Is a Shipping Guarantee Worth It on a $25 Average Order? A Decision Guide for Low-AOV Stores

On a $25 order, a lost package costs you the product, the postage and the pack-out, often more than the margin on several other orders. That is exactly why the Shipping Guarantee question is harder to answer for low-AOV stores, and why a rule of thumb will not do.

The three numbers that decide it

1. Your resolution rate. The share of orders that end with a lost, damaged or stolen package.
2. Your cost per resolution. Replacement product, new postage, packing labor and support time.
3. Your attach rate and the revenue it brings. The share of customers who add the Shipping Guarantee at checkout, multiplied by what they pay.

The guarantee earns its place when attach revenue per order exceeds resolution cost per order. At low AOV, the cost per resolution is high relative to the order, so the resolution rate matters most.

A worksheet you can fill in tonight

Resolution cost per order = resolution rate x cost per resolution. Attach revenue per order = attach rate x guarantee price. Compare the two.

These numbers are examples. If 2 percent of orders end in a resolution and each costs you $20, your resolution cost is 40 cents per order. If 30 percent of customers add a $1.50 guarantee, attach revenue is 45 cents per order. Your own figures will differ, and the point is to use them.

Why low AOV is not an automatic no

• Customers on cheap orders are less tolerant of waiting for a replacement and more likely to dispute the charge.
• Support time costs the same on a $25 order as on a $250 order, so it takes a bigger bite of margin.
• The merchant keeps the revenue from the guarantee, so a healthy attach rate can fund the resolutions it covers and leave a margin.

When it makes sense to wait

If you ship only a small number of orders each month and almost never see a lost package, manual handling may be cheaper for now. Track resolutions for a quarter, and decide with data. Revisit when volume grows, when you add a new carrier or service, or before peak season.

How to improve the economics

• Test where the guarantee appears at checkout, since placement moves attach rate.
• Set the price so it reads as small next to the order total.
• Cut resolution cost with a fast, simple process, so a $25 problem does not become a $45 problem in handling time.

The decision rule

If attach revenue per order beats resolution cost per order, turn it on. If it does not, find out whether the gap is in your attach rate or in your resolution rate, and fix the larger one first.

ShipAid Shipping Guarantee lets you keep the revenue from the guarantee and run branded resolutions inside your own store experience, so low-AOV stores keep control of both the margin and the customer relationship. See how it works at shipaid.com.