How a business handles the shipping of its goods sold online can be crucial to its ability to retain and attract new customers. U.S. online shoppers often cite dissatisfaction with shipping options as a big reason for not completing Web purchases.
The goal of any ecommerce operation is to generate more revenue from a new customer over his or her lifetime than it costs to acquire that customer. Now more than ever, internet users are tuned into the details about shipping prices, speed and carrier choice. It makes sense to improve your shipping offerings to help you turn site visitors into paying, repeat customers.
Here's a three-part approach to developing a shipping strategy that can help your customers breeze through the buying process and come back for more, whether you've been in online retail for years or are just getting started.
1. Gather data.
The goal when implementing a shipping testing strategy is to weigh the potential increase in a customer's lifetime value -- or all the purchases he or she makes and the profit that's generated -- versus the cost of either covering shipping fees yourself or heavily subsidizing them. Here are the five data points you need to determine before testing your new shipping strategy:
- The estimated average lifetime value of your customers, not just what they will spend on their first order but rather over their lifetime. This is the average transaction value across all customer payments multiplied by the average number of transactions customers complete per year. You would generally multiply this figure by three to get an idea of a lifetime value.
- Your current cost per acquisition of a new customer. If you have a pay-per-click account such as Google AdWords, this is perhaps most easily estimated by looking at the "cost per conversion."
- The percentage of visitors who leave your shopping basket and payment pages without completing their transaction. You can refer to Google Analytics to monitor the traffic coming through your site and at what stage users are dropping out.
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- Your average basket shipping cost. This is not the price you charge the consumer but rather your trade price with your carriers. You can do this by dividing the total amount of money your business spends on shipping by the number of completed customer transactions.
- Your total profit on shipping. This is the difference between what you are charging customers for shipping minus the costs from your carriers.
2. Test new shipping options.
Try out a variety of new shipping offers, each for the same period of time, leaving all other promotions the same. Run each test independently, rather than all at once, to help you in analyzing the results. You should expect to see an increase in the number of transactions as a result of a decrease in visitors who abandon their shopping basket. Here are a few offers to test out:
- Free shipping. Promote it prominently in your website header and shipping information page, which should be linked to from the bottom of all your web pages, and on product pages immediately beside the product price. Make sure "Free Shipping" is cited clearly throughout the entire checkout process, making it impossible to miss.
- Heavily-reduced shipping rates. For example, cut your delivery price offered to the consumer by 50 or 75 percent.
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- Matching your competitors shipping rates if they are lower than your own.
- Additional shipping services and options. That includes everything from 24-hour to 14-day shipping.
3. Analyze your test results.
While you are running tests, look at the impact of your changes. You are specifically looking for improvements or declines in the percentage of visitors who become customers, known as the "conversion rate." Tools such as Google Analytics can help measure the changes. Here are three data points to check on:
- The percentage of users leaving your check-out page without completing their payment or abandoning their baskets.
- The increase in website revenue and profit against the cost of covering the shipping fees to the business.
- Repeat-usage levels. You are looking to see an increase, which indicates that the changes you made to your shipping structure have had a positive effect on the number of repeat customers. This could take from a week to several months, depending on what you are selling and how often people tend to make additional purchases.
Additionally, talk to your customers. Email them a survey or call them directly. Ask if they would have still ordered if you didn't offer free shipping. Or, what if you charged a slightly different shipping fee? Are they now more likely to order again?
The exciting thing about following this step-by-step process is that once you have your shipping strategy in place, you should be generating more new and repeat-business, creating happier customers and ultimately a healthier bottom line for your business.
Robert Matthams is managing director of Shiply, an online transport marketplace. He was named Shell LiveWIRE U.K. Young Entrepreneur of the Year in 2009.