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41% increase in order profitability by testing a free delivery threshold

Conversion rates are not always the most important thing.

Whether to offer free delivery or not is a decision every e-commerce store will have faced.

Should we offer free delivery to increase conversion rates? If so, what is the best order threshold to offer this at?

Perhaps you’d like to increase the order threshold slightly to increase average order values. Customers will have to spend a little more for free delivery, or pay for it themselves, right?

This isn’t always the case. Unfortunately, even a small uplift in the free delivery threshold will likely result in lower overall conversion rates as fewer customers are willing to meet the new threshold or pay for it themselves.

The trick is to find the right balance –something that varies from company to company.

Running the right test is crucial.

“Isn’t it better to get more orders despite having to absorb the delivery cost? Is this more profitable than receiving fewer orders with just a slightly higher order value?”

Questions such as these are common from e-commerce businesses, and it was these questions that recently became the topic of conversation with a client. The nature of their business meant this was a make-or-break decision for them. With relatively low average order values, getting this wrong could be costly.

Their free delivery threshold was relatively low. They were worried that increasing it by much would affect their conversion rates. This is a high-risk change to make.

We needed a test that could identify the ideal threshold for their customers. Where exactly was the ideal balance for their company?

How do you measure something so complex?

Finding the ideal balance isn’t something that could be measured using the traditional KPI’s such as conversion rate or average order value, as one was likely going to suffer for the other to improve.
Number of transactions and revenue are also difficult statistics to base this decision off. These KPIs could be affected by a bout of unusually high or low traffic or seasonality.
Additionally, considering the revenue generated by individual users wouldn’t work, as the profitability is influenced by whether delivery was paid for by the customer or company.
Instead, we used the only KPI that would be accurate for this. It is one that many site owners do not track –profit per user.
This statistic removes the above variables’ influence. It takes into account the volume and quality of the traffic received, conversion rates, and gives a real value for each user.
We tested the profit per user using the company’s current free delivery threshold over a certain period, then increased it and tested again. We repeated this for a few alternative values to identify the ideal threshold.

Draw your results from the right stats.

It was important not to be swayed by traditional stand-out KPI’s when making this decision, as the profit per user enabled us to identify what the most profitable option was for the client.

Had we focused on conversion rates, this would likely have concealed less profitable orders.

Incremental testing with £5 increases ensured we found the unequivocal answer to the ‘ultimate threshold’ question, optimising profitability.

The end goal of CRO is increased profitability.

Ultimately, the numbers speak for themselves.
Unsurprisingly, the newly increased free delivery threshold improved the average order value.
However, we were surprised to see that conversion rates weren’t affected. This is a testament to the process, having found the perfect balance for their customer base, and a great bonus! In fact, we revealed that a significant proportion of customers were just as happy to pay delivery costs themselves.
The profit per user increased by 41%. This is an impressive increase, especially given their relatively low average order values, high conversion rates and low free delivery threshold.

Next steps.

This success story makes it clear there is far more behind the performance of a website than the ‘headline KPI’s’, like conversion rates!

To see results like this for yourself and improve the profitability of your website without additional marketing spend, get in touch today.