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<p><strong>In this guide, we’ll unpack 17 crucial factors to help you find that sweet spot. Let’s dive into the practical strategies that will enable your delivery policy to work as a driver for both customer loyalty and profitability.</strong></p>
<h3>1. Average Order Value (AOV)</h3>
<p>The Average Order Value is the average amount customers spend per transaction. Knowing your AOV helps in setting a free delivery limit that encourages customers to spend more without negatively impacting your profit margins.</p>
<ul>
<li>Calculation: Total revenue divided by the number of orders.</li>
<li>Application: If unsure or short of time, set the free delivery limit slightly above your AOV to incentivize customers to add extra items to their cart.</li>
</ul>
<h3>2. Consider delivery costs</h3>
<p>Delivery costs include shipping fees, packaging, handling, and any additional logistics expenses. These costs directly affect your bottom line when offering free delivery.</p>
<ul>
<li>Fixed vs. variable costs: Understand which costs are fixed per shipment and which vary with order size or destination.</li>
<li>Cost absorption: Determine how much of the delivery cost your business can absorb without compromising profitability.</li>
</ul>
<h3>3. Profit margins</h3>
<p>Your profit margin per product influences how much you can afford to offer in terms of free delivery.</p>
<ul>
<li>Gross margin: Revenue minus the cost of goods sold (COGS).</li>
<li>Net margin: Gross margin minus all other expenses, including delivery.</li>
<li>Threshold setting: Ensure the free delivery limit doesn’t erode your profit margins.</li>
</ul>
<h3>4. Customer purchasing patterns</h3>
<p>Analyzing how customers actually shop can provide you with insights into setting an effective free delivery limit.</p>
<ul>
<li>Purchase frequency: Frequent small purchases may warrant a lower free delivery threshold.</li>
<li>Basket composition: Identify commonly purchased items together to set thresholds that promote bundling.</li>
</ul>
<h3>5. Competitor analysis</h3>
<p>Understanding what your main competitors offer helps you remain competitive.</p>
<ul>
<li>Benchmarking: Compare free delivery limits and shipping policies.</li>
<li>Differentiation: Offer superior shipping options or lower thresholds to attract customers.</li>
</ul>
<h3>6. What are your business goals?</h3>
<p>Your free delivery policy should support your broader business goals.</p>
<ul>
<li>Increasing AOV: Set thresholds that encourage higher spending.</li>
<li>Customer retention: Use free delivery to boost loyalty.</li>
<li>Market expansion: Attractive shipping policies can help enter new markets.</li>
</ul>
<h3>7. Geographical considerations</h3>
<p>Delivery costs and customer expectations can vary by region.</p>
<ul>
<li>Domestic vs. international: International shipping often incurs higher costs.</li>
<li>Urban vs. rural: Remote areas may have additional delivery expenses.</li>
</ul>
<h3>8. Seasonal demand and promotions</h3>
<p>Adjusting your free delivery limit according to seasonal trends can optimize sales.</p>
<ul>
<li>Seasonality: Lower thresholds during peak shopping seasons like holidays. Instead of offering discounts, try out different thresholds for free or cheaper shipping including convenient shipping offers like home delivery.</li>
<li>Promotional campaigns: Temporary offers can stimulate demand during slow periods.</li>
<li>Free for some: Offer free delivery or lower the threshold for a part of your assortment. When customer buys your selected products that qualify for free delivery or lower threshold, make that very clear to the customers before the checkout. Use filters to show only products that are included.</li>
</ul>
<h3>9. Customer feedback and satisfaction</h3>
<p>Customer opinions on delivery fees can inform your policy.</p>
<ul>
<li>Surveys and reviews: Gather feedback on how delivery costs affect purchasing decisions.</li>
<li>Customer experience: High satisfaction can lead to repeat business and positive word-of-mouth.</li>
</ul>
<h3>10. Have a look at order frequency and customer loyalty KPI:s</h3>
<p>A strategic free delivery limit can foster customer loyalty.</p>
<ul>
<li>Repeat purchases: Lower thresholds may encourage customers to buy more often.</li>
<li>Loyalty programs: Offer free delivery as a perk for members or frequent shoppers.</li>
<li>Monthly fee: Look at Amazon that offer Prime memberships than include &#8220;free&#8221; shipping.</li>
</ul>
<h3>11. Consider psychological pricing strategies</h3>
<p>Use pricing psychology to encourage higher spending.</p>
<ul>
<li>Price thresholds: Set the free delivery limit just above common spending amounts.</li>
<li>Perceived value: Emphasize the savings customers gain from free delivery.</li>
<li>Inform the customer: Show a banner that tell how much more they must spend to get free delivery.</li>
</ul>
<h3>12. Inventory and fulfillment capacity</h3>
<p>Higher order volumes require adequate inventory and fulfillment capabilities.</p>
<ul>
<li>Stock levels: Maintain sufficient inventory to meet increased demand.</li>
<li>Warehousing costs: Consider the impact on storage and handling expenses.</li>
</ul>
<h3>13. Return rates and policies</h3>
<p>Higher sales can lead to more returns, affecting profitability.</p>
<ul>
<li>Cost of returns: Factor in return processing expenses.</li>
<li>Return shipping costs: Decide if you’ll cover return shipping under your policy.</li>
</ul>
<h3>14. Shipping carrier relationships</h3>
<p>Strong relationships with carriers can reduce costs.</p>
<ul>
<li>Negotiated rates: Secure better shipping rates through volume discounts.</li>
<li>Service levels: Ensure carriers can handle increased volumes efficiently. Do you have flexibility built into your deal with the carrier?</li>
</ul>
<h3>15. Operational considerations</h3>
<p>Increased orders impact various operational aspects.</p>
<ul>
<li>Staffing: Additional personnel may be needed for order fulfillment.</li>
<li>IT infrastructure: Ensure your e-commerce platform can handle higher traffic and order processing.</li>
</ul>
<h3>16. Competitive advantage through innovation</h3>
<p>Innovative options can set your business apart.</p>
<ul>
<li>Alternative delivery options: Implement click-and-collect or local pickup points.</li>
<li>Subscription models: Offer memberships that include free delivery or a reduction of the shipping fee.</li>
</ul>
<h3>17. Financial modeling and forecasting</h3>
<p>Plan for long-term success with thorough financial analysis that ensures sustainability.</p>
<ul>
<li>Long-term impact: Assess how the free delivery limit affects profitability over time.</li>
</ul>
<hr />
<p>Setting the right free delivery <em>limit</em> is not just a strategy—it’s a necessity in today’s competitive landscape. By considering all of these 17 factors, you’re not just tweaking a policy, you’re positioning your business for long-term success, increasing customer loyalty, and unlocking greater profitability.</p>
<p>But hey, it’s your business. You can always stick with what’s comfortable, or you can seize this opportunity to gain an edge. And if you&#8217;re ready to take that step and want guidance from a team that lives and breathes digital growth — tag along with us at Omniarch. We’ll help you turn free delivery, and every other part of your e-commerce strategy, into a competitive advantage that fuels lasting success: letstalk@omniarch.se</p>


17 key factors to craft the perfect Free Delivery strategy

<p><em>This article summarizes key insights from a recent webinar on customer loyalty, offering practical strategies to help businesses turn satisfied customers into loyal advocates.</em></p>
<h3>Basics Matter:</h3>
<p>Make sure your website is fast, easy to use, and has a simple checkout process. Answer customer questions clearly and offer reliable payment and shipping options. The way you package and deliver products affects how customers feel about your brand.</p>
<h3>Satisfaction vs. Loyalty:</h3>
<p>A happy customer is not always a loyal customer. Loyalty means they keep coming back and prefer your brand over others. To build loyalty, go beyond a single good experience. Create ongoing value and a strong relationship with your customers.</p>
<h3>Multiple Touchpoints:</h3>
<p>Loyal customers interact with your brand in many ways, like through social media, newsletters, and direct communication. Increase these interactions to build stronger connections with your customers.</p>
<h3>Customer Lifetime Value (CLV):</h3>
<p>CLV helps you understand the long-term value of a customer. Look at different segments like product type and location. Use this information to make better business decisions and target high-value customers.</p>
<h3>Data-Driven Loyalty Programs:</h3>
<p>Use data to find out which products or actions lead to repeat purchases and loyalty. Use AI tools to analyze buying patterns and predict which products will encourage repeat business.</p>
<h3>Loyalty Without Discounts:</h3>
<p>Offer exclusive content, personal shopping experiences, and relevant product recommendations. Use creative incentives like collectible items or co-branded products to keep customers engaged.</p>
<h3>Customer Feedback:</h3>
<p>Regularly ask for feedback through surveys, direct calls, and social media. Use this feedback to improve the customer experience and address any issues.</p>
<h3>Loyalty as a Two-Way Street:</h3>
<p>Show loyalty to your customers by providing excellent service and additional value. Examples include offering free repairs, test periods for products, and a premium unboxing experience.</p>
<h3>Creative Loyalty Strategies:</h3>
<p>Use exclusive previews, membership levels, and special bonuses to engage your customers. Collaborate with other companies to create unique products and tap into new customer bases.</p>
<h3>Building a Community:</h3>
<p>Create a community around your brand with engaging communication. Provide content and experiences that align with customer interests to build a strong relationship with your brand.</p>
<p><em>These points highlight the need to understand and meet customer needs on multiple levels. By implementing these strategies, businesses can turn satisfied customers into loyal advocates who return for future purchases and spread positive word-of-mouth, leading to sustained growth and success. Get in touch if you want to get down to the nitty gritty of acutally making all of the above a reality: letstalk@omniarch.se</em></p>
<hr/>
<p>Note: This article is based on a transcribed webinar about customer loyalty. AI was used to assist in refining and organizing the content.</p>


E-commerce & Beyond: Ways to foster customer loyalty

<p>Think about it: if you know exactly when your clients will need their next delivery, it simplifies everything for everyone involved. Products with regular replacement cycles, like contact lenses or coffee pods, are perfect for subscriptions because they fit so naturally into our routines.</p>
<p>Keeping things simple is another suggestion. Subscription-friendly products typically have a limited selection, ensuring consistent quality and consumer satisfaction while simplifying logistics and inventory management. This benefits both parties.</p>
<p>Now, let&#8217;s discuss perceived value. Have you ever purchased a starter kit that initially seems costly but eventually proves to be quite valuable? That is how subscription services, such as those for razors, work. Their continuous value makes the initial investment well justified. There are also subscription services like beauty boxes that seem like a good deal because you&#8217;re getting items worth more than what you&#8217;re paying for.</p>
<h3>Important Questions and Financial Considerations</h3>
<p>There are various operational and financial concerns when switching to a physical product model that is subscription-based. While we have discussed physical goods, the next section provides a general overview of challenges for subscription business models like rental and pay-per-use.</p>
<h3>Cycle of Cash Conversion and Management of Working Capital</h3>
<p>Liquidity maintenance is essential. Assess the speed at which subscriptions turn into cash and devise ways to accelerate this process, including providing yearly prepayment discounts. Effective working capital management ensures the company can fund expansion opportunities and meet short-term commitments.</p>
<h3>Inventory Control and Cost Structure Modification</h3>
<ul>
<li>Will inventory levels change in response to an increase in subscriptions, and what kind of funding will be needed?</li>
</ul>
<p>Effective stock management is necessary to satisfy recurrent demand. Consider financing options such as lines of credit or short-term loans for managing inventory purchases. Determine and manage extra costs related to regular deliveries. Simplify processes to ensure cost-effectiveness while preserving customer satisfaction.</p>
<h3>Estimating and Predicting Revenue</h3>
<ul>
<li>How can we modify our revenue recognition policies to account for the subscription model?</li>
</ul>
<p>Revenue is now recognized on a recurrent basis rather than at the point of sale. Use forecasting models that consider customer lifetime value and recurring income. Accurate revenue projections facilitate resource allocation and align goals with the business.</p>
<h3>Acquiring and Retaining Customers</h3>
<ul>
<li>What is the difference in customer acquisition costs (CAC) between one-time buyers and subscription customers?</li>
<li>What tactics can we use to raise retention rates and lower churn?</li>
</ul>
<p>Understanding the difference between the lifetime value (LTV or CLV) of subscribers and one-time customers facilitates the efficient allocation of marketing funds. Invest in retention tactics like customized rewards and loyalty programs. Lower churn rates lead to a more consistent revenue stream.</p>
<h3>Infrastructure and Technology</h3>
<ul>
<li>Do our current e-commerce platforms offer recurring billing and subscription management?</li>
<li>What other technology developments or integrations are needed to make the subscription model work?</li>
</ul>
<p>Ensure your IT infrastructure supports client administration and subscription billing functions. Invest in necessary updates or integrations to enhance operational efficiency and provide a seamless user experience.</p>
<p>Equally important are questions related to targeting, pricing, scalability, and regulatory and compliance issues. We will not cover marketing and segmentation here, as those topics are discussed in a <a href="https://omniarch.se/insikt/subscription-model-not-for-everyone" target="_new" rel="noreferrer">separate article</a> on the subscription model.</p>
<h3>Pricing Strategies</h3>
<p>Pricing strategies that work are essential because they directly impact Customer Lifetime Value (CLV). Businesses can increase long-term income and retain customers more effectively by optimizing pricing, ensuring the subscription model&#8217;s durability and profitability.</p>
<ul>
<li>How can we set the price of our subscription services to be profitable and competitive?</li>
<li>Should we provide options for bundling or tiered pricing to appeal to different client segments?</li>
</ul>
<p>Create a pricing plan that balances consumer needs with the company&#8217;s bottom line. Consider offering tiered pricing and bundling to meet various customer needs. Effective pricing strategies can increase perceived value and conversion rates.</p>
<h3>Scalability and Growth Management</h3>
<ul>
<li>What operational changes are necessary to scale the subscription model effectively?</li>
<li>How can we forecast and plan for growth in subscription demand?</li>
</ul>
<p>Plan for scalability by optimizing operations and logistics. Use forecasting tools to anticipate and manage growth. Scalability ensures the business can handle increasing demand without compromising on quality or customer satisfaction.</p>
<p><em>Transitioning to a subscription-based physical product model presents both opportunities and challenges. Regardless of your current position in leadership or management, addressing these key questions will help you navigate the complexities of this shift, ensuring your company remains competitive and financially sound. By focusing on efficient inventory management, customer acquisition and retention, revenue forecasting, and regulatory compliance, you can drive sustainable growth and success in the subscription economy.</em></p>
<hr />
<p>Note: This article elaborates on a previously published piece by Omniarch, adding financial aspects of the subscription model. AI was used to sort and analyze key research aspects and to refine and organize the content.</p>


Financial Considerations and Key Criteria for Subscription Services

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17 key factors to craft the perfect Free Delivery strategy

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Financial Considerations and Key Criteria for Subscription Services

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