Posted 14 June 2015

The cost of shipping: 3 things to consider

Written By : Marco Rosano Visit Marco's LinkedIn Profile

Stuart Gonsal founded Wolf in 2014. He presents extensively to industry groups and is on the Advisory Committee for Swinburne University’s Masters of Commerce (International Business).

Hands up who hates sticker shock? One minute you’re having a lovely time online shopping, popping things in your cart, then you go to checkout and that fun comes to a screeching halt when you’re hit with the shipping. Suddenly all those Manga figurines aren’t so cute and affordable anymore, once you’ve factored in fifty bucks in shipping.

If this is you, you’re not alone. In fact, a recent survey said that 63% of consumers would cancel an order because of high shipping costs.

As a business owner, shipping is the last chance to interact with your customer. Make it reasonable – free, even – and they’ll checkout happy. Hit them with an unexpectedly prohibitive charge and you’ll lose them forever.

 

Can you afford to give the customer what they want?

Consumers have come to regularly expect free shipping – one report states 36% of consumers won’t click ‘buy’ unless they can score free shipping – but what is the real cost of it?

For starters, free shipping does not work for all businesses. Mega-companies can absorb the costs, but smaller companies might feel the pinch more. So how can you stay competitive?

Some companies incorporate the cost of shipping into the product price, so you can offer free shipping but still break even. The downside of this is that your products will appear more expensive, but consumers often don’t mind paying a little more if it means they get ‘free’ shipping.

Offering free shipping with a minimum spend can encourage larger orders, so while you absorb postage costs, you increase income and should ultimately come out ahead. Additionally, charging a flat rate for postage, regardless of item size or weight, can end in a similar result. Or look at the items you have in your inventory and offer free shipping on those with the highest profit margin.

Things to consider about shipping

Look at your catalogue. If you sell outdoor furniture, chances are, free or discounted shipping is not viable. If you sell delicate jewellery, you might be able to swing it.

Get some data. Look at your customers’ average spend, test out free shipping (for a time) on minimum orders that are a little higher than the average, and assess the profit outcome. Also look at whether the bulk of your customers are domestic or international as that will highly affect your potential outlay.

If you can’t afford to offer free or low-cost shipping all the time, offer it some of the time. Use it as a promotion – especially at competitive times of the year, like Christmas. This can be a cost-effective of capturing new customers and exposing them to your products.

Play nice

It’s fine to make a profit – you are in business, after all – but it pays to play nice. Customers are not stupid, and blatant padding of shipping charges can turn a customer off. Accurately calculate costs to keep them reasonable and nurture customer loyalty. Go the extra mile and display shipping costs earlier on in the transaction chain to avoid the customer feeling duped or blowing their budget. 

Originally published 5 February 2015

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