Sales Impact of Shipping Offers
While virtually all e-commerce players and almost all big retailers have moved to free shipping all the time (many with no hurdle), in our world of specialty retail we continue to discuss the impact of flat rate shipping and free shipping with clients on a regular basis. What is the lift in sales? The impact to margin? The impact on conversion rates? We are fortunate to have visibility to test results across our client base. What we have observed is that a reasonable flat shipping rate can increase sales up to 10%, and free shipping with a reasonable hurdle can impact sales up to 15%.
Here are some additional insights:
- Some clients have found that if you make the AOV threshold 15-20% higher than your average order size, you see people buying more products to hit the threshold.
- Also, by having a higher threshold on an everyday basis, it still allows you to use free shipping as a promotional lever at lower thresholds, and that can drive big lifts in sales.
- On the flip side, for clients with a high AOV and high price point products, lowering the hurdle can help drive sales of lower price point items that are otherwise burdened with high shipping costs.
- Consistently, we see free shipping with no minimum driving 15% plus in sales, but some clients have noted that the margin impact from low value orders makes this difficult to do.
- On rollout, lifts can be lower at the company level for factors like loyalty programs, etc. For example, if a good majority of customer purchases come from customers already getting free shipping as a benefit to having a private label credit card, then the overall lift is only on the non-loyalty-card customers.
- We have also seen our home décor and furnishings clients give free shipping on certain décor categories because furniture makes it difficult for them to do free shipping on everything. Even non-home brands could take this approach on certain categories that have higher margins and/or lightweight items.
As consumers, we know the list of retailers that offer free shipping is long. When thinking about your own business, you must ask the question: Would I as a customer be willing to pay $12 in shipping for this item? At Belardi/Ostroy, we often argue free shipping is the price of doing business online, especially in a world where we must compete against Amazon, a company continuing to drive huge increases in revenue with good deals and fast, free shipping. As always, we are happy to be a sounding board if this is something you are testing or exploring as a company.