Increasing conversion rates is a huge problem online. Your typical conversion rate is about 2-3% for most online stores. Big retailers (Amazon, Ebay, etal) have a substantially higher conversion rate, but this is because of brand recognition. If you are a smaller retailer, each 1/10th of a point significantly impacts your bottom line.
So let’s examine the possibilities.
You could offer free shipping. Then your question is: on every order? Over $50? Over $75? Over $100?
Or you could offer a percent off each order. What’s a good amount 5% off? 10% off?
The second one is a lot easier to answer as it really depends on your margins and what works for you. The first is a bit more difficult as it depends on several factors – do you ship heavy items? What are you currently charging customers? What is the net effect. Etc.
On one of our sites, our maximum shipping rate is $19.95 (any order over $100). Currently, we run a 10% discount on any order – but the customer must enter the coupon to get it. Since not all of them do (about 60% do it), the total impact is lessened by people who do not read what’s on the page or forget to do it or do not understand how to do it. We’ll come back to this later.
Over a given period of time (picked totally at random – but removing a few extra large sales that would have thrown off averages), we have sales of about $96,000. Total sales over that period are 2,000. Average order is $48. More interestingly to me, median sale is $29.95 and the most common sale was $16.95.
10% Off Any Order: Assuming 100% of people received the 10% off, we lose $9,600 on the sales.
5% Off Any Order: Assuming 100% of people received the 10% off, we lose $4,800 on the sales.
Free Shipping over $75: Assuming the same, we lose $6,000 on the sales.
Free Shipping over $100: Assuming the same, we lose $3,500 on the sales.
Surprising, to me, at least is the fact that free shipping over $100 is the best deal (for us) as the fewest people get the discount and it impacts the bottom line the least as well. The most damaging one – the one we currently use – is the 10% off any order.
All these numbers are easy to work out on your own, of course and which you go with really depends on your margins and product line and, of course, what your customers respond to.
But, the real lesson here is: do not automatically apply discounts for the customers. Give them a coupon to use (10savings for 10% off or freeshipping for free shipping) – something they must enter manually. That way, you can expect that only about 60% of people will actually use the coupon so the impact is less, while giving customers the opportunity to use it and giving them that little extra incentive to order.
Other good way to handle a discount is to give the customer store credit instead of actual percentages off. Order $100 worth of stuff, get a $10 gift certificate on a future order. Gift certificates, gift cards, etc have a notoriously low rate of return. I’m not sure how effective this would be – as I think a customer would much more appreciate the immediate gratification of an immediate discount rather than a future reward.