How to Increase Average Order Value Using Free Shipping

Boost average order value by using free shipping. Set the right threshold, test limits, balance costs, and use promotions to encourage larger purchases.

Indeed, free shipping has emerged as one of the strong attractions nowadays in today’s competitive eCommerce to allure more customers and hike sales. Research shows that several shoppers abandon their shopping carts when they face the real shipping costs. Offering free shipping will persuade customers to complete the purchasing of the item, but at the same time, it presents another challenge to businesses: how to offer such an attractive incentive without eating into your profit margins. Again, the answer lies in setting the right free shipping threshold.

Free shipping is usually accorded when a certain threshold value is reached in the customer’s order. This stratagem, in essence, stimulates Web shoppers to put more items into their cart-a sure-fire means of raising the AOV and balancing shipping costs. This article looks at ways of setting the right free shipping limit in place to deliver increased sales but with retained profitability.

Analyze Your Margins and Shipping Costs

In finding an effective free shipping threshold, you need to understand your profit margins and the cost of shipment. Shipping can vary dramatically depending on weight, size, and destination of items; hence, these aspects should be given due attention. Before giving away free shipping, calculate how much it costs to ship your products on average and compare that with your average order value.

For example, if the average cost of shipping was US$10 for your products, and the average profit margin per order was US$20, setting it too low at say US$30, will eat into most of your profits just on shipping alone. On the contrary, setting it at a higher threshold-for instance, US$50-may make your customers keep adding more in their cart so that the shipping cost gets covered by the revenue.

Test Thresholds to Find the Sweet Spot

It takes a little testing to find that sweet spot when it comes to free shipping thresholds. First, dive into your customers’ purchasing habits. What does the average order value currently sit at for your store? If your average order value is $40, setting the free shipping threshold just above this—say $50—can push customers to purchase a little bit more in order to qualify for free shipping.

Testing different thresholds will yield that magic or “sweet spot” at which customers will be incentivized enough to increase their purchase, without significantly eroding your profitability. You also run an A/B test offering different free shipping thresholds to different segments of your audience. Track the results to find out which threshold yields the highest conversion rate and average order value.

Balancing LTL Shipping and Free Shipping

When using LTL shipping, it’s important to adjust your free shipping threshold to account for the cost-savings. Since LTL reduces your overall freight costs, you can afford to set a more reasonable threshold without sacrificing profitability. By working with reliable LTL carriers, you can further enhance the customer experience by providing predictable shipping times while keeping the costs down.

Use Tiered Free Shipping Offers

A multi-layered strategy of free shipping introduces different thresholds depending on the size of the order or speed of delivery. You could give free standard shipping for orders over $50 but include expedited shipping free on orders over $100. This will drive customers to make larger purchases with the added benefit of having quicker shipping.

Plus, the tiered shipping catches more customers: those who want to have a low threshold of free standard shipping and those who can pay more for quicker delivery. Not only does it increase sales, but this way you can please different customer preferences.

Make Free Shipping a Promotion

Besides setting a permanent threshold for free shipping, you can also offer temporary promotions to increase your sales during this period of sluggishness. You can offer free shipping for all orders around holidays, sales, and special promotional events. In such situations, customers race due to the feeling of urgency that urges them to make purchases when otherwise they might wait.

You can also offer free shipping via loyalty programs. This, in turn rewards recurring customers with free shipping on the next order. Thereby giving value to the loyal customer, yet keeping the incentive exclusive to you, hence helping you in controlling the costs.

Consider Geographical Factors

Shipping costs depend on location, and you must therefore take into consideration geographic variables in determining your free shipping threshold. If you are shipping products to both domestic and international customers, using the same free shipping threshold across all the regions might likely get more expensive for the regions whose shipping fees cost high.

To manage this, consider offering thresholds per region. In other words, you may offer free shipping on domestic orders over $50 while requiring a much higher threshold for international orders. This way, you would still be able to run your profits in all regions while offering the privilege of free shipping.

Leverage Data from Your eCommerce Platform

Most e-commerce platforms, such as Shopify, WooCommerce, and Magento, are available to provide you with data analytics so that you can track customer behavior, order values, shipping costs, and other such things. You can use this data in order to monitor the performance of your free shipping strategy.

You can manipulate your free shipping threshold by knowing when your metrics-for instance, cart abandonment rates, conversion rates, and AOV-change. For example, imagine the threshold goes up too high-to such an extent whereby you actually begin to see an extraordinary drop in sales. On the contrary, if customers could majorly go over the limit, you might be able to increase it a little more to further increase sales.

Free Shipping to Be Clearly Displayed

Once you have identified what the free shipping threshold is, it really pays to shout it loud and clear from the rooftops. Slap the threshold front and center on your website’s homepage, product pages, and at checkout pages so customers are aware of the offer.

This can be a well-placed message, such as “Free shipping on orders over $50,” that will encourage customers to add more items into their cart in hope of meeting this threshold. Besides, showing a progress bar on how close they are towards achieving this qualification in free shipping will further encourage customers to improve the value order.

Conclusion

The right free shipping threshold is one of the best levers you can use to move the needle on sales and shift that average order value along the spectrum in eCommerce. It’s all about weighing your shipping costs against each other, testing different thresholds, and leveraging the data from your e-commerce platform to find a balance that works with your customers and your bottom line. With implementation done right, free shipping will encourage customers to make more significant purchases and enjoy a better customer experience-even more considerable sales and solid brand loyalty will drive this.