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Testing a Free Shipping Threshold that Works for Your Customers

For ecommerce companies that complete thousands of transactions monthly, shipping is a multimillion dollar expense. Shipping is also be a powerful motivator of visitor behavior. In fact, “according to 53% of US online buyers shipping costs are the second most important reason why they switch to another retailer, just behind a lower price.” Forrester

Testing your free shipping offer is an opportunity to achieve order value targets and increase conversion. By testing, you can find the optimal “free shipping” thresholds and policies, which generate the necessary revenue to offset the shipping expense. Retailers might consider testing minimum order values, free shipping for “members,” seasonal shipping policy offers, flat rate shipping, or free shipping for longer delivery times.

The suggestion for a free shipping offer often comes down from upper management, perhaps in response to competitor policies or a desire to try something new. Optimization teams have an opportunity to help the company make a business case for shipping policy and optimize it so that, for example, they don’t put into place a free shipping threshold that is slightly lower than the website’s average order value. This would translate to many visitors receiving free shipping without needing to add additional items to their cart--in other words a higher conversion rate but a relatively stable average order value. Brands get the conversion bump they’re looking for without the more tangible benefits of their offer.

Where to Start

To decide on a free shipping threshold that’s right for your brand, start by taking a look at your site’s average order value. The goal of offering free shipping is not only to increase conversions, but also to increase the amount of money your visitors are spending.

Ideally, we could calculate the optimal free shipping threshold that will optimize both conversion and revenue, unfortunately, each website hosts a different demographic of visitors that will react differently to a given threshold. However, with the right customer experience optimization solution, you can optimize for both conversion and revenue, while easily calculating average order value.

Testing Your Threshold

The next step is to test. It’s important to test 3-4 free shipping thresholds with clear hypotheses which outline why each threshold will lead to the highest average order value. If your site does not always offer free shipping, then it is recommended to test a variant with no shipping offer because the amount of added revenue may be enough to prove that the free shipping threshold should always be active.

shipping_messaging-1

When hypothesizing it is important to take into account your site performance and customer purchase behavior.

Here’s an example:

You notice that your current Average Order Value is $65, therefore any free shipping offer at $65 or below would mean giving a lot of visitors free shipping without driving up their AOV. You would then hypothesize that offering Free Shipping at $75 dollars will drive up the Average Order value to closer to this $75 threshold. If you are able to prove this then the question becomes how high you can raise your threshold before purchase conversion and revenue begin to drop?

Here’s one more:

You work at a company that knows it has a younger demographic. Because of this younger demographic you hypothesize that the speed at which the items are delivered is very important to your customers. This means you should test offering free shipping with no delivery estimate expressly written, versus 5 day shipping, versus 3 day shipping. The hypothesis here being that the faster the shipping speed the higher the purchase conversion rate will be. Once this test is run it then needs to be determined if it is cost effective to offer 3 day shipping for free as to opposed to 5 day shipping based on the amount of increased conversion and revenue you can expect.

Determining a Winner

It’s important to decide how to determine a winner. In other words, how much does average order value need to increase for the free shipping offer to break even and start to result in additional net revenue? This piece of the campaign should be determined during the objective setting period at the beginning of your test creation process.

A free shipping offer has been known to have a positive impact on conversions and revenue. If your organization has never optimized this offer and tested its efficacy in increasing average order value, now is the time to start. Retailers stand to gain a great deal by properly implementing a free shipping offer, but it has to be done right. Follow these steps to plan, develop, and implement your free shipping threshold and you’ll find the actionable results to determine the best course for your site.

Are you still unsure of where to start when it comes to your free shipping offer? The Maxymiser team will be happy to teach you how to implement a free shipping threshold test and many others! Fill out the form below and we’ll get back to you soon.

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