Practical Ecommerce

Using Google Analytics to Optimize Shipping Rates

One of the biggest challenges ecommerce merchants face is rising shipping rates. Thanks to Amazon, consumers expect fast, free delivery. Because niche merchants do not typically have the sales volume to negotiate large discounts with UPS and FedEx, shipping costs have a much bigger impact on their bottom line.

Merchants can either absorb the costs into the product price, or charge the customer for shipping during checkout. We’ve addressed this dilemma many times, most recently at “Free Shipping, Free Returns Critical for Online Shoppers.”

Ecommerce merchants can either absorb the shipping costs into the product price, or charge the customer for shipping during checkout.

Ecommerce merchants can either absorb the shipping costs into the product price, or charge the customer for shipping during checkout.

However, in my experience selling as a merchant selling imported food items, there can be sticker shock if product prices include, essentially, shipping costs. Potential customers may see those high product prices and abandon prior to checkout.

Many of my food items are expensive to ship relative to their selling price. Potential customers that abandoned during checkout have told me the reason was that the cost of shipping was more than the product itself. Certainly I cannot please all shoppers and make a profit. For the others, optimizing the balance of product and shipping costs is essential to maximize sales and profits.

Enter Google Analytics. It’s an excellent database for gathering shipping information and conversion rates to test and optimize shipping policies. To report this information, Google Analytics must capture the shipping rate presented to the shopper, along with the product SKU, quantity in cart, and order subtotal. Google Analytics can then generate reports to help merchants analyze overall shipping rates as a percentage of total checkout amount and shipping rates by product.

Google Analytics must capture the products in cart, their quantities, item subtotal, and shipping rates as presented to the shopper.

Google Analytics must capture the products in cart, their quantities, item subtotal, and shipping rates as presented to the shopper.

The most difficult part of this reporting process is getting the information into Google Analytics. Consider asking your developer or hiring a Google Analytics or Google Tag Manager consultant.

Item Subtotal vs. Shipping Rate

To enable this reporting, create two custom dimensions in Google Analytics.

  • Item Subtotal. Populate this dimension with the order subtotal before shipping and tax.
  • Shipping Rate. Populate this dimension with the shipping cost for the order.

Use-Google-Analytics-to-Optimize-Shipping-Rates3

Once you start sending data to Google Analytics, you can identify the point in which the shipping percentage of an order’s subtotal causes a big drop in conversions.

Create a custom report with the following dimensions:

  • “Item Subtotal”;
  • “Shipping Rate.”

And the follow metric:

  • “Ecommerce Conversion Rate.”
Create a custom report to identify the point at which conversion rates dramatically decrease.

Create a custom report to identify the point at which conversion rates dramatically decrease.

Export the data from Google Analytics into Excel or similar spreadsheet.

  • Add a column to the spreadsheet called “Shipping % Of Order Subtotal’” and divide “Item Subtotal” by “Shipping Rate” to obtain the value.
  • Plot “Shipping % Of Order Subtotal” vs. “Conversion Rate.”
Add the column “Shipping % Of Order Subtotal” and enter the formula to report this value.

Add the column “Shipping % Of Order Subtotal” and enter the formula to report this value.

Use a large dataset of at least 1,000 rows, and remove outliers for cleaner graph. Also, sort the data (for the graph) in descending order by “Ecommerce Conversion Rate.”

Graph of "Shipping % of Order Subtotal vs. Conversion Rate" report.

Graph of “Shipping % of Order Subtotal vs. Conversion Rate” report.

In the above graph, when shipping rates approach 35 percent of the order subtotal, conversion rates drop substantially. This data could be used to modify shipping rates to rarely go, say, over 30 percent of the order subtotal.

Shipping Rates by SKU

To analyze conversion rates by product, collect the SKU, quantity added to cart, and quantity sold as presented to the shopper. Setting up the report is beyond the scope of this article. But here is what the outcome would look like, using hypothetical numbers.

Analyzing conversion rates by SKU can help identify onerous shipping costs.

Analyzing conversion rates by SKU can help identify onerous shipping costs.

The report above shows certain SKUs converting well after being added to cart. However, other SKUs have low conversions — shoppers leave during checkout. Investigate those SKUs. Are they expensive to ship, resulting in high shipping costs to the shopper? If so, test tradeoffs between their selling price and shipping cost to measure the impact on conversions.

In short, setting up the data collection and reporting for shipping cost versus conversion rates can be challenging. But, once completed, it can provide merchants with information to generate more revenue.

Morgan Jones

Morgan Jones

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  1. Jeff Bronson February 6, 2017 Reply

    It’s a touch challenge when your shipping rate is almost, if not more than the item price. Not to mention if you raise the price too high to include s/h, the conversion may still be lost. It’s kind of like large and bulky, yet lightweight item shipping costs.

    I love your idea of calculating at what point purchase conversions drop due to shipping rate in relation to the product price.

    Perhaps another way to deal with this, is to increase the 30%+ item prices slightly but include another lightweight accessory in the box, as a bundle to raise perceived value and make the sale. Depending on the accessory cost and weight of course. Either way, great idea Morgan!

    – Jeff Bronson, eCommerce Warriors
    Conversion Optimization For Lifestyle Brand Retailers

    • Morgan Jones February 10, 2017 Reply

      Great idea, Jeff, for raising prices and adding a lightweight accessory to raise perceived value! This would be something great to test and then measure conversion rates before and after the pricing change to see if it worked.

      Brainstorming solutions to improve conversion rates is the creative part of marketing – and an essential element of success. Google Analytics is the reporting mechanism to validate your creative ideas and is equally important.

      • Jeff Bronson February 13, 2017 Reply

        Thanks Morgan. Definitely agreed, validating this testing idea through data, then measuring the before/after conversion improvement is super important!

  2. Steve Bulger February 9, 2017 Reply

    Great article, Morgan. I think the main point you’re making here is spot on, which is that consumers have a certain mentality when it comes to the amount they’re willing to pay for order fulfillment and shipping, which will generally correlate directly with the order subtotal. And using Google Analytics like this is a great way for sellers to analyze it and draw conclusions for their particular businesses.

    I think it’s important to note that, while free shipping is important to many consumers and can be a great way to increase ecommerce sales, it does not necessarily have to be fast. Consumers want multiple shipping options, and they expect merchants to clarify and meet delivery times, although, with regard to the actual delivery timeframe itself, studies have consistently shown that consumers are willing to wait several days if the shipping is free. One of those recent studies is the UPS Pulse of the Online Shopper, which found that the average consumer is willing to wait up to seven days if the shipping is free.

    One way to make free shipping more viable, and to also reduce the shipping charge percentage relative to the order subtotal, is to incentivize multi-unit sales. The added margin made on the sale of an additional product will often outweigh the added expense associated with that additional product. The reason for this is that the added costs relative to pick/pack, packaging, and shipping is typically minimal when additional units are added to an order that can ship in one box from one facility. So, by finding ways to increase multi-unit sales, merchants are able to better subsidize more aggressive shipping offers. Here’s a Practical Ecommerce article I wrote on this topic….

    http://www.practicalecommerce.com/articles/123001-4-Ways-to-Increase-Multi-unit-Sales

    Again, great article!

    Steve Bulger, eFulfillment Service

    • Morgan Jones February 10, 2017 Reply

      Great suggestion to incentivize multi-unit sales, Steve! This is definitely a key strategy to raise average order values and minimize shipping rates relative to order subtotals.

      Thanks for also pointing out that people are willing to wait for delivery beyond 2 days if shipping is free. Although Amazon’s bar is set high, there is some wiggle room for niche merchants to make customers happy without going overboard and impacting their profit margins.

  3. Set April 17, 2017 Reply

    Hi, Morgan
    How do you calculate ecommerce conversion rate on your graph “Shipping % Of Order Subtotal vs. Conversion Rate”?
    Item Subtotal and Shipping Rate are hit level custom dimensions and when we take ecommerce conversion rate metric(session level) we will get strange data, like CR greater than 100%.
    How to take it correctly?

    Thank you

    • Morgan Jones April 17, 2017 Reply

      Good question!

      We use session-level custom dimensions for Item Subtotal and Shipping Rate. That way if the shopper updates their cart contents, we overwrite the Item Subtotal and Shipping Rate with the most recent values. This also allows for accurate conversion rate reporting.