Delivery is one of the most important considerations for customers shopping online, even if it isn’t top-of-mind for busy merchants. “How much does delivery cost?” and “When will my order arrive?” are crucial questions that determine whether or not a customer completes their purchase.
Customers nowadays expect free delivery and delivery that is lightning fast. According to a recent McKinsey report, more than 90% of US consumers expect two or three-day delivery as the standard, with 30% expecting same-day delivery. According to the 2021 Consumer Trends Report, 80 percent of consumers expect free delivery for orders over a certain dollar amount, and 66 percent expect free delivery for all online orders. What if it isn’t available? They’re content to simply walk away.
With an average abandonment rate of 69.8%, shipping fees are frequently mentioned as one of the main reasons why shoppers abandon their carts. With these figures in mind, we’ve broken down the free delivery strategy for you, including when and how to use it to boost conversion and average order value. Continue reading!
Table of Contents
- When is it appropriate to provide free delivery?
- How do you figure out if customers are eligible for free delivery?
- Find low-cost delivery options
- Keep your inventory in close proximity to your customers
When is it appropriate to provide free delivery?
Nothing, including delivery, is ever free. If you want to offer free delivery on all of your products, you’ll either have to pay out of your own pocket or raise the price of your products to cover the cost. But, if done correctly, absorbing this cost can result in a significant payoff.
You don’t have to offer free delivery all year depending on your business and current profit margin. Instead, it can be used to push specific items, get rid of excess inventory, or boost average order value (AOV) during sales events.
Here are some ways to benefit your business and your customers by providing free delivery on a conditional or promotional basis:
- A minimum order value is required.
- As a one-time promotional code for acquiring new newsletter subscribers and customers
- As a promotion or an alternative to discounting during peak sales periods such as Black Friday and Cyber Monday, Christmas, or Mother’s Day.
- Only on certain products or combinations of products to help clear out excess inventory or one-time items
If your customers are already on the verge of making a purchase, offering free delivery makes it easier to justify the purchase and reach the free delivery threshold. In fact, 48% of customers will add additional items to their carts just to get free delivery.
How do you figure out if customers are eligible for free delivery?
If you decide to offer free delivery, there are a few methods for determining the appropriate threshold number. One important metric to start with is your Average Order Value (AOV).
Let’s say you’ve already received orders for the following amounts: $87, $113, $72, $66, $106. You’ll get your AOV of $88.80 if you add them all up and divide by the total number of transactions (five in this case).
You could also calculate a free-shipping threshold using the median order value (MOV). The median is the point in a set of values where the number of values below and above it is equal. To put it another way, the median order value indicates that half of your orders are above it and half are below it.
Using the orders from the previous example, if you rank them from lowest to highest, you’ll get a MOV of $87, which is right in the middle. When the average order value is skewed due to outlier orders that are either super high or super low, the MOV has an advantage over the AOV.
In this case, you might want to make all orders over $100 eligible for free delivery. This will encourage your customers to reach the free delivery threshold, as well as increase your average order size, which can help you cover the cost of free delivery in part.
The free delivery threshold should ideally be set just high enough above your MOV or AOV to encourage customers to add one or two additional items to their shopping cart that they might not have added otherwise.
Other factors to consider when determining whether or not you are eligible for free delivery
- The weight of the products you’re sending out, as well as the average box size and geography (whether you’re shipping domestically or internationally), can all have an impact. Determine how much you’re charging customers and how much carriers are charging you.
- Any other transaction fees you pay, such as customs duties or credit card fees.
- The price of the goods, their packaging, and your profit margin are all factors to consider. How much of a hit to your overall profit are you willing to take?
- Keep in mind that outliers, such as SKUs with extremely high or low prices, can distort the value of your AOV.
- To find the best minimum order number, experiment with different thresholds above your AOV or MOV. There’s never a one-size-fits-all solution for conversions—price, images, and product innovation will all have a different impact on customer behaviour in the end.
Also, include not-so-subtle reminders about the free delivery threshold throughout your customer experience, such as during checkout. This will encourage more customers to add items to their carts in order to qualify for your free delivery offer.
Find low-cost delivery options
When you offer free delivery, one way to make it more sustainable for your business is to lower the cost of each delivery. As the pandemic drags on, delivery costs, including holiday surcharges, have been rising across the US, and are expected to become the new normal. To cut your delivery costs, look into local delivery options to see if there are any that can save you money by offering lower rates than retail on the mail classes and services you require.
When local pickup and delivery is offered by independent businesses, Shopify data shows that online shoppers spend 23 percent more and have a 25 percent larger cart size.
Customers actively seek to support their local businesses on a local level in order to help sustain their communities and economies. Local shipping and curbside pickup options also appeal to them because they offer appealing benefits. The pandemic’s unfortunate reality for ecommerce retailers is shipping delays, which customers want to avoid. Local delivery and pickup may be more cost-effective and faster than shipping.
Second, local delivery allows for the creation of a unique brand experience. Customers who shop locally want a personalized experience, and since you can’t provide that in-store, local delivery is a good way to provide it. You can use this to stay in touch with existing customers while also attracting new ones. For example, you can thank them for their purchase with a personalized packaging insert or a personalized message in the delivery notification.
Keep your inventory in close proximity to your customers
Your order data will reveal patterns in what customers buy, where they live, and how much they typically spend over time. This data will assist you in deciding whether to store and ship products from multiple locations or to outsource fulfillment to a warehousing network. You can reduce carrier costs and offer now-standard free delivery as well as faster shipping speeds by storing your products closer to your customers.
Something to think about: If you move your inventory, you’ll have to pay for new storage, which will eat into your profit margins. You can better understand the exact costs of outsourcing the pick, pack, and shipping process by speaking with a third-party logistics provider.
As the volume of orders grows, many merchants begin to look for ways to outsource the shipping headaches so they can focus on growing their businesses. The next big step, outsourcing order fulfillment and providing free local delivery, necessitates a closer examination of margins and a better understanding of how consistent fulfillment will affect your checkout conversion.
How do you intend to meet the rising shipping expectations of your customers? You’ll have to experiment with various free delivery thresholds and options to see which one yields the best profit margins. Keep in mind that this sweet spot threshold isn’t a “set it and forget it” number; your strategy will, and should, evolve as your company grows. Remember to review your delivery policies during peak selling seasons and growth periods!