DIGITAL BUSINESS TOOL

Are you leaving money on the table?

A step-by-step guide to improving your shipping pricing strategy.

Canada Post Blog   |   January 20, 2017   |   Share this:  

How much do you really know about what your customers do when they visit your online store? Can you say with confidence that you understand why so many of them leave your site right before checkout?

The issue might lie in how you present your shipping

Recent Canada Post research concludes that 64% of shoppers abandoned their carts in the past due to high shipping costs. Plus, conversion rates drop by as much as 50% if free shipping is not offered.

Free is the new normal. Irrespective of the business and cost implications, if you talk to your customers, they’ll tell you that they want free shipping. Yet, offering free shipping comes with its own set of challenges.

If you charge too much for shipping, your cart abandonment rate may escalate. If you charge too little, your profit margins may quickly shrink.

The good news is that shipping can actually provide you a competitive edge, providing your business can deliver its products more efficiently and inexpensively than your rivals.

Tip. If you do have to charge for shipping, be sure to mention the shipping costs up front.

Not sure where to start? Canada Post’s new whitepaper can help you explore different shipping price scenarios for your business, including the value of offering free in-store pickup.

Where should you start?

Step 1

Taking time to research the optimal shipping options for your business will go a long way toward finding the sweet spot between maximizing profits and keeping your customers satisfied and coming back.

At the outset, figure out what the average cost to ship each of your products is and whether this is offset by your existing margins.

Tip. Margins seem a bit thin? You may want to increase your flat rate shipping fee (say from $8 to $10), introduce a minimum purchase threshold for free shipping, or adjust your existing threshold.

Step 2

With a clearer understanding of acceptable margins, the next step is to set out the shipping policy that could help generate the necessary revenue to offset your shipping expense – without alienating shoppers.

But don’t rely on intuition alone. Collecting and leveraging online shopping cart data is a great way to remove the guesswork from your store development.

You can use Google Analytics to monitor and analyze the traffic and drop-off on your site. As well, most e-commerce platforms provide reports that identify how many users abandon and at exactly which step.

By reviewing abandoned carts sessions this way, you can identify elements of friction and see exactly where your shoppers are having problems.

Is it your shipping information page, for instance? If so, this may indicate that your shipping rate is too high, suggesting a need to try something new.

Tip. When reviewing your shipping pricing strategy, weigh the potential increase in a customer’s lifetime value versus the cost of either covering shipping fees yourself or at least heavily subsidizing them.

Step 3

The next step is to test the options available.

In the world of shipping pricing, a common tactic to arrive at a sound policy is A/B testing. This means implementing two different shipping price strategies and testing which one performs better by looking at your conversion rate.

When testing, it’s important to take into account your site performance and your shoppers’ purchase behaviour.

First, collect conversion statistics from your checkout that can be used as a baseline for performance. Then, consider making one adjustment to your shipping page and tracking how that change affects visitor flow versus your current strategy.

Let’s say, for example, that your average basket size is currently $50. In this case, you might test a free shipping offer with a $75 minimum purchase and see how shoppers respond.

Then, modify each variation, taking time to measure the results against your baseline. If a pricing adjustment performs better, then you’re on to something.

Tip. When conducting A/B tests, make sure you’re monitoring incremental changes and only test one variation of an element at a time. Otherwise, you can’t be sure just where to attribute the results.

Step 4

A/B testing is relatively inexpensive and doesn’t require a lot in terms of overhead. But it’s important to measure the results.

Identify common quantifiable success metrics that will be present in every test that’s run. From there, look at the impact of your changes.

You’re specifically looking for improvements or declines in the percentage of visitors who become customers and the revenue that accompanies them.

Tip. Most e-commerce platforms have helpful resources and tools for A/B testing. Within Shopify, here’s a tool and a primer on how you can put that data to use. If you’re using Magento, here’s a place to start.

Step 5

To continuously improve your e-commerce site, consider scaling your A/B testing into a broader optimization program.

Incremental testing allows you to monitor and evaluate small-scale changes to shipping policies and other key areas that drive conversion. It helps you learn more about your shoppers, their behaviour, and which specific elements convert.

Source: Online Shopper Sensitivity to Shipping Costs, CPC 15-214, September 2015.

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