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Free shipping is probably one of the most overlooked levers in e-commerce when it comes to trying to make more profit.
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But once you dial it in, it's going to help you get more customers, it's going to increase your average order value.
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And most importantly, you're going to make more profit at the end of the day if you can lift your average order value.
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And so, what I want to cover in this is I want to walk through three different ways that you can increase your average order value very quickly as an e-commerce business because most people don't really know how to increase free shipping threshold or what it should be, or they think that they shouldn't offer it.
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The reality is that Amazon has standardized free shipping.
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It's expected.
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If you don't offer it though, you're going to lose out on a lot of sales.
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And this comes down to like survivorship bias.
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Most people are wanting people to pay for their own shipping and they'll often think, hey, people will pay for shipping if I don't offer free shipping threshold, but it's not about the people that do, it's about the people that don't actually buy as a result of not hitting a free shipping threshold.
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And so I'm going to give you three strategies.
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It's going to allow you to just increase your free shipping threshold or allow you to increase your average order value by leveraging free shipping thresholds.
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And you can do this very, very quickly, like overnight if you pull one of these levers.
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And the most important thing here is that your goal when it comes to free shipping threshold is to simply make the next item feel worth it to them.
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Like if your free shipping threshold is too low, the problem is you're going to cover shipping on tons of small orders.
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So for example, if you sold t-shirts for$35 and your free shipping threshold was$30, then you're paying for free shipping on every order.
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And that's going to destroy your margin.
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And so you don't want to go too low.
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But on the other side, you don't want to go too high.
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If you're too high in that extra spend or the threshold feels out of reach, then you're going to find that most people give up before they even try to get to the threshold and they just buy and have a much lower average order value.
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We've seen this plenty of times where we sell t-shirts.
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A really common one in the apparel industry is like, let's say you sell t-shirts and they're$35 a t-shirt.
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I've just had people have$150 free shipping thresholds.
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And I'm like, man, nobody's buying four or five t-shirts from a company they've never bought from yet.
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In fact, most people don't.
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And if you look at the AOV, it's like$50.
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Why?
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Because people just give up way too soon because it's so far out of reach.
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So you don't want your average order or your free shipping threshold to be too high.
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Instead, you want to be kind of Goldilocks right in the center where it's achievable for them and it's worth reaching to get the free shipping, but they don't have to add a ton of extra items where it feels so out of reach.
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And it's also not so low that you're eating up your margin.
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That's kind of the sweet spot that we want to live in.
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So I'm going to give you three strategies that will just help you trial these to lift your average order value by using three free shipping threshold as the lever.
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Let's dive into this.
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The first strategy is the 2.5-ish rule.
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And what that means is we'll take the most popular product that you sell and we want to multiply that times 2.5.
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So I was just using t-shirts as an example of$35.
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But in this example, let's say they were$32 for a t-shirt.
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Well, I would say I'd take$32 and say 32 times 2.5 equals$80.
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So we're going to add these all together.
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And the reason we're going to do ish is because we're just going to round it to a threshold that kind of makes sense.
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And the reason it's$2.5 is because even though we can make it three times our typical product price, the 0.5 is what's going to be so close that someone's going to be like, I might as well just add it and get it.
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But what happens is you get three times the revenue of them just buying one shirt.
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So for example, if two shirts equal$64, well, they're going to add one more shirt that gets you to$96 AOV and then they get free shipping out of that.
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But we could set the free shipping threshold at about 2.5 ish, that a number that kind of sounds right, that will get them there.
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So if two shirts is$64, we might test a threshold of a$75 or maybe a$79 average free shipping threshold in order to get them over that.
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Because if they buy two, they're at 64.
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And at that point, they're not that they're only$11 away.
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If we did$5 is the threshold, they're only$11 away from getting free shipping.
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And so it's not very far.
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But you know what happens is they just add an additional item and we end up making$32 from that.
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And so the best fit of like who this works for is this is really a good uh strategy if you are someone who the the that your customers naturally buy in multiples.
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Like t-shirts is a good example.
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If you have different like flavors or something, or people might buy multiple at a time that's reasonable, then the 2.5-ish rule makes a lot of sense.
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But if you're more of a one-off business, then this will not make sense.
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Which leads me to strategy number two.
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And this is the AOV plus 10%-ish rule.
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I like ishes.
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Ishes make things a little flexible.
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And so what that means is we're going to take your current average order value and we're going to add 10%.
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So let's pretend your current average order value is$48.
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We're going to multiply that times 1.10%.
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And that's going to get us to some number.
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And this is where the ish comes in.
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Because if I added 10% to$48, well, we're only adding$4.80, which gets me to$52.80 as an AO, a 10% higher than AOV.
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But that would be a really strange, weird free shipping threshold.
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So instead, we're going to bump it a little bit.
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We're going to round it up to maybe$55 to test that threshold.
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And if it was at$55 and the current AOV is 48, then someone only needs to add$7 more to reach that free shipping threshold.
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And so we like to use this particularly, uh, this is a really simple strategy, and we'll keep doing this until we reach a threshold of like people not pushing AOV to get to that free shipping threshold.
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So this is a really common one.
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This is a really simple one to do.
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Anyone can do this, but this works really, really well, especially if you have a higher ticket, your AOV is pretty high, and maybe, or maybe the 2.5-ish rule just doesn't fit.
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Now let's talk about the third strategy.
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And this is the X plus items strategy.
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And what that means is you'll get free shipping when you buy, and I'll use the example of shirts, three or more items.
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So most people buy one to two items.
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Two items is the most common amount most people buy in most e-commerce businesses.
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And so if you don't want to go the 2.5-ish rule or the 10% ish rule, then make it that they have to add a third item.
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And this is just a different way.
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This is kind of like a different take almost on the 2.5-ish rule because technically they have to add three items.
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But the one thing is you if you have low-ticket things, like let's say you sold stickers as well, and the stickers were like$3, you will have people adding those stickers.
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Now that's not necessarily a bad thing.
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It's not a bad thing because generally a lot of those smaller things don't cost any additional to ship.
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And I like to strategically let people take advantage of me.
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Now this sounds kind of weird, but we do this uh all the time in our business, where we will let people take advantage of something that they feel like is a hack.
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Like they feel like, oh, I found this stacking coupon, or I found, oh, if I do this, I can get this thing for free.
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And we know a lot of times, sometimes we don't know, and we have to fix that or plug that hole.
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But a lot of times we know and we let it happen because people are really excited to be able to do the thing and like, oh, I found like the gateway or I found like the loophole or whatever, even though we planned for that and we built that in.
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And so one way that you could strategically do that is if you had tons, what most people do is they're gonna go find, they'll get the two main items they want.
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Sometimes they'll get the third at a typical price range, but a lot of times they're gonna go find the cheaper stuff.
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So they can get the free shipping.
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Well, guess what?
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If we have a clearance rack or a clearance area that we're just trying to get rid of a bunch of crap that we don't want, that we haven't been able to liquidate and we marked it down, who cares?
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This actually helps us move unwanted dead inventory that's just cash sitting on a shelf that we need to get rid of.
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And so this strategy, this is kind of best fit if you have like very similarly priced things.
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Again, if you're selling like$70 to$100 items and then you have a couple$5 items, everybody's gonna go take advantage.
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They're all gonna go and they're gonna grab the$5 items.
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But that's not necessarily a bad thing.
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Again, remember, if people, everybody wants to feel like they're getting a good deal in any situation.
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If they feel like they're getting a good deal and you're getting a good deal, then who cares if they go grab the smaller things?
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Because if you're okay if people were to buy two items and checkout and get free shipping, then maybe try all this strategy because then what happened is people will go find those smaller things and add them to the cart, but you would have given free shipping if they bought two anyway.
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And so this is really good if you have like a similar product range, like let's say$20 to$30 for an item or 30 to 50 and your products are similar versus a big range because some people might buy one and then go buy two teeny tiny things to get it.
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So just be a little cautious of that.
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But this is another strategy.
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So my recommendation is just pick one of these things.
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Go in and see what makes the most sense.
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Maybe that's the 2.5 ish rule.
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And this is great for people, again, that products are bought in multiples, uh, or maybe you do the AOV plus 10%-ish, which is great for higher AOV, or maybe you have a mixed bag of different price products.
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Or number three is the X plus items, where maybe your products are priced relatively similarly and you can get away with that.
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And it just feels a little bit different than having a dollar threshold.
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And as always, when you do all this stuff, make sure that you're monitoring your AOV shifts, you're monitoring your conversion rate, and most importantly, you're monitoring your profit after shipping.
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Well, if you found this valuable, huge favor for you.
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Go ahead and subscribe to the podcast.
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If you're not already subscribed to the podcast, and drop a comment.
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Which of these are you actually going to be doing first?
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Are you going to do the 2.5 ish rule, the AOV plus 10% ish rule, or the X items rule?