While we all know that delivery is part of the services you offer, customers don’t see it that way.
Instead, they see shipping fees as an “unnecessary expense” on their end…
And with global enterprises like Amazon waving it all the time—they now expect those other businesses too, even if you can’t afford to do that. So, what eCommerce shipping solution should you have to keep customers happy while protecting your bottom line?
Let’s discuss eCommerce shipping solutions below, including how to set your shipping fees.
What are the Different Shipping Fee Solutions?
Shipping fee costs differ drastically from one brand to another. To keep things simple, however, we’re defining 3 of the most common shipping solutions to consider. Whichever one you choose, never shock the shopper with an unexpected shipping cost
After all, it’s the primary reason why people abandon their carts.
1. Free Shipping
If you have high-profit margins, you can insert shipping costs into your pricing structure to offer free shipping for all products. After all, 73% of customers are more likely to purchase if the shipping is free.
But if your margins are a bit tight, you can instead opt to offer free shipping when your customer meets a certain threshold. By pricing your threshold slightly above the average order value, you’ll encourage people to spend more and offset your margin loss.
2. Flat Rate Shipping
An alternative option is to offer flat rate shipping, where you charge the same fee for all orders regardless of the total purchase price. You might lose customers that only want to buy a low-priced item. But the silver lining is that you might encourage them to buy more to get the most value out of their purchase.
3. Matrix-Based Shipping
Finally, if you have products that require unique deliveries, you can opt to offer matrix-based shipping. To do that, you can use this calculation:
Shipping Cost x Weight x Cart Value x Destination = Total Shipping Fee
This makes it challenging to communicate the shipping cost with the customer before they add things to their cart. But you can offer a calculator for them to see the estimated shipping fee while browsing, so they don’t feel blindsided when it’s time to pay.
5 Factors to Consider When Calculating Your Shipping Fee
Now that we’ve covered the different types of shipping fees, below are the steps to consider when computing shipping and handling fees.
1. Determine the Price Matrix of Your Couriers
Every courier will have a set pricing scheme, whether it’s per stop, per month, or at a fixed rate. Although, some might also offer custom plans. In any case, find a courier that has the best price matrix for your specific shipping requirements.
The resulting number is your starting point for calculating a financially viable shipping fee.
2. Calculate Your Shipping Costs
After you evaluate these factors, you can calculate your total shipping costs. To estimate your average shipping costs, consider the following factors:
- Package Weight: The heavier the item, the pricier it’ll be to ship.
- Dimensions: The larger or bulkier the item is, the more expensive it’ll be to deliver.
- Shipping Materials: This includes the boxes, tapes, or cushioning for securing the item.
- Taxes & Postage Fees: Every area will have different rates, so check yours.
- Destinations: Finally, check where most of your customers want to have their products delivered.
Pro Tip: You can control some of these things, so save where you can without affecting customer experience.
3. Consider the Cost of Labor
If you’re handling the goods yourself, figure out the average number of minutes it takes for you to prepare an item for shipping. Divide that number by 60 and multiply it by the hourly rate to pay someone to do it—and you’ll get an estimated cost of labor. Alternatively, if you plan to hire workers, simply use the hourly rate you pay them.
4. Set an Allowance For Unexpected Issues & Fees
Unforeseen fees might rise, so always set a contingency amount for each item you ship out. You can review past orders, estimate how much a mistake usually costs you, and build that amount into your structure.
Add all 4 numbers up, and you’ll have your average total shipping expense.
Then, reevaluate the shipping solution you’ve chosen earlier. If the shipping expense isn’t that high, you can fold it into your pricing structure to offer free shipping for everything. But if the shipping expense is quite high, you might have to go with a flat rate or matrix-based pricing for your customers.
5. Know What’s Best For Your Customers
Aside from determining your shipping fee based on your overhead costs, you should also understand your customers. You can do this via market research. Look into their behaviors and preferences. You can also study the competition to see how similar eCommerce stores are charging shipping fees.
But the easiest way is to put yourself in their shoes. How would you want to pay for shipping? You’ll want to make yours more appealing to provide a better customer experience.
Navigating shipping fees can be a balancing act. Ensure that your shipping fees work for your customers as much as they do for your business. Remember, delivery is part of the offer you’re selling. And shoppers will still pay it if you play it right.
Looking for a reliable 3PL company to work with?
At San Legend, we help eCommerce businesses scale their brands and break into new markets by providing customized, agile, and forward-thinking third-party logistics solutions. Reach out today to see how we can help.