How Little Chonk Increased AOV 20% With One Small Change
Shipping costs can be a conversion rate killer…but free shipping comes straight out of your margin. So how can you find the right balance? We did this with Little Chonk and had huge results.
Impact Summary
Holscher Analytics and Little Chonk analyzed sales and abandoned cart data to set a shipping price and an order value threshold for free shipping. The change increased AOV by 20% and saw no reduction in the number of weekly orders or increase in abandoned carts.
Company Overview
Little Chonk sells premium dog backpacks and accessories, targeting urban, high-income dog owners. Their flagship backpacks, complemented by accessories such as water bottles and snack containers, create two distinct price points.
Problem Statement
Shipping costs averaged around 15% of total order value, significantly impacting profit margins. Little Chonk needed a strategy to balance protecting margins without increasing cart abandonment due to unexpected shipping charges.
Previously offering free domestic shipping significantly reduced profit margins, prompting the need for a revised strategy.
Methodology
We analyzed historical data to identify how varying shipping prices impacted cart abandonment. We modeled scenarios to find the profit maximization point by optimizing the tradeoff between shipping prices and abandonment rates, while also prioritizing a positive customer experience.
Findings and Implementation
- Low-Priced Products: Adding a shipping charge nearly doubled abandonment rates (from ~7% to ~13%), yet the financial loss from these abandoned carts was still less than the loss from fully subsidizing shipping.
- High-Priced Products: Even slight increases (~2%) in abandonment rates resulted in significant profit losses, suggesting free shipping was financially beneficial for higher-priced items.
We also found that the margin for a lower priced product would cover the shipping cost of one of the flagship backpacks. This was key in establishing a free shipping threshold. We wanted to make sure Little Chonk and their customers could create a win-win situation where customers adding an additional product could reach a threshold for free shipping and Little Chonk would earn a higher overall margin.
Recommendations
- Free Shipping Threshold: Set at a level achievable by pairing a backpack with an accessory.
- Below Threshold: Charge shipping as a percentage of the order total, accepting some increased abandonment as a lesser financial impact than absorbing full shipping costs.
KPIs and Results
Holscher’s ultimate success criteria was an increase in profit. To measure that, we tracked the change in (1) order value, (2) total margin, and (3) abandoned shopping carts. Essentially, does the effective price increase offset any lost volume.
After implementation we tracked an immediate increase in Average Order Value of 20%, with no significant impact to abandoned cart rates. This validated both the price and the free shipping threshold; by understanding the price point where customers considered a shipping price to be a significant burden, we were able to set both a shipping price and free shipping threshold that minimized the impact to order volume. Orders that were below that shipping threshold that might have been abandoned due to a shipping price, were also partially recouped by allowing the customer to instead add on an additional product to avoid shipping charges and receive more value.
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