This question comes from Jordan:
I think that customers are leaving my site because the shipping costs are too high – I’m using a UPS plugin to get rates. I don’t want to absorb all of the shipping costs and offer free shipping for everything, but I’m not sure what to do. Should I raise prices to cover shipping costs? What are the pros and cons to doing this?
This is a great question – we discussed this a bit when we talked about creating effective shipping methods, and I highly recommend checking out those suggestions. Shipping costs make up the some of the top reasons that customers abandon your checkout – nobody wants to be presented with unexpected costs. Many times, customers see shipping as an unexpected cost since so many stores offer free shipping. However, higher product prices are not as big of a risk factor in terms of abandonment. Free shipping tends to beat lower prices, so it’s a great choice for your store.
If you can raise prices marginally to cover shipping, it’s a solid strategy. Look at shipping as a cost of doing business rather than something you should pass onto the customer. “Free” does crazy things to people – for example, see the Hershey’s kiss vs truffle comparison here. Free shipping will almost always be one of the most powerful perks you can offer customers. (Bonus tip: try changing the wording of your free shipping offer.)
However, if you raise prices to offer everyone free shipping, there may be unintended consequences. First, consider refunds: if customers return a product, you’ll have to refund the purchase price, inflated or not. If you have a low volume of returned orders, this can probably work for you. Second, tracking margins for your orders and products becomes more difficult, as shipping is now built into the price instead of neatly being excluded from your product pricing.
Also, your product price and how up-front you are about shipping comes into play. If you’re Tiffany’s selling jewelry online, your customers probably aren’t the type to balk at an $8 shipping charge. If you’re Zales, you’ve probably got a problem. Premium products have a different audience with different expectatins, so lost sales are probably coming from something else rather than a shipping charge.
I usually recommend that stores offer free shipping only for certain order values – say, orders of $50 and up. This way, you not only offer the shipping options that customers expect, but you can also increase your average order value; most customers are willing to add products to their carts to get free shipping. The amount should be up to your store – set it higher than your current average order value. This way, the increase in average orders will hopefully cover any costs you’ll be eating from offering that shipping. This could be potentially coupled with a small price increase to make sure you don’t lose money on shipping.
As with anything, my final consideration is this: TEST. Always test. Make sure you track all of these variables (average order value, company shipping costs, average profit, margins) before and after you make a change like this to ensure you’re doing what’s best for your store.