A free plus shipping style offer is a type of advertising offer in which a company offers a product for free, but the customer is required to pay for shipping and handling. This type of offer is often used by ecommerce brands to generate leads and acquire new customers.
To make a free plus shipping style offer profitable, it’s important to carefully consider the costs involved and ensure that the revenue generated from the offer exceeds those costs. There are several key factors to consider when calculating the profitability of a free plus shipping style offer, including the following:
- Product cost: This is the cost to the business of acquiring the product that is being offered for free. This cost should be subtracted from the revenue generated by the offer to determine the net profit.
- Shipping and handling costs: These are the costs associated with delivering the product to the customer, including the cost of packaging and any fees charged by the shipping carrier. These costs should also be subtracted from the revenue generated by the offer to determine the net profit.
- Conversion rate: This is the percentage of people who take advantage of the free plus shipping offer and make a purchase. The higher the conversion rate, the more profitable the offer is likely to be.
- Average order value (AOV): This is the average amount of money that a customer spends on a purchase. The higher the AOV, the more profitable the offer is likely to be.
If a business is able to break even on a free plus shipping style offer, it may still be a viable strategy over the long run if the business can understand and calculate its customer lifetime value (CLV).