Increasing your website’s conversion rate is an extremely effective way to increase your sales without having to focus on getting new visitors to your site. There are many ways to optimize the conversion rate on your site, and implementing a free shipping threshold is one method used by many ecommerce stores. A free shipping threshold is a marketing tool where a store will offer free shipping to a customer if they put a minimum specified dollar amount within their cart (e.g. “Free shipping for all purchases over $50”). Not only is this practice common, but it has proven to be very effective. A study done by the Wharton School of Business found that including a free shipping option can cause consumers to spend up to 30% more per order to get free shipping. Calculating the proper free shipping threshold for your store can be a tricky and takes time, following the steps below will make the process a lot simpler and prevent you from suffering any losses when trying out this strategy for the first time.
Finding Your Free Shipping Minimum
The first step in creating your threshold is by calculating the free shipping minimum; this is the dollar amount that your threshold must be in order to cover the costs of shipping the product, as well as the costs of the product itself. Rather than finding the equation and calculating the minimum yourself, the calculator to the right will calculate your minimum threshold using the following information:
- Average Order Value (e.g. $45)
- Average Shipping Cost (e.g. $5)
- Gross Profit Margin (e.g. 30% or 0.30)
This is the average size of orders made on your site. Exclude shipping costs when finding this measurement.
This is the average shipping cost per order on your site.
To find your gross profit margin you need to calculate your total sales minus the cost of producing goods and divide that number by total sales. For example, ($50,000 total sales - $25,000 total cost of goods) / $50,000 total sales = 0.50 or 50% gross profit margin.
After entering the above information into the calculator, you will receive your free shipping minimum, this is the lowest your threshold can be without suffering losses. If you already have a free shipping threshold in your store and want to see the impact it has on your profits, you can click the “Test Current Threshold” tab on the calculator. By typing the above information and then inputting your current threshold in the “Proposed Minimum Cart Value” section, you can calculate how much your current threshold makes (or loses) per order.
Test Your Ideal Threshold Range
Now that you’ve found a minimum value for your threshold, you can safely experiment without taking any losses. The rest depends on trial and error, set a threshold value for 1-2 months and compare the performance of the new threshold to the past. Eventually, as long as you stay above the free shipping minimum, you will find an optimal threshold for your store and be able to benefit from increased profits!
Need Help Optimizing Your Conversion Rate?
Free shipping thresholds are just one way to increase the conversion rate on your site. Contact us, the Long Island E-Commerce Experts, for professional help on increasing your sales and conversions.