t want to pay even a negligible amount in shipping costs, and as an ecommerce retailer, we will hesitate to offer free shipping for obvious reasons. Guess what? Offering free shipping is not an option anymore. It has become more of a necessity.
Retailers like Amazon have doubled their profits and broken all-time sales records in the second quarter of 2016.
Amazon announced free shipping a few years ago, and that took their sales through the roof. Now with Amazon Prime offering free shipping and various other perks, other retailers – especially small business owners – have to rethink their business strategies to generate maximum conversions and profits.
“The point at which a recipient of a marketing message performs a desired action.” In other words, conversion is simply getting someone to respond to your call-to-action. Getting someone to open an email is a conversion. Having them click on the call-to-action link inside that email is another conversion. Going to the landing page and filling out a registration form to read your content is a conversion. And, of course, buying your product is the ultimate conversion. Source: MarketingSherpa Handbook
So, what exactly is the best conversion rate?
According to Daniel Burstein, Director of Editorial Content, MECLABS Institute, there is no such thing as the “right” conversion rate. There are far too many variables to define it. These numbers should be taken with a grain of salt. Instead, retailers should focus on the factors that affect conversion rates. The cost of shipping is just one of them.
“For whatever reason, a free shipping offer that saves a customer $6.99 is more appealing to many than a discount that cuts the purchase price by $10.”
Ecommerce websites rely on shipping to send their products to customers. Considering distance and transportation costs, shipping may have varying prices. The average ground shipping cost in the U.S. is between $5 and $7. When an ecommerce business displays products on its website, hiding shipping charges is never a good practice. That’s because when users gets to know the shipping cost, they often abandon the cart. Not to mention their frustration for not finding out about shipping charges in the very beginning.
Research shows that 93 percent of customers agree to buy a product if it has free shipping. However, research also shows that only half of the retailers are providing free shipping today. High shipping costs were also the #1 reason why customers were not feeling happy with their shopping experiences. Many would argue that they can step out and go to a nearby store to avoid shipping charges.
Here’s what an average retailer thinks: Am I charging my customers a lot? Too little? Is free shipping worth the deal? These are good questions to ask. Retailers who are charging a lot on shipping for profits are bound to lose business. However, if they don’t charge for shipping, their costs skyrocket.
In a recent survey by Jupiter Media Matrix, it was found that “45 percent of the companies make money on shipping fees. Forty-five percent lose money. Ten percent break even.”
This is why you should know how to charge your customers the ideal shipping amount. It involves revamping your business model and categorizing the needs of your customers and your business.
Here are some tips on shipping charges to boost your website conversions:
- Calculated Shipping
Before you sell a product, determine its weight, height, size and other factors that come into play during shipping. Round those numbers to the nearest whole number. Calculating that number will help you price your products correctly.
Your customer service department should be able to handle complaints if the item is damaged during charged shipping. But, calculated shipping, tucked quietly within the product price, makes you look professional and not like a money-making machine.
- Flat rate shipping
Flat Rate shipping involves averaging all of the company’s shipping prices. You lose money on half and earn profit on the other half. It all evens out in the end. The average will keep changing over time, so you need to pay close attention to it. If your costs keep rising without adjusting the average, you will start losing money.
Flat rate shipping is the ideal option for companies that want to keep things simple for their customers. It also works best for products that are small, not too heavy and easy to ship.
- Restricted shipping
This is safer than flat shipping because the margin for error is minimal. You can simply identify the items in your shop that do not cost much and add free shipping to those selected items. Another way is to restrict free shipping to loyalty club customers or membership. Loyal customers can earn free shipping after buying a certain number of products.
Restricted shipping on certain items may or may not work. If the low-cost item is popular, customers will be attracted to free shipping. If the low-cost item isn’t popular, the free shipping offer may not convert at all and could go unnoticed.
Free shipping is everywhere.
Half of the businesses that offer free shipping have creative ways to afford it. One such creative idea is to add the cost of shipping to the listed price. It is a golden opportunity to increase conversion rate.
OuterBox had a client who was charging $200 for a product. The product was really unique, and so was their brand. In their first year, the sales were $400,000. Shipping was $50 a pop. Soon enough, many people abandoned the cart when they reached the shipping cost option in the checkout process. OuterBox suggested increasing the price of the product to $250 and offering free shipping. Sure enough, the sales of that product went over $1 million after the new practice was adopted. In other words, free shipping is an illusion!
Online transactions can be predicted via Psychology, and that is why the higher you price your product, the more its perceived value.
- Why free shipping?
According to CrazyEgg, “Free shipping is a marketing technique that removes the stated cost of shipping charges for qualifying purchases.”
According to Wikipedia:
As long as something is “free,” it is good. The buzzword that can make anything look good is “free.” 2BigFeet claims that their conversions rose 50 percent when they announced free shipping.
- Shipping threshold
If you are announcing free shipping, you need to raise your threshold. If you previously offered free shipping on orders above $100, raise it to $150 or $125. It can increase your conversions from 8 percent to 20 percent and increase your number of visitors up to 15 percent.
This is a game of tipping points. Charge customers a high price and they will bounce off. Charge customers low and you don’t have enough margin. The key is to determine that ideal point, the threshold that also earns you conversion. Free shipping on orders over $105 doesn’t sound rational at all, so increase to $125 until the next raise.
- How long will a customer wait for free shipping?
Although the free shipment is attractive, many customers will still not choose it if the product takes too long to arrive. This happens a lot during the holiday season. You will still notice an increase in bounce rate if you are delivering late.
In an AlixPartner survey, customers were asked, “When buying from an online store, catalog, or television program or commercial, what is the maximum delivery time you are willing to accept in order to receive free shipping?”
Here’s what they said:
50 percent said one week, 24 percent said five days, 12 percent said four days, 9 percent said three days and 4 percent said two days.
Based on the survey, at least 50 percent of people are willing to wait for a week just because shipping is free, but the other 50 percent draw a line. Customers are willing to wait two to three days, but if it is more than their desired time, they will drop free shipping and buy from a local store.
- The buying cycle
Free shipping is definitely a lucrative marketing tactic, but it may not be the answer to all of your ecommerce store woes. Once, a Quora user wrote that “free shipping” in an online business is no different from free entrance into a brick and mortar store. Thus, the shipping problems are only in your mind. Free shipping only works when the buyer is in the right phase of the buying cycle.
Here are the steps in a common digital buying cycle:
So where does free shipping intersect in the buying cycle?
- Problem: The user has no idea what his problem is, so he isn’t interested in free shipping.
- Search: The user is finding a solution and doesn’t care much for free shipping or a lack of it at this point.
- Comparison: The user’s mind is comparing the features of various things and evaluating his needs. Free shipping is not on his mind right now.
- Decision: The user thinks this item fits his needs and he is going to place an order. He came to this product without any promotion, but wants to check if this item has free shipping.
- Purchase: The user proceeds to checkout. He knows that the item may be shipped for a price. He is ready to abandon the cart if shipping is associated. He interprets shipping as “extra charges.”
- Remorse: The user regrets buying something for $250. Now they are wondering if they can return this for free.
Bottom line: Free shipping only works for consumers in the “buying mode.” Holiday seasons are great because all shoppers are in that mode. Phase 5 is tempting because one gets to save some extra bucks. Keep in mind that this little marketing technique will be useless if users are in any other phase of the buying cycle.
The Last Word:
Oftentimes, the customer is paying more for free shipping without even realizing it. For ecommerce retailers, conversion is the number they are currently standing at. Clicks, Ads, Opt-ins, emails – they all contribute to higher conversions on a website. Shipping can only increase that to a certain degree. It is advisable to start from your own baseline rather than going by the market baseline, because your business model is different.
If you are charging for shipping, mention the cost up front. If you are charging for specific items, mention that up front. Nothing kills conversions like a surprise shipping fee that pops up at checkout. Forty-seven percent of people admit to leaving a shopping cart because they found out in the end that shipping was being charged.
It depends on your marketing strategy and pricing. Psychology helps a lot, but so does a great website interface with amazing product photographs and a lot of variety. Average shoppers go by comparisons; if they see other sites are offering free shipping, they may leave your website.
If you can’t afford to offer free shipping, here are some other ways you can try:
- Remove the $ sign
Dollar signs are scary to some people. They seem like a haunting element and can destroy the sales funnel, especially when the customer is thinking hard before hitting checkout. Numbers are okay, but the $ sign is a killer.
- Two for 5, five for 10 deals
Customers automatically identify it as a deal. They believe that spending $5 for three t-shirts is a great deal. The nice and round numbers are easy to calculate too. These rounded numbers and 3 for 5 deals can speed up the thinking process of a customer. Faster response times can lead to higher conversion rates in these cases.
- Limit the number of purchases per customer
When you add the element of restriction in the shopping cycle, customers’ fears come into play. This is plain psychology that leads to the act of hoarding. When your website says that only five items can be bought in one go, customers will try to break that by ordering more. Customers’ responses to scarcity lead to higher conversions on your site and maybe even bigger orders.
- Round figures (9.99)
Also called the “left digit effect.” You see this trick everywhere. Items that are priced at $9.99 are considered cheaper than items priced at $10. We may think that we do not fall for this, but we do. We do fall for the left digit bias, even in figures of three. Thus, $9.99 will seem cheaper than $10 and will register for more conversions on your site.