To a customer, shipping isn’t a separate line. It’s part of the price, discovered late. That’s why the cart-to-checkout step loses so many people: the price just went up.

What one retailer’s experiments showed

Michael Lewis, Vishal Singh and Scott Fay studied an online retailer that had tried many different shipping-fee schedules, and published the results in Marketing Science in 2006. Their summary has both halves of the lesson in it. Customers were very sensitive to shipping charges, and fees changed both whether people ordered and how much they put in the basket. Free shipping, and free shipping above an order threshold, were very effective at generating additional sales. But the shipping revenue given up, and the fact that several customer segments barely responded, were large enough to make those promotions unprofitable for that retailer.

Free shipping sells. Whether it pays is a separate question.

The second half is the one most brands never check. A free shipping promotion is paid on every order, including orders from customers who would have paid for shipping. The segments that don’t respond still collect the benefit.

Design the threshold, don’t pick it

A free-shipping threshold is an offer in its own right: it tells the customer how much to buy. Three rules from my work on thresholds:

1. Set it just above where most orders landIf most first orders fall between $50 and $65, a $75 threshold asks for one more small item; a $150 threshold asks for nothing, because nobody tries. A threshold far above your typical order is free shipping for a few big spenders who were ordering anyway.
2. Give them something to reach it withA threshold without a small, relevant add-on is a tax. Put the refill, the travel size or the matching piece next to the cart message that says how far they are from free shipping.
3. Show it before the cartThe delivery date and shipping cost belong on the product page. A surprise at checkout is the most expensive place to reveal it.

Free shipping or free returns

If you can afford only one, look at your objection map from chapter 10. If the top objection is fit or quality, free returns and exchanges answer it; free shipping doesn’t. If the top objection is hassle or cost at checkout, free shipping above a threshold answers it. Many apparel brands pay for free shipping and charge for returns, which is the reverse of what their customers are worried about.

Test it the way Lewis, Singh and Fay did

The retailer in their study learned because it varied the schedule and watched order rates and basket sizes. You can do the same with a holdout: show a threshold offer to a random share of new visitors, keep the rest on the old schedule, and compare contribution per visitor, not conversion rate. Chapter 20 has the evidence bar.

Do this

• Pull a histogram of first-order values. Set or move the threshold to just above the biggest cluster.
• Price the threshold with the tool in chapter 9: shipping cost goes into the first-order contribution whether the customer pays it or you do.