The Value of Charging for Shipping

Shipping charges.

People disliked them before Amazon Prime came along, and hated them even more once the service started offering "free" shipping.

While browsing a Facebook group for ecommerce stores of various sizes, I saw the post seen below.

"We currently have an ecom site offering free shipping in the women’s accessory niche. Average order value is $26.90. We are considering adding shipping charges at a flat rate of $2.95. Most of our shipping costs are around $3.40 per order. Has anyone gone from free shipping to charging the customer? What were the results? We are trying to tighten margins, but don’t want sales to fall off due to it. Looking for a good discussion on the pros and cons of free shipping."

Why Offer Free Shipping?

The answer to that question is pretty simple. It removes a conversion barrier for the consumer and hopefully increases your conversion rate.

The challenge though, is that if you've always offered free shipping with the assumption that it's helping conversions, you really have no idea if that theory is true or not.

Benefits of Charging for Shipping

The most obvious benefit of charging for shipping is that it helps cover your costs. Because as you know, shipping isn't free for you.

What's possibly not so obvious are the added value and psychological triggers that can be created by charging for shipping. I'll share three core examples below.

The Pop Up Offer

When someone visits your website you hopefully have some sort of modal in place that pops up to capture the customers email address. These pop ups typically have two scenarios:

  1. Generic pop up that simply says "Sign up for exclusive offers and updates" with the hope that people will sign up to receive future information.
  2. A more aggressive pop up that offers a discount, or for this discussion, free shipping.

If you charge for shipping your pop up now has newly perceived value. You're giving the customer something and, even if they don't purchase, you're getting their email address which has immediate value.

The Abandoned Cart Offer

When Jane Doe visits your website and makes it to checkout, but then abandons the process for one of many reasons, you hopefully have an abandoned cart sequence in place to try and get her to convert.

Your first email in this sequence might be a generic email reminder her of what she left in her cart and a link to purchase.

If she doesn't purchase with that email, your next email could include a special offer such as free shipping. It's an offer that, if shipping was always free, doesn't have a perceived value to the customer.

We have large amounts of data showing that these special offers, even if it's just free shipping, prompt people to convert after they've previously abandoned.

Now, if you're in the camp that wants to offer free shipping 100% of the time you might be thinking, "Well, if you'd have offered free shipping anyway she wouldn't have abandoned."

That's simply not the case. People will still abandoned the checkout. But let's back this thought about paying for shipping up with a little data from a clients account.

What you're seeing here is an abandoned cart sequence that has two emails. The first email does NOT offer free shipping and the second email does.

As you can clearly see, the first email has a higher revenue value than the second. Simply put, people that abandoned are making it back to the site and checking out while also paying for shipping.

The second email that has the special offer is converting people that had previously opted not to do so, twice. They got something special and it prompted them to convert.

Average Order Value

In the example shared from the Facebook group, we learn that the store has an average order value of $26.90.

If we want to increase the average order value one tactic may be to offer free shipping for all orders $30 and higher.

By doing so, you're giving consumers a carrot to chase, and more importantly, we've seen time and time again that this tactic can successfully increase your average order value.

If free shipping were 100% free, you wouldn't have this psychological trigger in your toolbox.

Most Importantly

Everyone has opinions. There's no doubt about it. Which is why testing various theories is the absolute best thing you can do.

By testing, you'll have data to back up your theories and can make educated decisions.

From the most simplistic level, a series of tests could be based on the variables below. And I'm going to state this in a way that requires no code change, no developers or anything of that nature.

  • Charge for shipping for X period of time. At the end of the period review your average conversion rate.
  • Give customers free shipping for X period of time (same amount of time as above). At the end of the period review your average conversion rate.
  • Increase your product price by an amount that would cover your shipping cost, or at minimum, cover at least half. For example, if your product costs $24 and shipping is $3, you could make the product cost $27 and offer free shipping.

If your conversion rate, and revenue, skyrockets for one of the options, you can easily spot your winner.

On the other hand, if you find that your average conversion rate is pretty much the same for the first two scenarios, shipping is likely a good idea. Because by doing so, as outlined above, you have three valuable marketing tactics that can be put in place to positively impact revenue

If you try the third test and find that your conversion rate pretty much stays the same and revenue increases, you'd likely want to do a fourth test to find out if you could manage to charge the higher price, but ALSO charge for shipping. Who knows, you might find out you can charge more for your products and that people will also pay for shipping.

Shipping can be a barrier, but it can also be a tool that helps you increase your conversion rate and revenue.