How to Make E-Commerce Delivery Profitable

Employee salaries and product manufacturing costs are well-known as big expenditures for any merchant.

Unsurprisingly, delivery rates also fall under the same category. In the last six months, those have been increasingly more important to keep an eye on...

Rising interest rates, decreasing sales, risk-averse venture capitalists, bans on fakes, overstocking, and high shipping rates — e-commerce businesses have faced a rough economic outlook. On top of that, carriers will be forced to increase prices even more — especially since many of the rising stars in the industry are venture capital-financed.

In the 'new normal', profiting from e-commerce deliveries suddenly sounds like a pretty good idea.

Delivery experience that fits people’s lives

Let's rewind to the beginning.

E-commerce deliveries should fit people's lives, not the other way around.

It's about time to admit that the delivery offer no longer belongs to the last step of the checkout process, something consumers would normally reach at the end of the shopping journey. Instead, they want to shop based on the delivery experience.

They want to know which products and which merchants offer the most convenient, cheapest, and fastest delivery options before reaching the checkout page.

It's just the beginning of a delivery-first era in e-commerce. You need to be there, too.

Why great delivery experience actually matters

That sounds good to everyone, but in today's reality, online shopping focuses on the sale of products per se rather than the delivery experience itself. If e-commerce businesses want to achieve sustainable growth, especially amid the current economic outlook, this needs to change.

Customer interaction with your brand cannot end when the warehouse packs and sends the parcel out for delivery. You may be leading the market with a premium value, curation, and sustainability of goods, but it's the delivery experience that will ultimately determine if your consumers decide to abandon the shopping cart or never order from you again.

High, unexpected delivery costs; the lack of carriers and preferred last-mile delivery methods; poor tracking experience or delivery promise as such — it almost sounds like an online purchase has the power to determine your consumer's life.

There's always that one friend or co-worker who needs to stay at home to wait for delivery. Some time between 9 AM and 10 PM. It could be any moment now.

"85% of online shoppers say that a poor delivery experience would prevent them from ordering from that online retailer again."
IPSOS, Europe, 2022

And so, the gap between your delivery promise and the actual delivery experience has a massive impact on the overall impression and the long-term commitment to your brand.

That's not good — the universal truth of customer lifetime suggests that acquiring a new customer costs five times more than retaining an existing customer. Chances are you're missing out on so many orders.

What's more, transforming your delivery experience into a competitive advantage with highly differentiated prices and delivery options allows you to lower the cost pressure of logistics and actually make some profit on deliveries, which has not been the case for many years.

What makes a great delivery experience, then?

There are ways to ensure you can give your shoppers the power of delivery personalization, earn their loyalty and make your deliveries profitable.

Consumer habits, locations, seasons, item specifications, and estimated delivery times are some of the factors that determine which delivery method customers contextually expect for every purchase they make. It needs to be totally up to them how to personalize the delivery experience they get.

Now, let's go over some of the main customer expectations when it comes to e-commerce deliveries:

  • Knowing the costs of delivery upfront
  • Having an accurate delivery promise
  • Choosing from several delivery options

Be upfront about the costs of delivery

Consumers tend to abandon their carts when you hit them with high or altogether unexpected delivery costs. It's the most common cause of shopping cart abandonment — it accounts for about 50% of abandoned online orders.

A funny thing about e-commerce product pages is that they usually provide a lot of details to improve conversion: Product names, images, descriptions, prices, returns policies, care instructions... For some reason, though, delivery options and costs are often missing.

With delivery options introduced as soon as possible, potential customers don't have to assume, predict, or rely on previous shopping experiences to understand if, when, and how products will be delivered. This makes online purchases more likely and less frustrating.

Ingrid Product Page in action.
Ingrid Product Page

That said, we're way past the point where the total cost of the delivery belongs at the end of the checkout journey. Display your delivery pricing on the homepage or product page — make it one of the first things your consumers will encounter and be able to calculate.

With Ingrid's conversion-optimized Delivery Checkout, you can offer fast and flexible delivery options to let your customers choose what works best for them

Ingrid Delivery Checkout implemented by Beauty Disrupted.
Ingrid Delivery Checkout implemented by Beauty Disrupted

Make an accurate delivery promise

It's not only the price and speed of delivery that count for a great shopping experience. You need to be focusing on 'when', not 'how soon', as well as helping your consumers feel in control of the process by letting them choose a preferred method of last-mile delivery services.

Ingrid Delivery Checkout implemented by NUDIENT.
Ingrid Delivery Checkout implemented by NUDIENT

Integrate with multiple carriers

Create an even better delivery experience by adding more intelligent integrations with local carriers and negotiating the best deals.

By doing so, you'll always be able to adapt to consumer locations, depending on people's life patterns and seasons — be it in a big city, during an evening at home, or at a summer cottage in the countryside.

Now, let's talk finances.

Should you offer free shipping?

Now, it's one of the most popular delivery tactics in e-commerce to offer free delivery on all orders. We’ve seen this time and time again — for many e-commerce companies, it still seems like a must in order to stay competitive. It doesn’t mean, however, that it’s the best solution for your e-commerce business.

It shouldn’t come as a surprise that free shipping and free returns often cause excessive and unnecessary shopping, which goes against more sustainable consumption and reduction of environmental impact.

What's more, free delivery cannot be the best fit for all e-commerce companies. The volumes of online sales, caused by closed brick-and-mortars and social distancing in the midst of COVID-19, are dropping and giving many online retailers a tough time. Venture capital will no longer be prioritizing growth over profitability.

Now, what if your customers started paying for delivery? Not only could it be translated into an income that can cover the shipping costs but could also leave you with a profit.

"There's a 'sweet spot' where paying for delivery might mean selling fewer products but still earning more."    
Anders Ekman, Co-Founder & COO of Ingrid

Start making profits from your deliveries instead

It was an idea that Babyshop Group experimented with via Ingrid Delivery Checkout. The assumption was that raising the prices by 10 SEK for orders under a certain cart value would discourage customers from buying, and lower the conversion rate as a result. However…

Ingrid’s A/B Testing proved that setting a higher shipping price deviates negatively on conversion by 2.45%, but, it also showed an increase of 4.2% in average order value, resulting in a total of 11% increase in shipping revenue and 5.5% in gross profit per session. Not bad.

Ingrid Delivery Checkout implemented by Babyshop Group.
Ingrid Delivery Checkout implemented by Babyshop Group

Improve your net delivery cost

Many believed that the order volumes we’ve seen during COVID-19 are here to stay, and the carriers who depend on external capital have certainly promised their investors better forecasts than what they are currently delivering. Yet:

"Pendulums have a tendency to swing back. The surge we saw during COVID is actually settling and going back to the pre-pandemic levels."
Anders Ekman, Co-founder & COO at Ingrid

As long as the carriers can show volume growth, though, they can probably raise more money. Why not use it? Demand to pay less for your deliveries. For a carrier looking for investors, it is better to show growth than to manage to become a little less unprofitable in the short term.

In other words, they will agree to be paid less as long as they get higher volumes. If they don't, redirect your volumes elsewhere.

Experiment to set your optimal delivery pricing strategy

Make use of smart business rules and data-driven delivery pricing in a way that benefits both your consumers and your e-commerce business at the same time. If you're not sure where to start, consider your associated shipping costs and combine multiple delivery rates and methods to find the best fit for your company.

One frequent rate structure would be to set free delivery criteria for a certain shopping cart value, combined with a fixed delivery rate across all products if they are fairly similar in dimensions, or groups of products.

For many businesses, though, setting up a free shipping threshold can be challenging, especially without any data insights. If you’re using a delivery platform like Ingrid, you could easily A/B test your delivery offering. If not, there’s a workaround.

Based on your Average Order Value (AOV), you could charge a flat rate for orders under 50 EUR (for example) to get the delivery costs back, and provide free delivery for orders over 50 EUR. If your typical order size is 30 EUR, this strategy should work wonders for your e-commerce business.

The idea is to encourage your consumers to add more to their cart in order to reach free delivery — now, let's see how it's done in practice.

Delivery pricing strategy example — IDEAL OF SWEDEN

IDEAL OF SWEDEN is a global fashion and lifestyle brand for premium phone accessories. The team behind the brand wanted to experiment with delivery options and prices to match the premium shopping experience. But, without qualitative and quantitative data on delivery pricing at hand, it was unclear at what delivery price point potential consumers would be the most likely to make a purchase after adding products to the cart.

To address the challenge, IDEAL OF SWEDEN entered the initial phase of A/B testing delivery price points in each market, starting with the Netherlands. Thanks to Ingrid's Delivery Upsell feature, they were able to set the free shipping criteria to a cart value of 45 EUR or above to experiment with consumer preferences in the Dutch market.

The idea behind a free delivery offer was to raise the average order value and transaction conversion rate, while also boosting the number of upsell products — displayed underneath the free shipping indicator — to be added to the initial cart value.

Delivery Upsell example — IDEAL OF SWEDEN.
Ingrid Delivery Upsell seen at IDEAL OF SWEDEN

The results? A 7.81% increase in the Transaction Conversion Rate (TCR) and a 7% boost in the AOV. In fact, the free delivery offer in the Netherlands was key to understanding the logic behind changing consumer habits.

Delivery pricing strategy example — Syster P

Here's another example: For a Swedish jewelry brand Syster P, free delivery to Norway became challenging due to high transportation costs. When customers placed orders for lower-priced products, the cost of delivery and handling the order became so high that it was not profitable anymore. Something had to change.

To make an informed decision regarding delivery costs, the idea was to test whether offering free shipping increases conversion or stays the same when customers have to pay for shipping by themselves. With Ingrid, Syster P was able to set up a split test where 50% of all visitors were offered free delivery regardless of the order value, while the other 50% were offered free delivery for orders over 500 NOK.

Instead of just removing the free shipping option completely, A/B testing made it possible to experiment with the free shipping threshold and analyze how it affects consumer behavior and sales.

Ingrid Delivery Checkout implemented by Syster P.
Ingrid Delivery Checkout implemented by Syster P

Syster P saw an 18% AOV increase within the group that wasn’t offered free delivery — all without the decrease in the conversion rate — and a 19.2% raise in the Average Transaction Value, ATV, including the delivery costs.

"We are very happy with Ingrid’s A/B Testing, as it has helped us make an important decision regarding our shipping options, based on real data insights."
Hanna Holmberg, Creative Project Manager at Syster P

Offer a flawless and profitable delivery experience

Conclusion? Don’t be afraid to rethink your delivery strategy and start charging your customers for shipping. It might lead to a reduced number of orders, but you will make a higher revenue in the process.

To set the right delivery pricing strategy and keep improving it at all times, integrate with the right technology partner like Ingrid to suggest real-time, most cost-effective, and convenient delivery options for every purchase and location, while ensuring the optimal delivery pricing spot for your business.

Book a demo to see how Ingrid can help you profit from your delivery experience.

Improve your delivery experience

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