We believe it’s important to monitor data and highlight areas of improvement for our merchants. One of the first places we look is the all time conversion rate. Currently, the average global conversion rate is 2.42% (SmartInsights). There are many things that impact conversions. One easy factor to test is your ecommerce shipping strategy.
Managing Your All Time Conversion Rate
You must consider your industry.
For example, if you’re in travel or jewelry, your average is 0.7%. These industries have to deal with travelers looking at multiple holidays across multiple sites and shoppers hesitant to make such large jewelry purchase online.
Devices also matter. Mobile conversion rates are typically 50% worse than desktop conversions. Targeted PPC traffic has a higher average conversion rate of 3.48% according to Google.
At the end of the day, conversion rate is just the tip of the ice and is oftentimes a red herring. In today’s ecommerce environment, you have many hurdles. Here are some of the factors facing merchants:
- Virtually unlimited competition, due to the low barriers of entry
- Rising advertising costs
- More educated consumers, not afraid to shop around or wait for payday
- Amazon’s same/next day delivery options have increased the pressure on other merchants to offer the same
- Declining average order profit (Global average is $36.09)
Considering all these factors, we know merchants are now starting to focus more on retaining loyal users and increasing profitability. It’s cheaper to retain a customer than it is to acquire a new one. Therefore, it’s vital that merchants continually optimize their operations to ensure maximum profit from their already developed customer base and acquisition channels.
Ecommerce Shipping Strategy and the Impact on Profitability
At OrderMetrics, we live and breath profitability (learn more about us here). In this article, we break down shipping costs, specifically on the tradeoffs of over or under charging for shipping. On average, merchants under charge on shipping by $2.20. With net profit being pushed lower and lower due to the factors mentioned above, this is a must-fix.
Shipping pricing can often be a contentious topic – some experts recommend pricing shipping at costs, others swear by free shipping for all orders and some find themselves somewhere in between. Shipping pricing can have significant impact on shopping cart abandonment and customer buying behavior. A good shipping pricing strategy should work with your current cost structure and shape customer buying behavior.
Offering free shipping on orders is a great way to reduce shopping cart abandonment and is naturally the preferred option for customers. Free shipping, however, comes at a cost. The cost for shipping needs to be accounted for with increases to product costs or as a cut of your profit margin.
OrderMetrics can help users who provide free shipping to customers by providing an accurate portrait of their margins after product costs, shipping costs and without the added revenue from shipping.
Additionally, customers have had success with minimum order amounts e.g. in order to qualify for free shipping your cart value needs to over $20. This strategy can help store owners to increase average order value and to maintain profit margins with a free shipping strategy. We recommend using our product insights dashboard to find complementary products to upsell to customers in the checkout page and in related product pages.
Flat Rate Shipping
Flat rate shipping is a good strategy for unique product stores and niche sites with a limited product catalogue. Generally stores with flat rate shipping will have products of similar size, shape and weight.
A good example would be a hat store. We would expect that the majority of orders will be within a certain size and weight with the rare order of a dozen hats that could be fall outside the typical range.
Customers are generally receptive to flat rate shipping and it has a relatively neutral effect on cart abandonment. Similar to with free shipping strategies, minimum order amounts can be useful in managing profit margins and increasing average order amount.
Flat rate shipping can have some pitfalls. Products that are sourced from more remote factories and others that are more costly to ship due to bulk. That weight can sometimes contribute to poor profit margins and unprofitable orders. We recommend using the product insights dashboard to sort by average shipping costs to identify products that are potential loss leaders.
Shipping at Cost
Shipping at cost is simple to implement and easy to manage. This method is good for companies with wider product catalogues and items that have a wide range of shipping costs. The advantage of shipping at cost is typically not undercharging for shipping and making per-order profit calculation easier. It can also work in conjunction with flat rate shipping with order minimums.
At the end of the day there is no right or wrong ecommerce shipping strategy. Merchants must find what works best for them and their customers.
One of the best ways to develop a profitable strategy is to use an analytics tool to see the whole picture. This is where OrderMetrics comes in. With OrderMetrics you’ll be able to quickly discover how shipping costs are affecting your margin and rank orders by shipping cost to identify and fix issues fast! Learn more now.