To most of the businesses today, it is a known fact that offering free shipping can help you improve your conversion rates. The only thing is that you need to be cautious that it does not negatively affect your profit margins. Then why do the ideas of free shipping sound profitable?
Well, it is indeed possible to maximize the profits through free shipping, making it big for the e-commerce stores. Playing the free shipping game correctly, can help you improve your net profits by 15 – 30% in addition to improving the conversion rates.
However, it has to be kept in mind that it is futile to jump into the business of free shipping until you are sure that it can take a profit. Starting free shipping function demands certain testing. If you refuse these testing patterns, you are likely to burn by the low profit margins. But if you enter through proper testing, you are likely to earn profits like none other.
Following are the testing steps to make the free shipping ideas profitable:
Establishing the baseline
The thing to do is to make a comprehensive analysis about how much the free shipping protocol will help in raising your conversion rate. Only if there is the scope of increasing the levels of conversion rate largely, the idea is profitable else not. The first step is to test that how much the concept of A/B testing varies with and without free shipping. If the profits seem to rise largely with instilling, free shipping then it is profitable to implement the idea.
Raising your threshold
The simplest way to make profits on free shipping is to offer free shipping by raising your threshold. This helps in forcing the customers to spend extra in order to avail the benefit of free shipping. This increases the profits so earned.
For example, an e- commerce store offers free shipping on orders worth over $100. Now by increasing the threshold to offer free shipping over the orders worth $125 or above, will help in earning larger profits and the customer will be allured to shop more to avail the benefit of free shipping.
Restricting your shipping practices
Another easy way to make free shipping practice profitable is to free ship only on products where you know that the cost of shipping is low. For example, you may offer free shipping only on shoes. This idea is likely to be profitable as you can take the chance of offering this for long term. This is also easy in implementation. This will appeal to larger number of customers visiting your site primarily to purchase shoes.
Restrictions are known to work best in the cases where one product dominates the sales, also has low costs involved in shipping.
Higher prices and free shipping
Another trick that will work effectively in increasing your profits through implementation of free shipping is to combine higher product prices and the offer to free ship them. The concept largely speaks of the benefit to combine net effect of the increase in prices with the decrease in conversions. An increase in the in the in the prices will although decreases the rate of conversion but it raises the average order value in regards to net margin per order and this covers up for the decreased conversion.
Free shipping and niches
- Non-competitive niches unique in nature: Combining free shipping to increase in prices and analyze the impact on net margins seems the wiser option as customers here are not price shopping.
- Competitive niches: Here the strategy is not likely to work for you, as the customers are rational buyers.
Summary
Free shipping can prove to be a profitable idea as it can improve conversion rates as well as add to the profit margins.
