Free, flat-fee or variable postage? Find out which is best for your ecommerce business.
The method you have chosen for charging for shipping could be killing your online sales. According to research by Statista, 56 per cent of online customers abandon their shopping carts when they encounter unexpected costs.
So if your ecommerce business is experiencing high shopping cart abandonment rates, your problem could lie in unexpected shipping costs sending customers running for the virtual door.
However, simply adopting a free or flat-fee shipping policy may not be the right answer for you. It all depends on your profit margin, sales volume, package sizes and customer expectations.
Here’s what you need to know to solve the shipping puzzle:
Strategy #1: Free shipping
Why to consider it
According to a survey by Deloitte, a whopping 69 per cent of online shoppers choose to buy from retailers who offer free shipping. This is evidence that free shipping is a powerful incentive for customers, but it can be a profitability nightmare for ecommerce entrepreneurs if not managed correctly.
When to do it
If you sell high-end products with a large margin, or lightweight items with low shipping costs, free shipping could be right for you. You’ll need to build the shipping cost into the overall price of your items, so you must have a profit margin healthy enough to cover any shortfalls without eating into your bottom line too much.
When not to do it
If you sell generic products at a low margin, or heavy or over-sized items that attract higher shipping costs, then it may be best to stay away from free shipping. Building shipping costs into the overall price of a low-cost item may price you out of the market, and shipping heavy items with fluctuating delivery costs for free could wipe out your profit margin altogether.
Beware of this…
Shipping costs vary. That makes free shipping a very risky strategy as your profit margin may take a heavier hit depending on the given shipping destination. You’ll likely need a high volume of sales to overcome this with a close eye kept on your average profit per sale.
Try this…
Test the waters with a free shipping offer applied to a limited product range, or
for a set time period. This should give you a real-world idea of how it will affect
your profit margin versus the size of the sales boost it attracts without
overcommitting.
Strategy #2: Flat-rate shipping
Why to consider it
Flat-rate shipping is easy for your customers and gives you an edge on your competitors who charge variable rates by allowing you to state the full price up front. That removes the risk of customers abandoning their shopping cart when hit with an unexpectedly expensive variable shipping rate.
When to do it
If you have a limited product range with a standard box-size and weight, and predominately deliver locally, then flat-free postage could be an attractive option. A good rule of thumb when setting flat-fee postage is to overestimate your shipping costs by 10 percent. However, keep an eye on what your competitors are charging so you don’t price yourself out of the market.
When not to do it
You will still need a healthy profit margin to cover any variations in delivery costs. Like free shipping, you’ll need enough room in your profit margin to cover higher, location-dependent delivery costs.
Beware of this…
If you ship products of different shapes, sizes and weights, don’t set a site-wide flat shipping rate. Rather, apply flat fees to product categories that are grouped together by package dimension or volume. For example, you may have different flat postage rates depending on whether your customer buys one, two or three of your products.
Try this…
Offer flat-rate postage for purchases over a set amount. This will ensure you’re only offering flat-rate postage on your higher margin sales with room to cover any variability in shipping costs.
Strategy #3: Variable-rate shipping
Why to consider it
Variable-rate shipping is the most stable option. All shipping costs are passed onto the customer, so you don’t need to worry about fluctuating delivery costs eating into your profit margin.
When to do it
If you sell low-margin items or ship large, heavy packages to a wide range of destinations, then variable-rate shipping may be your best bet. Also, if you have a large product catalogue with different package sizes, or your customers tend to buy more than one item per purchase, this could be the simplest option for you.
When not to do it
If your competitors largely offer free or flat-rate shipping, your customers will likely expect you to follow suit.
Beware of this…
Customers are more likely to abandon their shopping cart when variable-rate shipping is offered. So it’s essential that you make the user experience easy and secure the best shipping deal for them.
Try this…
Use a shipping aggregator that gathers the best quote from a range of carriers for each purchase. And integrate it into your checkout process. That means customers should be able to enter their postcode during checkout to get an instant delivery price.
At the end of the day- you need to give the customer what they want. Whether that is pimped up packaging or fast and free shipping, you have to consider their needs and what they expect in terms of shipping.
Ready to start shipping? New customers get a quote, or existing members please sign in.
Liking what you’re reading? Then why not download the entire guide.
