Perhaps nothing drives indecisive holiday shoppers over the purchase line than an offer for free shipping. Especially when paired with discount or dollar-off promotions, free shipping can be the factor that incentivizes comparison shoppers and squeezes every last dollar of revenue out of the year.
The problem, of course, is that the cost of competing is not even close to free for retailers. Shipping costs have grown steadily on the heels of rate increases by the U.S. Postal Service, UPS, and FedEx — who have needed to adjust for the rising cost of last-mile delivery. No retailer is immune to the heightening expense. Amazon spent $21.7 billion on shipping costs in 2017, nearly double the amount it spent in 2015.
The battle for e-commerce supremacy between mega-retailers forces businesses of all sizes to play in the costly free shipping game. However, there are some ways these businesses can use free shipping strategically to minimize loss and meet broader business goals during the holidays and beyond.
1. Drive higher AOV
Setting order thresholds are nothing new with free shipping. However many retailers set their threshold as the value that tips the order from loss to profit. A better approach is to take your catalog’s AOV and set your threshold about 5 percent to 15 percent above it. For example, you might consider setting the threshold at $49 when your AOV is $42.
The key is to not merely make money — but make more money than you are today by driving up AOV.