Reducing cart abandonment isn’t always a matter of optimizing your shopping cart design. A significant percentage of cart abandonment is simply due to last minute increases in cost; the most common offender being shipping costs.
$9.40 — What does this price tag look like to you? Your average lunch? A few gallons of gas?
According to a 2014 Stamps.com study, $9.40 is the average shipping cost of a 2 lbs parcel, about the size of a ream of printer paper. So, why do 71% of customers expect some sort of free-shipping offer when making online purchases?
Today, we’re going to explore this disconnect between shopper expectations and shipping costs and what you can do to reduce cart abandonment.
The Shipping Disconnect
In a recent study from eMarketer, 58% of U.S. respondents said that “shipping costs made the total purchase cost more than expected.” In the same survey, 57% of respondents claimed to have filled and abandoned their cart simply to see the total price after shipping and taxes. With shipping costs being such a clear influence on the purchase, advertisers need to find methods of meeting shopper expectations.
1. Estimating Shipping Costs Reduces Cart Abandonment
Shoppers hate to see their subtotal bumped up by shipping costs in the last few pages of checkout. In defense, retailers exclaim, “I can’t tell the customer how much shipping is if I don’t know where I’m shipping to!” We understand your struggle. You don’t want to estimate a higher price than needed and push prospective customers away.
But we live in a world that feeds us information constantly and frankly, it looks a little lazy to rely on a lack of information as an excuse. When a user visits your site, you can fairly easily estimate the visitor’s geo-location. Use this information in the cart, explain how you arrived at your best guess, and give shoppers the ability to calculate manually.
2. Calculating Shipping Costs Early Reduces Cart Abandonment
Implementing a brief, simple shipping calculator in the cart sets expectations early and reduces cart abandonment. Wit this calculator, we can’t over-state the importance of simplicity and speed. No shopper is going to enjoy reloading the entire cart and making any previous changes over again to find out how much shipping will cost.
The barrier between idle browsing and user input isn’t easy to overcome, so make this feature attractive and easy to use; not a design afterthought. Use either a drop-down menu or a simple ZIP code form field to get a shopper location and immediately display the results.
3. Offer Free Shipping with a Minimum Purchase
Obviously, the most appealing option is to offer free shipping to all customers on all products. While this is a surefire way to reduce cart abandonment, it simply isn’t feasible for some retailers. While no advertiser should aim to make an extra buck off of shipping costs, they also shouldn’t be hemorrhaging profits just to get the package to their customers’ doorsteps.
If your average order value is high enough and average shipping fees are low enough, it’s a good idea to nix fees altogether. Most companies, however, need a more affordable alternative.
Try Threshold Shipping
Many vendors are finding success using what’s known as threshold-based shipping. It’s something we’ve all seen–Free shipping on orders over $50! What looks like a reward to shoppers who spend more is actually a vendor tactic to encourage meeting a sweet spot between shipping costs and profit margins.
How well does it work? A study from UPS and comScore found that “76% of online shoppers have added items to their cart to qualify for free shipping.” So, let’s talk about arriving at that winning number.
Finding the Shipping Threshold
To find the threshold value, you need to know your average shipping cost, your average order value, and the average % profit you make from each customer purchase. Using the formula above, you should be able to find a rough estimate of where average order values will pay for shipping. Let’s give this formula a quick test-run using some simple numbers.
- Average Order Value: $100
- Average %Profit: 25%
- Cost of Shipping: $10
Before we get started, let’s determine how much we make from the average purchase by multiplying our AOV by the average profit margin.
AOV x %Profit = Profit
($100) x (.25) = $25
Whatever the shipping threshold, we know that we should still be earning at least $25 after shipping.
Now, let’s calculate that threshold. First, we divide the average cost of our shipping ($10) by our average profit percentage (.25), giving us a new value of 40.
(Shipping / %Profit) + AOV = Threshold
($10 / .25) + AOV = Threshold
($40) + AOV = Threshold
Next, we add our AOV ($100), giving us $140, our suggested threshold.
($40) + ($100) = $140
To test this, multiply your new threshold of $140 by your average profit margin to get $35. Subtract the shipping cost (now that you’ll be paying shipping) to arrive at $25, the profit you’d get from your original purchase.
(Threshold x %Profit) – Shipping = Profit
($140 x .25) – ($10) = Profit
$35 – $10 = $25
As with everything else e-commerce, there are store-specific complications and exceptions to the formula above, but it’s a good way to get a quick, ballpark figure.
These are just a few of many options you have for rehauling your store’s shipping experience to reduce cart abandonment. For more information on reducing cart abandonment and traffic optimization in general, contact UpSellit!
Written by Joe Rosenthal