Unmonitored shipping surcharges can add up quickly. That’s why we’ve developed a streamlined calculator designed to help you estimate your annualized shipping surcharges—because when you know what you’re paying for, you have options.
Offering free shipping has become a powerful customer incentive during the holidays. Here are some cost-effective ways that can help you put your best shipping offers on the table this holiday season to help offset shopping cart abandonment and ensure customer satisfaction.
A weak returns process can cause chaos. Warehouses get flooded with products waiting to be sorted. Packages sit in limbo whether intact, damaged or expired all together. All the while, customers grow frustrated waiting for their returns to be processed and accounts to be credited.
An inefficient system not only slows operations, it can also cost a company money, by allowing products to depreciate, or perish, in the case of food products. Building a robust reverse logistics flow takes time, but with a few simple steps, any retailer can introduce efficiency into their operations. Here we outline five ways to optimize your returns.
Include a merchandise return label with your shipments.
Make your return experience more convenient by adding a return label to every outgoing package. This can help boost customer satisfaction without breaking the bank, as many return labels do not incur shipping costs until they are used.
Dedicate a space for returns in your warehouse and implement a three-bin system.
Return to supplier. Restock. Discard. By using these three sorting bins for returned merchandise, your warehouse can begin routing the packages in the right direction.
Integrate items from the “Restock” bin back into the stocking process.
Merchandise that can be sold again should enter your forward-moving flow as quickly as possible. Check your bins frequently to ensure that items ready to be restocked are scanned back into the system and made available for purchase.
Keep high-priority and fast-selling items in a buffer zone.
Designate a space for high-priority return items. That way, you won’t spend time moving them to their original storage location, allowing them to be picked for resale more quickly.
Ensure your packaging is sturdy enough to travel back safely.
Poor packaging leads to damage and even loss of merchandise. If you intend for your customers to use the original packaging when returning their purchase, make sure it can handle the wear. Invest in thicker cardboard boxes and tear-proof poly mailers to prevent issues down the line.
Every returns process presents opportunities for improvement. By keeping an eye on your processes’ pain points and introducing new strategies for efficiency, your company can streamline its operations and improve its outbound flow.
More and more customers expect an omni-channel experience. They want the freedom to shop on any channel they choose. They also want the products they love to always be available. To answer these demands, companies have invested in a new fulfillment strategy: Ship from Store. Read on to learn more about today’s consumer mindset and the power of Ship from Store.
Consumer expectations are changing faster than ever. To achieve success, a retailer must meet or exceed these needs ahead of the consumer, especially when it comes to shipping costs. For this reason, Ship from Store is one of the most invested in omni-channel opportunities today.1
In the Ship from Store Webinar, guest speaker Brendan Witcher of Forrester Research and Jim McNally of the USPS shared their industry perspective on the popular fulfillment strategy, with McNally focusing on the USPS’ ability to meet Ship from Store needs.
Free shipping for online purchases is practically a necessity in today’s world, and it’s especially important during the holidays when brand competition is fiercest. In fact, according to omnichannel customer engagement firm STARTEK, 88% of customers say free shipping makes them more likely to shop online1. Small business owners in particular are probably wondering how to use free shipping incentives to boost sales. But if the investment doesn’t pay off, businesses could hurt their bottom lines by diminishing their net margins.
“88% of customers say free shipping makes them more likely to shop online.”
It can be tricky to establish a balance between increasing sales volume and maintaining profit margins, but one way to do this is to set a minimum order value for the free shipping incentive. It’s important for business owners to take time to carefully determine this value—when chosen wisely, a minimum order value for free shipping could be a huge boost to holiday sales. However, being unrealistic about how much customers are willing to spend can be detrimental to a growing business by driving away potential sales.
Here’s what business owners might want to keep in mind when it comes to leveraging free shipping incentives during the busiest shopping season of the year:
How to Determine Minimum Order Value
Businesses that decide to implement free shipping with orders that meet a certain dollar value often struggle to determine exactly what that minimum threshold should be. If it’s too high, businesses may not see much of an increase in sales volume and could potentially lose sales. If it’s too low, it could put their precious profit margins at risk.
One possible way to determine an appropriate threshold for free shipping is to determine your average order value. Knowing how much an average customer spends per transaction can help give you a better idea of what your minimum order value for free shipping might be. Think of what the tipping point for you will be: Customers need to easily add items that will push them to the dollar amount that earns the free shipping.
According to a model developed by data analytics company RJ Metrics, the number of orders above the median order value statistically decrease, but setting a free shipping threshold may effectively motivate customers to spend more in order to avoid paying for shipping2. So if your average customer is spending $45 per order, consider, for example, setting the free shipping threshold at $60 to increase the number of orders you receive above $45. It is important to remain realistic when determining how much extra customers are willing to spend for free shipping. You may consider A/B testing two threshold amounts and measure their effectiveness to inform your decision (e.g. $50 threshold for free shipping vs. $60).
According to Atlanta-based SEO and analytics firm ShivarWeb, another way to set the threshold is to consider the following formula when attempting to set a minimum order value3:
Proposed minimum cart value – average order value = X
X * Gross Profit Margin = Y
Y – Average shipping costs = Z
If Z < 0, then the threshold is typically not fiscally smart
The above can help businesses set realistic minimum values. With some careful calculations and goal setting, the increase in sales could offset the business expense of free shipping.
Actively Test the Tipping Point
Once you discover the tipping point for free shipping, it’s a matter of conveying your message to the people who visit your website. Consider alerting customers when they’re close to the minimum order value for free shipping during the checkout process and/or dedicating a portion of the screen to quickly add items that will make up the difference could encourage impulse buys to meet the free shipping minimum.
While the holiday season is a great time for free shipping promotions, there’s no reason to wait for this peak shopping time to implement a free shipping promotion. Maybe test the waters earlier in the year with short-term sales that use free shipping incentives to see if customers are willing to spend more than what was initially projected.
If you commit to understanding your customers’ online buying habits, you could see improved conversion rates and increased profits. If they perceive value from what you offer with a free shipping promotion, they may be more likely to put additional items in their shopping carts. Start now to consider ways in which you can prepare for the 2016 holiday season and find more inspiration with the “A 4-Part Plan to Make 2016 Your Best Holiday Shipping Season.”
Explore some related shipping content.
Your shipping processes can have a major impact on your bottom line. Get tips and strategies to boost efficiency, conduct invoice audits, and more.
Shipping expenses can make or break your business
Over time, basic rate increases and surcharges can add up. That’s why it’s so important to audit your shipping invoices. They are a valuable resource that can help reveal your true shipping costs which can include unexpected fees that can drive costs higher.
When it comes to shipping costs, knowledge is power
Key invoice areas to evaluate:
As mentioned above, unmonitored surcharges can account for a large percentage of your shipping costs. When you know what you’re paying for, you have options. You can shop around and choose alternate carriers that may not charge extra for comparable services.
“…understanding your shipping expenses in the short term can pay off significantly in the long run.”
Common ancillary surcharges include:
- Residential delivery
- Delivery area surcharges (DAS), Extended DAS
- Fuel (ground and air)
- Large packages
- Saturday delivery
- Return fees (print and electronic return labels, pickup attempts)
- Package pickup and intercept
- Confirmation of delivery
Address correction charges.
Many businesses don’t realize that they can be charged extra for a typo in the street name; a missing apartment number; or even a wrong digit in the ZIP Code™.
Dimensional (DIM) Weight occurrences.
When the DIM weight is larger than the actual weight, you may be paying extra for non-existent weight. It pays to compare how shipping carriers apply DIM weight, so you don’t pay more than you need to.
Investing the time to understand your shipping expenses in the short term can pay off significantly in the long run.
Should your business offer free shipping? Opinions on the matter are mixed. On the one hand, offering free shipping may help drive sales and provides a competitive advantage for retailers, but on the other, free shipping may contribute to margin erosion. So which is it: Opportunity or risk? A lever to drive more sales or a margin killer? As with most difficult questions, the answer may fall somewhere in the middle. Let’s see if we can shed some light on how to possibly provide the potential for free shipping while looking to minimizing its risks.
Let’s start by looking at some crucial market insights from a recent eCommerce study conducted by VWO1. Based on consumer surveys:
- The top reason why online shoppers abandon their shopping carts before making a purchase is higher than expected shipping costs.
- Almost two thirds of online shoppers chose the cheapest shipping option.
- Less than 5% of online shoppers claim that they don’t care about shipping costs.
- 24% of shoppers are ready to spend more to qualify for free shipping.
Armed with this information, we can conclude two things: First, online retailers should not make the mistake of treating shipping costs as an afterthought or a secondary consideration. Shipping cost should be a key consideration when looking at both the customer experience and sales margins. Second, now more than ever, every online retailer should look to incorporate some kind of free shipping strategy into their transactional model, then carefully test and optimize it with an eye towards maximizing opportunity (driving sales) while minimizing risk (eroding margins). Here are six ideas to help you do just that:
Consider offering an annual premium or VIP membership to your best customers, and put free shipping at the center of the membership’s value proposition. The membership fee can help absorb shipping costs. Bonus: membership programs of this sort tend to drive average transaction value and buy rate, as referenced above, and can have a positive impact on customer retention, loyalty, and lifetime customer value.
Threshold-Based Free Shipping
Establish minimum order values for free shipping. (Free standard shipping for orders over $50 or $100, or whatever amount makes sense.)
Retailers can put free shipping instead of discounts at the center of special offers. For instance, to drive Holiday season sales, you might consider offering free standard shipping for any order over $40 from December 1 through December 24.
Email or Mail-only Promotions
These are similar to Limited-Time Promotions, but instead of making the promotions available to all customers, you can communicate them only to your best customers via mail or email.
Products with Benefits
Offer free standard shipping on high margin and/or easy-to-ship products. You may have to set up rules and exclusions for hard-to-ship and/or low-margin products that will help protect your overall margins. One way to address this problem is to build a product matrix that plots every one of your products along low margin/high margin and easy to ship/difficult to ship axes:
Doing this will help you identify which products (or product categories) should not be included in your free shipping program (products weighing more than 5lbs, for instance). If you communicate your shipping rules and exceptions to your customers early and clearly, they will better understand them.
Commoditized free shipping
Online shoppers can be impatient and prone to favor immediate gratification. As free standard shipping becomes increasingly commoditized, expedited and overnight delivery options can be leveraged as a value-adds against standard shipping. This means that while free standard shipping may keep up to two thirds of online shoppers from abandoning their carts before making their purchase, designing a checkout process that drives customers towards next-day or 1-2 day deliveries could shift a significant number of them to premium shipping options in the very final stage of their transaction. (Tip: Impulse purchases aren’t limited to products.)
Since either minimizing or eliminating shipping costs for standard delivery can create significant lift in both revenue and customer lifetime value, perhaps the question shouldn’t be whether or not the adoption of free shipping makes sense, but rather how to best incorporate it strategically without going overboard (by either contributing to margin erosion or potentially “wasting” free shipping offers where it may not be needed). Understanding why and how free shipping may drive the right types of customer behaviors and the desired outcomes, then developing a simple process of testing, measuring and adjusting those strategies as needed may be a good a place to start. Hopefully, some of the insights and ideas outlined in this article will help you do just that.