In this tutorial we are going to see how to affect the prices of the postage in the products of your eCommerce to offer them for free.
Free shipping
As we see in , the technique of giving free shipping is very effective in any eCommerce. Depending on the product, it is not easy to implement, but there is always some way to use that card to improve conversions. On occasion I have seen increases of over 68% in conversion rate.
In some cases it is applied from a certain purchase amount, and the message is usually something like “Free shipping from €60”. It is a good way more than demonstrated to get the average ticket increase. But this time we are going to focus on the offer of “Delivery included in all orders”.
In addition, offering free delivery also implies simplifying the calculation of VAT taxes on the invoice total, since by law, the VAT that is applied to the cost of transport must be the same as the goods transported.
So, if we sell products with 10% VAT, the VAT on shipping should also be 10%, if we sell 4% products it should be 4%, etc. Imagine a cart full of products with various types of VAT. Who does that calculation?
But come on, that would already be a topic for another tutorial, since there are many interpretations of the law depending on the access or not of the transport with respect to the delivery of the product, so we are going to focus on marketing 😉
Pass on the shipping prices on each product
The system is very simple! The first step is in calculating the monthly average that you pay in postage. Suppose that your logistics company has sent you the following invoices in the last 6 months:
- January: €550
- February: €650
- March: €520
- April: €720
- May: €550
- June: €700
Even if you have more history, I recommend doing it only with the last 6 months, so that the average responds to the reality of the business in the short term. In this case, if we add up all the amounts, we get €3,690 that we have paid to the transport agencies. If we divide that amount by 6, we get €615 monthly average.
The second step consists of calculating the number of units sold of your products. Note that we are talking about units, not the number of orders.
- January: 220
- February: 260
- March: 208
- April: 288
- May: 220
- June: 280
Thus, we get a total of 1,476 products sold, and an average of 246 monthly units sold.
let’s go with him third step, which consists of passing these expenses on each of the products sold. There are many ways to do it, the first being the simplest, dividing the shipping costs between the products sold.
In this case, we have €615 average shipping cost divided by 246 units sold on average. That gives €2.5 that we must increase for each product, in order to offer “free” delivery in all our eCommerce.
There are more complex methods, in which the price is not distributed “equally” in all products, but proportionally. There we should make a spreadsheet that calculates with a rule of three each increment. Thus, a product of €100 will perhaps have an increase of €1.25, while one of €200 will have an increase of €3.75.
Difficulty in passing on prices
As you can see, the key is in pass the cost of shipments on the price of the productin the same way that other direct costs are also passed on (raw material, shipping cost to our warehouse, production cost, packaging, etc.) and indirect (water, electricity, warehouse rent, salaries).
The “problem” with postage is that, despite being a direct cost, we do not know its final amount until the customer tells us where we should send the product. And that is why it is usually an “add-on” at the end of the purchase process. An amount that is calculated according to the distance, weight and volume of the order.
That is why we must evaluate the nature of our business, and see if it is feasible to apply this methodology. Placing a “FREE SHIPPING ON ALL ORDERS” ad is an infallible way to increase sales, but we must take our particular case into account.
For example, suppose an author has published a book. This is an easy and simple case, since the product is always worth the same, weighs the same and has the same dimensions, with which the shipping price can be easily calculated and allocated.
In fact, it is the case of the , which already incorporates the shipping costs, since in the vast majority of cases a single unit is always requested, and it is sent to the peninsula.
Could there be a different case? Of course. Someone could buy 4 units, and that would double the weight and volume. But since the shipping cost is in each of them, we can pay for that excess weight and volume.
What if someone places an international order? Let’s imagine that there is an order from Peru. That would trigger the cost, so in that case we must limit our “offer” of free shipping only within the national territory.
Although it may seem risky to use this type of technique because you can always “get your fingers caught” in an order, sacrificing more margin, there will also be other orders in which you will have more margin, since we are always talking about averages. Thus, in one order you can lose €2 because the postage costs you more than what the customer has paid, but in another you will earn €2 because it costs less. The key is in the global calculation.
That is why, first of all, we must evaluate if it is feasible to apply this method in our case. If, for example, we sell high-priced products, such as iPhones, the safest thing is that we “give away” those shipping costs. Because what it costs us to ship a high-priced small and light product is more than amortized in the margin of the iPhone.
Conversion improvement
If your business fits this type of technique, and you can apply it, go ahead. You will improve your sales without a doubt. The “free shipping” call is very powerful because of the principle of “The power of free” that we see in the examples of the . But first we must evaluate if it can be incorporated.
In the case of iPhones, it is clear that it is, because including the price of sending a small, high-priced product is simple. But if we sell refrigerators, which are also high-priced, it implies higher shipping costs due to the price and volume of the good shipped.
In these cases we must consider what repercussion these shipping costs will have on the final price, since it is not the same to allocate €10 of shipments to a €20 product, increasing its price to €30 (50% increase)than assign it to a product of €1,000, leaving €1,010 (an increase of less than 1%).
Surely in the first case, the consumer will see that our product is more expensive than in another store (assuming it is a homogeneous product that can be bought in several stores)and you will lose that sale.
So, as you can see, it depends on many variables: Postage, distances, products, product prices, type of product, amount of the cart, or even competitors. But in many cases it will be applicable. Notice that many online stores already offer free delivery on orders of increasingly lower quantities.
Summary and conclusion
Free shipping on all orders draws a lot of attention, and improves conversion thanks to the power of free.
To apply it, we must calculate an average of our freight cost to pass it on to our products (or in certain cases just sacrifice margin). For that we must assess the nature of our product, price, and competitors. But if it is applicable, we will undoubtedly get a considerable advantage in our eCommerce.
And you already know it… If you want to know more about eCommerce and prices, we encourage you to take a look at the various courses on WooCommerce, EDD, PrestaShop, Shopify, prices and coupons that you have at . More than 6045 videos available, and new classes every day 🙂
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