The ecommerce world has a certain tendency towards free shipping as a significant force driving purchasing decisions:

  • 58% of online buyers admitted buying products to qualify for incentive;
  • 83% are fine with waiting for a couple of days more in case delivery is free;
  • 68% said that free returns shipping is highly motivating to complete the purchase.

Global Study on Online Shoppers by Comscore

According to analysis run by E-tailing, free shipping without any conditions is TOP-1 criteria for checkout (73% respondents have marked it as ‘critical’). In another study 93% of respondents indicated that free shipping on orders would encourage them to purchase more products.

Research conducted by Statistica states that unexpected costs are the top reason for shopping cart abandonment, which is definitely a clue for everyone: if you charge, warn your customers in the beginning.

Why do online shoppers abandon shopping cart

Image 1. Why do online shoppers abandon shopping cart by Statistica

Since the giants of ecommerce like Amazon provide free shipping option, it seems as customers perceive it as must-have perk for trusted store. The most worrisome question for those considering switching to free shipping is how not to lose money on the delivery services?

Absorbing expenses caused by free shipping

I would like to place here a quote by Bala Ganesh, UPS:

Free shipping is not free. Somebody is paying for it.

Generalized, there are 3 categories of compensating the expenses caused by free shipping fundamental solutions:

  1. Visitor-customer conversion improvement so that newly generated revenue compensates the expenses. You are paying for it within the revenue from amount of customers.
  2. Prices increased in the way they include the compensation of the delivery. Customers are paying for it, just not naming it so.
  3. Average Order Value increased to cover free shipping expenses. You are paying for it within revenue generated from amount of items in shopping cart increased or the cost of items bought by incentivising customers to meet the free shipping criteria.

To figure out which option to follow the one and only answer is running split tests. The Key Performance Indicators (KPIs) you should analyse:

  1. Average Order Value (AOV) ? an average amount of money customers spend per order;
  2. Net Margin/Order, % ? indicates gross profit you get from orders;
  3. Conversion Rate, % ? indicates the percent of visitors that become customers;
  4. Profit Growth, % ? the one you will be making final decision on.

The formula for Profit Growth estimation:

Profit Growth= (1+AOV B/AOV A)*(1+Net Margin/Order B/Net Margin/Order A) (1+Conversion B/Conversion A)

Once you are clear on what will we estimate, I suggest running tests in the following flow:

Charging for Shipping / Free shipping without any other changes

This test will indicate the potential of the shift to free shipping method. According to experience of various companies:

Most probably, the changes would be reflected in your Conversion increase and Net Margin/Order decrease. Even in case the test would show that Profit Growth is positive, I suggest continuing trying other shipping methods, as they may exceed your expectations and provide you with even more profitable framework.

But in case you are confident in the free shipping method without extra charges, here is how you set it in Magento 2:

  1. go to backend;
  2. select Stores -> Configuration -> SALES -> Shipping Methods;
  3. enable free shipping and set up the details;
  4. save the configuration.

Setting up free shipping method in Magento 2

Image 2. Setting up free shipping method in Magento 2

Higher Product Prices

Compensating expenses may sound simple, but it actually works. Just don’t try to make money on higher prices, compensation has only to cover your real expenses for delivery. Otherwise, your store would be abandoned to competitors with lower prices ? yes, prices are still in charge as the most determining aspect for the majority of industries.In case you decide to pick this option up make sure you have done calculations that prove its profitability.

Free Shipping Thresholds

This idea of this approach is in setting the limit, or “threshold” of the order value that will allow free shipping option. As you have already guessed, this approach aims to increase Average Order Value.

To estimate the amount you will set up as a threshold, take a look at your Average Order Value that you have already checked. You have to incentivise customer reasonably, but the amount of the threshold depends on the industry. Several tips from Mirasvit:

  • the max threshold should be equal to 50% of your current Average Order Value;
  • the more costly the goods are, the less threshold should be set;
  • Try to make the threshold reasonable ? look up to complementary products. For example, you are selling pizzas, and the current Average Order Value is reflecting an average pizza price. Try to leave a threshold in such a way that buying beverages will meet the requirements of free shipping;
  • always run tests!

Setting this feature in Magento 2 can be handled in several clicks:

  • go to backend;
  • select Stores -> Configuration -> SALES -> Shipping Methods;
  • set minimum offer amount;
  • save the configuration.

Configuring free shipping with thresholds in Magento 2

Image 3. Configuring free shipping with thresholds in Magento 2

When FREE is not an option

If the free shipping variant is unacceptable for your store, you have three options of setting up prices.

  1. Flat rate shipping.
  2. Table rate shipping.
  3. Dimensional weight shipping

Flat Rate Shipping

The simplest method among those three and can be set up in several clicks. The store owners who use it, value the ease of setting it up and transparency it brings towards rates for the customers. This method sets up fixed payment for customers per product or per order.

To set up this option go to Stores -> Configuration -> SALES -> Shipping Methods -> Flat Rate

Flat rate setup in Magento 2

Image 4. Flat rate setup in Magento 2

Table Rate Shipping

Unlike Flat Rate,  this one allows to have a balance between revenue and costs. If your business model is based on the fixed income from every purchase, this method is what you need. Clearly, shop owners have different expenses for different shippings ? some customers are miles away from your warehouse, some products weigh that much that you have to order a truck instead of currier ? for stores with multiple types of products expenses for transportation may vary greatly. Table Rate Shipping option in Magento 2 automates the calculation of shipping based on multiple parameters that you have set.

To set up this method, go to Stores -> Configuration -> SALES -> Shipping Methods -> Table Rates

Table Rates shipping method in Magento 2

Image 5. Table Rates shipping method in Magento 2

While setting up, you can pick one of three calculation options available:

  1. Price vs Destination;
  2. # of Items vs Destination;
  3. Weight vs Destination.

After you have chosen your options, it’s time for rates configuration. In the same menu, click Export to download the file for configuration. After you are done with changing the rates in the file, click on Import and upload it. Do not forget to test table rates after upload.

Dimensional Weight

No matter what’s inside ? you are paying for space it takes. This option became popular recently, since such giants as DHL, FedEx, UPS and USPS use it. Magento 2 has them as options integrated, all you have to do is to enter Stores -> Configuration -> SALES -> Shipping Methods -> and pick the one you like.

Summary

  1. Free shipping option is definitely in trend; but you have to figure out the balance between revenue gross and costs on transportation.
  2. Each time you have doubts about shipping method choice, use the following formula for estimation the Profit Growth which is crucial for making a decision: Profit Growth= (1+AOV B/AOV A)*(1+Net Margin/Order B/Net Margin/Order A) (1+Conversion B/Conversion A).
  3. Whatever option you choose you can execute it in Magento 2 with ease.

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