How Shipping Costs Affect Ecommerce Conversion Rates
Nearly everyone who uses the internet has, at one point or another, bought something online. Why? Because for most of us, it’s just convenient. Picture the number of people who visit Amazon in one day. Crazy, right? Now imagine the number of orders placed in the same time frame. A lot, yeah? Simply because their conversion rate is very high.
We all have come across a product that we want to purchase, but after you look at the cost of shipping, your heart sinks. The product was a great deal, but considering the shipping cost, it’s no longer that great deal. So, like any other sensible person, you cancel the purchase.
Today we look at shipping and the costs involved. We explore its nuances and see how it affects conversion rates of ecommerce. Let’s take a minute and refresh our knowledge on the basics before we take the plunge.
Wouldn’t it be great if you had the same conversion rate on your website? I bet the answer is YES! Now let’s look at how shipping costs affect the conversion rates of websites. How to improve it and what to avoid.
What is a Conversion Rate?
What does eCommerce Mean to You?
Shipping in eCommerce
What Causes Shipping Costs to Vary?
The Interaction between Shipping Costs and eCommerce Conversion Rates
Final Thoughts
Sounds good? Let’s dive in!
Let’s say you own an ecommerce website (online store), and your main intention is to sell items. Your landing page/website gets a certain number of visits per day, but not all who visit make a purchase. The number of visits in relation to the number of purchases is your conversion rate.
Simply put, the marketing world defines conversion rate as the percentage of visits to your website that make a conversion. Depending on your business model, a conversion could be anything from making a purchase, registering an account, downloading a file, etc. It is having the visitor do what you intended them to do on the website/landing page. It would be wise to understand that a conversion is not only restricted to a purchase.
Since we now understand conversion, let’s refresh our memory on ecommerce. Wikipedia defines eCommerce as the process of buying and selling products electronically via an online service or the internet. eCommerce transactions encompass everything from goods to services, as long as the payments are made via electronic means.
Have a grip on conversion and eCommerce? Great, now let’s see how you calculate your conversion rate. As stated, it is a percentage of the conversions divided by the number of visitors to your page. Simple, right. Picturing it as an equation would look like this:
Let’s look at an example. An online shop sells furniture; even if the site gets income from targeted advertisements, furniture sales are their main revenue source. In a given time frame (1 day), they make 40 different sales (conversions) but have 300 people visit their website. From the conversion rate formula; Conversion rate = (40/300)x100% will result in a conversion rate of 13.33%
You might be wondering how the conversion rate is affected if a single visitor makes multiple conversions? Conversion rates vary depending on the business. Some business categorizes this as click conversions. However, calculating conversion rates based on the number of clicks is mostly used by businesses where the business model revolves around pay per click advertising. For most of us, click conversions are not used to calculate the conversion rate.
You live a couple of miles from your retailer’s fulfillment center, and you still have to pay for shipping. You might be wondering why you incur shipping costs, and your package never had to get ferried across a body of water? In the context of ecommerce, shipping means something else. It is the cost you have to pay to get your package delivered to your doorstep, regardless of if it had to cross a continent or was just brought in from the next town over.
#1. Distance
Considering the resources, it takes to ship an item from another continent, the distance from storage to your doorstep matters. Getting a package delivered from your local grocer will naturally cost less than having it shipped from an out-of-state grocer.
#2. Time-Frame
Shipping Time Frame Example (Source)
Your server has crashed, and your systems are down. It requires an immediate repair, but you need to order some parts, and you need them ASAP. If this has ever happened to you, then you are aware of how time is crucial. Having your spares delivered immediately comes at a high price. It’s times like this you understand how the timeframe for a shipment affects its price. If you were to wait a little longer, the cost is bound to go down.
#3. Region
Areas with civil/political unrest, war, and hostilities are most definitely going to be hard to access. This is because the logistics involved are a nightmare. Shipments from such areas are going to cost you more, simply due to the higher risks involved.
The logistics company handling your shipment will be forced to pay higher insurance premiums to protect the goods in case of any eventuality. The cost of these higher premiums is eventually pushed down to the consumer, and they end up having to pay more for the product shipment.
#4. Size and Weight
Source
It’s obvious that shipping a mobile phone from China would be cheaper than shipping a car from the same. Space comes at a price, and the larger and heavier your item is, the more you will have to pay. Even if you disregard taxes and levies and only focus on mass and not the commodity type, you’re sure to find out it’s expensive.
The higher pricing is due to the processes and equipment needed to handle the item/product. Things like forklifts and material handling operations have to be paid for if the shipment is above a certain weight class.
#5. Company Profile
Some shipping companies might offer you a lower price, but it comes with a catch. The items have to be bundled together with other items going to the same destination. This poses a risk of damage during transit, but it can be overlooked if the item being shipped isn’t fragile. Others will offer you insanely high rates if you want the items delivered via air. This will ensure there is less chance of damage, but it is bound to burn a hole through your wallet.
#6. Item Type
Depending on the item being shipped, the price will vary greatly. If the item is deemed to be hazardous or it contains volatile components, it will require special handling. The cost of its handling is factored into the shipping cost, driving the price higher. For benign items, rates are quite lower since it does not require special handling.
We now have a firm grasp on conversion rates and shipping costs; the next agenda is to see how shipping costs affect ecommerce conversion rates and how to improve them.
#1. Change Your Outlook on Shipping.
Think of the shipping to your client as more of valuable service, rather than a cost you have to pass down to your client. Such a mindset will let you see the value of customer retention. This ensures that you are guaranteed a conversion every time the customer visits your site, and the customer doesn’t abandon their cart due to the high cost of shipping. This will eventually lead to better reviews and recommendations to new clients.
Some individuals prefer the item they purchase to be delivered by the company’s own courier. Some do it for warranty related reasons, while others just want that direct buyer-seller connection. Regardless, trust is built between you and the client, and they are more likely to purchase from you in the future. You know what that leads to, right? Higher conversion rates.
#2. Diversify Your Delivery (Shipping) Options
Online sources like AlixPartners and Rejoiner did a survey a while back and found out that 36% of online shoppers will fail to make a conversion if they think the cost of delivery is too high. To mitigate this, you could set up delivery points where a client can pick up their package at a reduced shipping price, of course.
Most customers are willing to buy products if you slash the delivery cost by a significant margin. This may slightly affect your profit, but if your main goal is to increase your conversion rate. This is a viable option you could pursue.
#3. Offer Free Shipping
Think about it, how many times have you completed a conversion simply because of the word FREE? The word itself immediately grabs our attention. It does not matter what is being given away, as long as there is no charge. Why not do the same? If higher conversion rates are what you want, offering free shipping is a no-brainer.
Maybe you believe that offering free shipping will affect your bottom line and if you are a reseller, you will be breaking even or just taking losses. There are a lot of tricks people use to offer free shipping and still make profits. Online gurus will even show you how to mark-up your merchandise, so it covers free shipping while returning profits.
Market brain developers have an app with a calculator that will do this for you automatically. It has many parameters you can set to ensure the data you get back is as accurate as possible. However, you can simply enter the retail price, the cost of shipping, taxes (where applicable ), and voila! It displays the best amount to price your item that both covers the shipping cost and isn’t that much more expensive for your clients.
#4. Vary the Number of Days Required to Ship
Source
We all know speed comes at a premium. Shipping costs are higher for same-day and overnight deliveries. Give your customer the option to wait for a longer period of time for delivery rather than a fixed period. Shipping prices drop by almost half if you are willing to wait for a week or more. If the item is not needed urgently, most consumers will wait for an extra bit of time if the charges are lower. It’s a win-win for everybody. You get more conversions, and the client pays less for their items.
#5. Consider the Packaging Used for Shipping
Knowing that the packaging you use also accounts for the price paid for shipping is important. The shipping cost is greatly affected by item weight, and the price paid depends on the weight category of the packaged item. Using a light but strong packaging reduces the chance that the packaged item will be bumped into a higher weight class. You might consider using bubble-wrap rather than chunks of Styrofoam. You should also avoid over packing your packages before shipping. This keeps the shipping price down, which in turn keeps the overall cost incurred by customers low.
The lower the cost, the higher the chances of increasing your conversion rate.
#6. Shipping for Multiple Items
Offer your clients the option to greatly reduce the shipping price if they make multiple purchases. Clients are inclined to make multiple purchases if they see a way to save money. In our case, the money will be saved from the cost to ship.
In the chance that you have to incur the cost yourself, go with it. What we are trying to do is increase our conversion rate. I think you would agree that paying the shipping cost for multiple items is a good trade-off if you end up making multiple conversions.
The amount you spend on shipping to the customer greatly affects your number of successful conversions. The lower the fee, the more the number of conversions you are guaranteed to have. You should endeavor to ship packages for as little as possible, or for free if you can.
We all love a great deal, and if offering such increases your conversions, you would be crazy not to. What neat tricks do you know of reducing your shipping costs? Did you see more conversions after tweaking your shipping policy?
Rithesh Raghavan is the Director at Acodez, a Digital Agency in India, and the co-founder of Acowebs, an online store for eCommerce plugins. Having a rich experience of 15+ years in Digital Marketing, Rithesh loves to write up his thoughts on the latest trends and developments in the world of IT and software development.
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