Free Shipping = Lower Conversion Rate?
Hey I’m Shane, welcome to another issue of The CRO Weekly where each week I explore how to build a high converting Ecommerce store. If you’re not subscribed you join 867 people that are right here:
This post is not sponsored but I will certainly be shilling a specific app. Not because they’re paying me to but because I think it’s really cool and I’m seeing great results with it. If you’d rather me shill more apps I’m using or none at all please lmk on Twitter :)
I’m not a logistics expert but what I do know is that shipping is weird. Let me give you an example.
A client I’m working with (let’s call them Dunks) sells a few products all around the same ~$30 price point. Shipping one product using standard ground shipping costs around $8. Shipping 2 products to the same location using 2-day shipping costs $9.50.
Keep this in mind: if we get people to order a second product or buy 2 containers of the same product, their per unit shipping cost goes from $8 to $4.75 and it gets delivered in two days!
Knowing this, of course Dunks’ highest priority was to get people to buy 2 containers. There’s so much value in it:
Higher AOV
Per-unit shipping costs go from $8 to $4.75
Customer receives product in 2 days, and we assume that’ll make them happier
Now the question is – how do we get them to order an additional product?
Getting people to buy more
Dunks’ first thought was to offer a discount on buying 2 or more containers. Their primary offer was 5% off for buying more than one.
5% is definitely a discount but on a $30 product that’s only $1.50. I felt like that may not be a strong enough incentive for people to stock up on product. At the same time, if we increase that discount we’re eating into the margin we’re gaining from our per-unit shipping cost.
So I started thinking, how else can we incentivize people to buy more without killing our margin?
That’s when I realized something—Dunks was offering free shipping to all customers. Whether you bought one, two, or ten you got free shipping.
At the same time it’s pretty common these days for brands to offer a free shipping threshold. Buy more than $X and we’ll give you free shipping. It’s a bit of a give and take.
Thinking it through, if Dunks added a free shipping threshold above their $30 average price point that would unlock a whole bunch of opportunities.
We could charge a flat rate for shipping one container which is the most common order. If we charge $5 that would cut our shipping costs from $8 to $3, earning us an extra $5 in profit on each sale.
We would also unlock a strong new incentive for buying more than one container:
Buy 1: full price and $5 for standard shipping
Buy 2: 5% off and free 2-day shipping
So of course we had to try it.
Testing shipping rates with ShipScout
ShipScout is my favorite kind of app. It does one thing and it does it really well.
With ShipScout you can A/B test different shipping rates and offers on Shopify.
You install the app and choose your test type. For us that’s a “Free Shipping Threshold” test:
Then you need to decide on what thresholds you’re going to test. Variant A is going to be set to 0.00 which means all orders get free shipping. That’s our control group.
Deciding on the thresholds is a bit harder
Should you make it close to your AOV or significantly higher? Should you price it above or below your best selling product? These decisions are going to depend a whole lot on your brand.
But that’s what Shipscout is for. Think it through and make a decision and then run the test. You’ll know the right answer soon enough.
Here’s how I thought through the decision for Dunks… Their products cost $30. So if you buy two products that’s $57 with the 5% discount. We wanted the threshold to be below this price point so that anyone would get it if they bought more than one.
The question is, where do we put the threshold between $30 and $57? Too close to $30 and I think customers will be annoyed they have to spend so much more to get free shipping. Too close to $57 and maybe it feels unattainable.
Trying to think through the psychology here was tough so we decided to test both extremes with a threshold at $35 and one at $50.
The final thing was to choose a shipping price for customers that didn’t hit the threshold. We went with $5
The test runs by splitting people up and editing the shipping rates in the backend. Then, they give you an announcement bar you can add to your store that shows people the correct offer based on which segment of the test they’re in. For example, the bar will say “Free shipping on all orders” or “Free shipping on all orders over $50”.
The Results
Keep in mind - our goal with the free shipping threshold was to increase AOV with CR staying relatively the same.
What blew my mind was looking at the conversion rate chart after 2 weeks:
Guess which variant is which?
Variant A: free shipping on orders over $35
Variant B: free shipping on orders over $50
Variant C: free shipping on all orders.
I know, crazy right? Free shipping on all orders is converting lower than both of the free shipping thresholds. We still need to collect more data but it looks like worst case scenario is that CR stays relatively the same. Best case scenario we’ve actually increased CR by ~5-10%!
That’s great, but what about AOV?
Yup, variant A and B are both around $52.93 and variant C is at $49.82.
When you take it all together and look at revenue per visitor the story is clear:
Adding a free shipping threshold instead of offering free shipping to every customer has resulted in a 13% increase in revenue per visitor.
Now, if I’m being honest, we haven’t really accomplished our goal of getting people to buy more than one product. If we do the math, most of that increase in AOV is a result of new shipping revenue from people not hitting the thresholds.
I mean, Dunks isn’t exactly complaining but we have more work to do.
I’m okay with that though because the only thing we’ve done is added the threshold…
We’re not telling people they get 2-day shipping if they hit the threshold
We’re not running any cross-sell offers in the cart
We haven’t added any progress-bar type indicator to show people what they need to hit the threshold.
As you can see, adding the free shipping threshold opened up a whole world of possibilities for us.
Now it’s time to run some more tests!
As I went to publish this article I realized that my buddy Mathias is going to be sharing a similar case study on his newsletter in the next couple of days. He’s also going to be giving out a 20% discount for ShipScout. Great minds think alike!
Again, I wasn’t paid to write this post but I can’t speak for Mathias 😂 Go check out his newsletter if you want a discount :)