“I need to turn data into cash,” Winnie told me over lunch at Shopify’s Montreal office.
Winnie Tonou is the owner and only employee of Nijala, a Canadian online retailer for black beauty and hair care products.
Her statement resonated with what I often hear from other merchants of all types. They need actionable data to improve their business. But where to start?
Winnie had an idea, “I think the problem is my shipping rate.”
Research from IBM shows that 68.95% of online shoppers don’t complete their checkout. The main reason? Shipping fees were too high. That’s a big incentive for online merchants to offer free shipping to potential customers. However, doing it in a way that makes financial sense for a small business can be tricky.
We sat side-by-side to take a deep dive into Winnie’s data for her online store. Nijala had been selling online with Shopify for a year. The store already offered free shipping on orders over $80 in Canada and a flat rate between $8-9 depending on the province.
But how was that working out?
If It Ain’t Broken, Don’t Fix It—Or Do You?
Winnie had a hunch that the shipping rates were scaring some potential customers away. But we needed to prove it.
For Nijala and most Shopify stores, the checkout process goes like this:
Step 1 - Contact Info
The customer enters their address and can review subtotal and taxes.
Step 2 - Shipping Method
The customer chooses a shipping method and shipping cost is calculated.
Step 3 - Payment Method
The customer enters their payment info and confirms their purchase.
Step 4 - Thank You
The purchase is now complete.
If shipping rates scare people away, we should see a big drop in the number of people who reach the shipping step but never reach the payment step.
For Nijala, that was an alarming 53%, making the shipping method page the bottleneck of the checkout process.
Clearly, they could be doing better. But how?
Finding the Sweet Spot for Free Shipping
Perhaps the $80 threshold for free shipping was too high. For the Canadian customers that ended up purchasing the contents of their cart, 48% of them were eligible for free shipping. Compare that to the 91% of carts abandoned by potential customers who weren’t eligible for free shipping and we can see a story forming here.
Since the average cart size for those abandoned checkouts was $45, why not lower the threshold for free shipping to $45 and see what happens?
Winnie did the math to make sure she wouldn’t actually be losing money on this experiment. She thought it was worth a try.
To compensate a bit, she raised the shipping rate slightly to make it a flat rate of $10 anywhere in Canada.
We thought this would be a good idea for two reasons:
It simplified the message: “Free Shipping in Canada Over $45 ”. That fits nicely on a home page banner.
Higher shipping rates might motivate potential buyers to reach the $45 minimum for free shipping.
Did It Work?
Winnie lowered the threshold for free shipping in September 2015. Let’s look at the sales over a period of 8 weeks before and after that change.
Nijala had doubled their revenue and almost tripled their number of sales. Impressive!
But what was the cost of those extra conversions?
Some of the orders exceeded the old $80 free shipping threshold in value, but some of them fell into the new $45+ range. So that extra revenue came at the expense of paying the shipping fees on 73% of orders that would have been paid by the customer under the old shipping fees system.
Winnie believes it was totally worth it.
Analyze Your Own Shipping Strategy
We’ve automated this analysis for many Shopify merchants. If you’re losing a lot of potential customers at the shipping method page, we’ll tell you about it with a card in the Home Feed of your Shopify store.
But if you want to do this analysis yourself, here are the three steps you can take:
Step 1: Analyze Your Checkout Funnel
Use Google Analytics to find out if there is a significant drop off on the shipping info page. This could be a sign that your shipping rate is too high and consumers are changing their mind. You need to have a goal and funnel defined in Google Analytics to see this information. If you haven't set one up already, follow these instructions.
If you decide to change your shipping strategy, return to your funnel in Google Analytics in a few weeks later to see if drop-offs on the shipping page have increased, decreased or stayed the same.
Learn More: How to Conduct a SWOT Analysis for Your Business
Step 2: Get Your Abandoned Checkout Average Value
The average value of your abandoned checkouts will give you a ballpark range for the your ideal free shipping threshold. Putting your threshold in the higher end might convince shoppers to buy just one more thing to get free shipping. How can you get this number?
In your Shopify Admin, click on "Orders" → "Abandoned Checkouts".
You should now see a list of all your abandoned checkouts.
Next, click "Export" in the top right corner.
Export the data you want to look at as a CSV and open the file in Google Sheets or the spreadsheet software of your choice.
Locate the the order Subtotal column and calculate the average.
If the average order subtotal is below your free shipping threshold, consider lowering it to see if you can reduce the number of abandoned checkouts.
Step 3. Do the Math
Are your margins good enough to offset the extra shipping costs you’ll pay? Before making any big changes, pull out your calculator and explore best case and worst case scenarios, and decide if offering free shipping makes sense for your business. A break-even analysis can help you plan different scenarios and make sure you're not losing money by lowering your free shipping threshold.
Offering free shipping is a balancing act as part of your overall shipping and fulfillment strategy and Nijala seems to have found the point of equilibrium. Use the steps above to experiment and see if you can do the same for your own store!
Editor's Note: Since the writing of this article, Nijala is no longer operating as a business. We hope you still find the above example helpful for your business.
About The Author
Françoise Provencher is a Data Analyst at Shopify. She loves to help merchants get their next sale with the data-driven cards in their Shopify Home Feed.