It's the all too familiar story.
A new customer comes to your website, finds a product they want at a price they like and adds it to their cart.
They get to the checkout page and then it happens. They get hit with the shipping and handling rates and all of a sudden they start second guessing their decision to buy.
Suddenly a product they thought had a fair price is starting to seem a little expensive. One of two things happens next. Either they decide to press on despite the increased costs, or they abandon their cart and leave your website disappointed.
So what can you do to influence this decision?
Let's take a look at some shipping strategies and how you can use them in your business.
Shipping Rates and Abandoned Carts
The real challenge when figuring out your shipping strategy is determining a solution that cuts into your margins as little as possible yet remains attractive to your customers.
And this is something you're going to want to get right. Studies have shown that shipping and handling fees are the number one factor driving shopping cart abandonment.
With this information in mind, let's look at the three most common shipping options and the pros and cons of each.
Option 1: Offer Free Shipping
Offering free shipping - usually just for domestic orders - is a sure-fire way to get your customer's attention, however, depending on your margins, it can also potentially cut into your profits.
That said, the marketing punch that displaying 'Free Shipping' on your website provides can be a significant advantage over any competitors that don't offer the same perk. Deciding to offer free shipping will require you to either absorb the cost or slightly increase your prices to cover it.
You could also try offering free shipping with a minimum order amount or minimum number of items. This should drive up your average order value and help you have more profit dollars to apply the shipping cost against.
Prominently advertising that you offer free shipping can be an effective way to drive up conversion rates. Chubbies offers free shipping on all their shorts (including return shipments) and which they proudly display on their website so customers shopping know that the price they see is the price they pay.
Determining whether to offer free shipping or require a minimum threshold often comes down to your margins and the niche you operate in.
If you offer luxury or handmade, one-of-a-kind items, rolling in an extra percentage for shipping and handling into the cost of your products probably isn't too much of an issue. However, if you're in a highly competitive market where both free shipping and the lowest prices are the norm, like refurbished cell phones for example, marking up your products to cover shipping costs may not the best idea. This is where you have to consider either a different option entirely, or absorbing the cost for shipping on most of your items.
There are, of course, exceptions.
Large or particularly heavy items like full tower PC cases or furniture can cause some problems for your 'Free Shipping' promotion. Doing your research and knowing your numbers about things like how much each of your products actually costs to ship, how your competitors handle shipping, and your allowable profit margin can help you make the right decision.
Option 2: Charge What You Get Charged
In some shopping carts (like Shopify) it's possible to setup real-time shipping quotes - in other words, your customers more or less pay exactly what you would pay to ship your products.
There are always small discrepancies that can happen, of course, but in many cases you can end up breaking even between the shipping charges you collect and what you ultimately have to pay to ship the package.
Simple Sugars, a store that was recently on Shark Tank, employs this tactic, offering real-time shipping quotes to their customers at checkout. Once a customer gets to the checkout, they select where they want their order shipped to, and the calculator does the rest.
Using a real-time calculator like this can win you a lot of trust with your customers. It shows that you aren't inflating your quoted shipping fees or raising your item prices to cover the charges.
This strategy doesn't have the same persuasion power free shipping does but it's an easy way to make sure that you're not draining shipping costs out your ears, and that your customers are getting the best deal possible.
This is also a good option to use for heavy or oversized shipments that you simply cannot or do not want to allow to ship out under a free shipping promotion.
Option 3: Offer Flat Rates
Your third option is to offer a flat rate for every package, or flat rates for weight ranges and order totals.
This particular method of charging for shipping requires a bit of preparation as you need to figure out your average cost of shipping a package. This is a best practice you should be doing anyway to make sure that you don't drastically undercharge or overcharge your customers.
When you hit the right cost, you'll probably be over - or under - the actual shipping cost by a little, but it should even out in the end.
Truly’s Natural Deodorant takes the flat rate approach, and has a simple $2.99 charge for a single product order.
Angela Collison, the founder of Truly’s says her “main focus in setting up my shipping prices was to make it as inexpensive as possible while still delivering the product in a reasonable amount of time. My products are relatively inexpensive and I don't think anyone wants to pay as much for shipping as they do for the item ordered. USPS was a good fit for us as they are very affordable for single items and their flat rate priority options allow me to ship out multiple items for one flat rate regardless of the weight. I was able to set up price-based shipping as I have only a few different products, but I am not sure how that would work out for someone who has a large number of products.”
The above quote highlights an important point about the nature of flat rate shipping: figuring out what flat rate works for you, and if you need to do it by order totals or weight ranges will require some testing.
Learn More: How to Conduct a SWOT Analysis for Your Business
Luckily, USPS does offer a few different sizes of flat rates boxes, and if you have particularly small, but heavy objects, taking advantage of the cost savings from cubic shipping prices can help to bring your flat rates into a comfortable range.
Of course, every business is different and only through testing will you find out what works best for you.
You'll need to find out the statistics on your products and the best ways to ship them to be able to make the most strategic decision possible. This is where additional apps like SumAll and ShipStation, and others can help you find information and alternatives (both with shipping carriers and methods) that you may not have had access to previously.
Option 4: Outsource shipping to a third-party logistics provider (3PL)
Outsource part or all of your distribution and fulfillment services to a 3PL. They deliver your products with an out-of-box experience—some 3PLs can even handle returns and provide ePacket tracking.
About the Author: Erika Jarvi is the Social Media and Content Manager at ShipStation - a web-based shipping solution that streamlines the order fulfillment process for online retailers.