Analyze Existing Shipping Data
Many DTC businesses lose a lot of money with free shipping. If you want to fix and optimize your e-commerce store start my doing the following.
- Review your shipping and order data.
- Analyze your shipping cost based on zip code or state or country. This will help you understand where the economics are good or bad for your business.
This exercise nets out in surprising results and leads many retailers to offering a more nuanced strategy.
Method 1: Implement State by State Shipping Rates
These shipping rates are set in Shopify by first creating shipping zones in Shopify and then creating shipping rates for those zones.
States that are far from your distribution center or warehouse will have higher shipping costs compared to those that are close.
The higher shipping cost for these states helps recoup the cost of shipping there.
Method 2: Test Different Shipping Thresholds
We can first look at our profit per order in a particular country and determine what average order value threshold we think would make free shipping work for the business.
Set up a test to offer free shipping on that new AOV threshold vs the old threshold and pass the data to your analytics tool to measure which one nets out in the highest profit per order.
Ideally, it's good to run the test for at least 2 weeks to ensure you have enough data to reach statistical significance.
Learn from your Test
Examine the data from your AB testing tool of choice. Analyze how the various factors all impact your profit per order.
Conversion rate will increase on the lower shipping threshold BUT the shipping expenses will also go up per order AND the AOV will be lower.
For the higher shipping threshold the conversion rate will decrease BUT the shipping expenses will be lower per order AND the AOV will be higher.
AB Testing Tools
We've used the following tools that we think do a great job of allowing you to set up such a test.
- Intelligems is available from their website.
