When to use incentives in abandoned cart emails

There's been a lot of debate recently about when you should use incentives - for example free shipping, or a discount voucher, in abandoned cart emails. Some pundits say you should avoid them at all costs, some say that they increase revenue so they're a good thing.

So I wrote a guest blog post for our partners at dotMailer about it. Take a read here, the results may surprise you. (Updated on 18 March 2013 to include a copy of the article, below.)

Mike.

 

At Triggered Messaging, we’re often asked “should we use incentives in abandoned cart emails”?

It’s a great question. Incentives such as free shipping, money off, etc. can definitely help conversions when people abandon their cart.

A recent study, which matches our experience to-date, showed a conversion rate from abandoned cart messages of:

  • 18% without incentive
  • 21% with incentive

So, there’s a measurable but unexciting increase by using an incentive. The standard conversion rate from cart abandonment emails is fairly high, so the extra few percentage points gives only a small additional uplift. Our advice to most clients is not to use incentives. Why?

Consider this scenario:

  • An online retailer is making a gross margin of 20%
  • They are using a series of 3 recovery emails – the first after 30 minutes, second after 24 hours, third after 7 days
  • The final email has an incentive – voucher, discount, free shipping
  • 33% of recovered carts come from the incentivised offer, 67% from the first 2 emails
  • The incentive costs the retailer £5
  • Average Basket Value of £20-£50

Then the maths works out that clients will make more gross profit by not offering an incentive than if they do.

 

Here’s how the maths works out:

  With Incentive Without Incentive on
3rd Email
Abandoned value per month £10,000.00 £10,000.00 £10,000.00
Recovery rate 21.00% 18.00% 21.00%
Recovered Value £2,100.00 £1,800.00 £2,100.00
Gross Margin 20.00% 20.00% 20.00%
Gross Profit before Incentive £420.00 £360.00 £420.00
Average Basket Value £50.00 £20.00 £20.00
Number of Recoveries 42 90 105
Number of Incentivised Recov 42 0 13.986
Incentive Cost per Recovery £5.00 £5.00 £5.00
Monthly cost of Incentives £210.00 £0.00 £69.93
Gross Profit after Incentive £210.00 £360.00 £350.07

Of course, some retailers will have a higher margin or a higher ABV, or a lower incentive cost – in which case, offering an incentive can make sense.

If so, we provide anti-gaming features against serial abandoners too.

As always in marketing, the best advice is to test for your situation. Your mileage may vary.