Conversion Tip: Calculate Your ‘Free Shipping’ Break-even

Editor’s Note: We continue our “Conversion Tip” series from Charles Nicholls, founder and chief strategy officer of SeeWhy, a conversion and abandonment-recovery firm. For this week’s installment, Nicholls addresses the “free-shipping break-even” concept.

If you’ve driven down your shipping costs to as low as they can go, and still suffer from high shopping cart abandonment rates, then it can pay to look at the break-even point.

The break-even point is where the margin on an order equals the cost of shipping. A simple way to approximate the break-even point is to (a) use a range of average shopping-cart values, (b) calculate both the average margin the average cost of shipping, for the different basket sizes. This allows you to set a minimum order value where offering free shipping all the time will still leave you with sufficient margin.

This kind of permanent promotion works well on two levels. It partially answers the “cost of shipping objection;” and it should increase your average order value. Yes, customers love free shipping so much, they will spend more with you to get it.