Shipping needs to be a part of your business’s budget from the beginning. In a world of globalized supply chains and global markets, this is already second nature to most retailers and manufacturers.
But shipping also needs to be part of your business’s pricing strategy. Setting shipping charges for your products is a critical part of setting up your business. What shipping methods will you offer, and how much will each cost?
Having the lowest prices no longer guarantees that you will make the most sales. According to a 2015 report from MetaPack, 66 percent of shoppers chose one retailer over another because they preferred their shipping options. A whopping 96 percent of shoppers said a good delivery experience would make them more likely to shop with a retailer again. And that was four years ago. As e-commerce platforms’ offerings have expanded to include same-day delivery, next-day shipping, and free returns, customers have only gotten savvier.
Remember, negative shipping experiences can be detrimental to growing businesses. These types of reviews affect brand image and customer loyalty, and if you have to make a number of exchanges or replacements, they can increase costs.
Which shipping strategy, or combination of shipping strategies, makes the most sense for your business? Let’s find out.
Plan your shipping strategy
Free shipping will probably increase your cart conversions right away. Many customers start the checkout process, then click away from the page when they see how much shipping will cost. Free shipping removes that impulse. But it also costs you, the shipper, more on the back end.
If you choose to offer free shipping, there are a few ways to make the math work for your bottom line. One is to build the cost of shipping into the listed price of each product. This may make your products appear more expensive than competitors, but at least you’ll know each sale leaves you in the black.
Another option, and a popular one, is to offer free shipping on all orders that surpass a certain dollar amount. The more data you have about your shipping costs and profit margins on each product, the easier this will be to set. Better yet, it can drive sales — if a buyer has merchandise worth $66 in her cart and needs to reach $75 for free shipping, she may just tack on that $10 sale item.
Charge exact shipping costs
Shippers in the U.S. and Canada can use Shopify Shipping to display calculated shipping rates to customers at the time of checkout. For businesses whose margins are slim, or for small or new companies that don’t yet have contracts with third-party shipping carriers, this offers a transparent, straightforward way to get goods to customers.
Flat rate shipping
Flat rate shipping offers a middle way between free and exact-price shipping: charging everyone, or everyone within a certain geographic area, the same amount. Flat rate shipping makes budgeting easy, since you can simply divide your monthly shipping spend over your monthly sales numbers and come up with an average cost. But if you have a spike in sales from a faraway city, you may end up in the red.
Whatever shipping strategy you choose, remember: Your goal is to balance your shipping costs with the prices customers are willing to pay. Different strategies may work better at different phases in your company’s life. Fortunately, this is an easy part of the business to experiment with — if, after some time, your strategy doesn’t seem to be working, you can change it.
Why is having a shipping strategy important?
Everything a retailer offers to online customers should offer them a reason to buy your products. Everything, in other words, is a sales item — including shipping.
E-commerce is a mature industry now, and its customers know what they’re doing. Most look at returns and exchanges policies before making purchases. Many are willing to shop around, knowing the same products are often available on several platforms, and make decisions based on shipping options. To be attractive, delivery and return policies need to be convenient, priced right, and — if you wish to win customers’ trust — transparent. If customers struggle to find your terms and conditions, they’re unlikely to risk shopping with you.
As you develop a shipping strategy, think about who your target customers are. You should know how they want their online orders delivered, how likely they are to return items, and whether patterns like these vary by region.
For additional savings, optimize packages based on dimensional weight pricing. Examine your carrier’s policies and your core products, then do some calculations to see which combinations result in the cheapest shipping rates per pound. You may discover new bundling options that can save you money in the long run.
Free shipping is a powerful tool. But remember that Amazon, the company that brought free shipping to hundreds of millions of people, didn’t become profitable for many years. Most companies don’t have the freedom to take losses on shipping. So while free shipping might drive sales, if you can’t cover the costs required, it’s unsustainable.
Fortunately, offering free shipping isn’t the only way to succeed in e-commerce shipping. Flat rate shipping, transparent pricing, and clear returns and exchanges terms also support sales. Most importantly, shipping done right establishes loyalty — which can lead to sale after sale after sale.
The Reveel App uses AI and machine learning to provide an unparalleled look into what’s impacting your bottom line. Through invoice audits, peer benchmarking, and rate modeling/simulations, you can see the health of your operation and assess pricing changes from parcel carriers like FedEx and UPS. Sign up for a free Reveel account today to see how you can leverage automation to synthesize your data, ship more for less, and reduce the time needed to identify issues and action items.