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How Free Shipping can Increase Average Order Value

Who doesn’t love free shipping when shopping online?

If you operate an online store and don’t offer free shipping, you’re missing out on a substantial amount of revenue. While most merchants think offering free shipping will impact on order profit, we can tell you that it wont if you utilise a simple eCommerce strategy.

Free shipping not only motivates your customers, but can help increase your average order value by up to 30% in just a few short months.

Why offer free shipping when selling online?

Shipping options play a pivotal role in an online shopper’s decision of where to spend their hard-earned dollars:

  • Free shipping entices customers to purchase by wrapping all costs into the price of each item.
  • Shopping carts are often abandoned at the checkout when customers are dissuaded by an additional shipping charge.
  • Maintaining a steady cost from product page to checkout increases a customer’s likelihood on following through with the purchase.

How to pay for free shipping

The ultimate challenge for online businesses is how to affordably offer free shipping and balance the expense?

  • Factor shipping prices into operation and product pricing: understand shipping costs from the moment you receive inventory and include it in financial models.
  • Market free shipping: Customers love free shipping, but they need to be made well aware that it’s a distinguishing perk.
  • Focus on up-sells and cross-sells: Shipping gets more efficient as items are added. When merchants incur the cost, it makes up-sells and cross-sells a margin-mover.

Free Shipping Strategy

Free shipping strategies need to be planned in order to be successful. The first step is to calculate your average order value and average shipping cost. Next, offer free shipping on your average order value + 10%, or whichever amount covers your average shipping cost and provides enough profit to slightly increase your average order value. By repeating this process every 3-4 weeks, your average order value will increase by 30% in a few short months.

The idea behind the free shipping strategy is a percentage of your customer base will be willing to spend more on a transaction to trigger a free shipping option. Not only does this benefit your customers who receive “free” shipping with their order, but you (the merchant) increase your average order value resulting in a better bottom line for your business.

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