Shipping is one of the most integral aspects of e-commerce, almost as important as setting up the store itself. With shipping, one size does not fit all. Here’s what you should keep in mind while deciding which shipping methods to offer to your customers.
Your Shipping options
Free shipping eats in your profits, yes. But when used properly, it can very easily turn into a win-win situation for you and your customer.
FREE SHIPPING WITH MINIMUM SPENT
Maintaining a minimum order value, for example, $50, to provide free shipping can be used to influence customer behaviour and drive up sales.
FLAT RATE SHIPPING
Offering a flat shipping rate helps you to smooth unexpected shipping costs that might occur. It also allows you to be more competitive with the price of your items.
Table rates allow you to create simple rules for scenarios. You can group prices by destination, product weight, number of items etc.
It’s a great way to mitigate your shipping costs but might confuse the customers.
REAL TIME SHIPPING RATES
Real-time shipping allows you to be perfectly accurate on shipping costs. However, it might lead to sticker shock for your customer and cause them to abandon the cart.
Our Partner Flagship provides our Canadian customers with the best and most reliable rates from UPS, FedEx, Purolator, Canpar and Dicom to limit the sticker shock factor.
While Free Shipping might seem like cutting your profits, you can actually turn it into a win-win situation for both parties. Offering a free service leaves a psychologically positive impact on your customers. Blinklist Magazine’s article on the psychology of free states that people tend to buy a pair of jeans that they don’t need to get a second pair for free.
Furthermore according to the research done by Walker Sands,
What are consumers still looking for when it comes to the online shopping experience? Free shipping reigns as the most important option for the sixth year in a row (77%), followed by fast shipping. Free return or exchanges accounts for 48%.
The big question here is how to integrate free shipping in your store to make the most of it. It needs to be kept in mind that while most customers are inclined towards free shipping as the best option, some will drop out because the package won’t reach them fast enough.
35% of consumers say next-day shipping is a key in getting them to purchase more online. But fast shipping preferences don’t stop there — 39% of consumers say same-day shipping would make them more likely to shop online
You need to find the right price for your product so that shipping it for free won’t dig a hole in your pocket.
Free Shipping Pros and Cons
- Goes above and beyond customer expectations
- Dramatically lowers cart abandonment
- Easiest to explain to the customer…it’s free!
- Can be hard to keep track if making sense financially
- You might lose all profits on a sale because of shipping.
How to e-commerces should calculate free shipping?
Suppose you’re selling custom hats. Your cost on the hat is $5 + time and material, and it’s $10. You’d likely sell it online at 13$ + shipping. Based on historical data (or projections), you notice that the average cost to ship it all around the country (or the world even!) will be 15$.
To avoid the price shock at checkout, you could price your hats at $29 (instead of $30 for the price charm effect). It’s expensive, but the gain is two-fold:
1) It allows you to do free shipping.
2) It increases the perceived value of your brand
This is more complicated to pull off in an ultra-competitive market, and your goods are extremely elastic. But if you have a cost advantage or a quality advantage, do capitalize on anyway to elevate your brand to the next level. In the next section, we’ll see how Free Shipping For Minimum Threshold is used a lot, including Amazon.
Free Shipping For Minimum Threshold
This is one of (if not the most) important e-commerce shipping methods. Say you have set free shipping for orders over $25. If a customer already has products worth $15 in his cart and shipping costs will be at least $15. They would not mind spending another $10 to avoid paying a shipping fee.
Canada Post’s research says “86% of online shoppers said they will shop more often with retailers offering free shipping.”
This obviously encourages more spending and helps you recover shipping costs. This is a double win for you, the store owner! Indeed, not only your dollar profit per order is higher, but your shipping cost doesn’t scale linearly. Shipping two hats is likely the same cost as shipping one hat. So now, to continue our previous example. Instead of pricing your hat $29 with free shipping, you can price it at $20. Seeing that free shipping is for orders at $25 and more, customers are likely to order a second hat to avoid the shipping fee. Now suddenly, you made a sale of $40, from which $15 will go towards shipping. You’re left with a gross profit margin of $25 for two hats, which is almost as good as the expected 30% profit margin, except you made a sale that you statistically wouldn’t have gotten with making the customer pay for shipping.
Minimum Threshold Pros and Cons
- Meets most customers expectations
- Can lead to upsells and cross-sells
- Bigger buffer for variable shipping costs
- Not as amazing feeling for the customer
- Might be hard to find the right threshold to entice a cross-sell without discouraging the customer
- Can still lose out some profits on a sale.
You can calculate the break-even point the same way we did above, by analyzing how much your average shipping cost is vs your gross profit margin.
Flat rate shipping
If you feel that you can’t offer free shipping because you’re in an extremely competitive space, maybe you can try a flat shipping rate. Flat shipping rates help you cover most of your shipping costs. Indeed, shipping throughout the country boxes of different sizes and weights will cost you differently. Setting a value for flat rate shipping should initially be an average of shipping costs incurred. In due course, you should summarize customers by location and set a flat rate shipping cost accordingly. This way of proceeding will curtail a lot of your losses on shipping. Every coin has two sides, and so does e-commerce shipping. Customers expecting free shipping might abandon their carts.
67% customers in a survey said they’ll abandon their cart when there’s no free shipping.
If you opt for flat rate shipping, we strongly encourage you to be very upfront about it. Make it clear right away, as soon as people land on your site, how much shipping will cost them. This will help retain engaged customers throughout the checkout process. One way to do it, for example, is to add a banner at the top of your site:
Flat Rate Shipping Pros and Cons
- Easy to keep track
- Ensures most shipping costs are covered
- Lesser sticker shock at checkout if disclosed properly
- Might discourage potential customers right away when they realize it’s not free shipping
- Might still lose out some customers at checkout despite being upfront about it
Table Rate Shipping
Table rates allow you to set different flat rates for different categories. This can make sense if you’re shipping widely different items that can double or triple shipping costs. For instance, you could be deciding on shipping rates based on weight. For packages up to 15lbs, you could charge $15, and for packages weighing more than 15lbs, a shipping rate of $25 could be set.
Table Rate Shipping Pros and Cons
While this option allows you to match your shipping costs better, it is worse than flat-rate shipping in the sense that you can’t really communicate clearly in advance what it’s going to cost, so sticker shock at checkout will likely happen, leading to cart abandonment.
Real-Time Shipping Rates
Woogo Stores has the option for real-time rates on all its plans. It gives accurate shipping rates from major courier providers for the data provided. Needless to say, the courier rates would be as correct as the data given. Product dimensions, packing boxes used, shipping destinations, etc. need to be well defined to get a correct quote.
The biggest issue with e-commerce real-time shipping rates is the sticker shock during checkout. There are no warnings beforehand of how much it’s going to cost, and in some situations, the shipping can be as expensive as the item, if not more! This a major deterrent for a customer that will surely cost you the sale.
Real-time shipping rates pros and cons
- The most accurate way to cover shipping costs
- No guesswork necessary
- Might be the only option for huge variation in items shipped
- Will most certainly lead to sticker shock
- Will drive your cart abandonment up
Irrespective of the shipping method, shipping costs need to be monitored carefully. Updating shipping prices regularly will help you avoid any surprises. The major goals here should be to avoid cart abandonment and possible surprise shocks in shipping prices for customers. An average customer always welcomes free shipping. In the absence of free shipping, they tend to shop more to reach the minimum free shipping threshold. A flat rate shipping might be acceptable to some customers but be prepared to lose out on a few. Real-time shipping rates and delivery estimates affect customer spending patterns.
Research says that 52% of shoppers cite upfront delivery expectations as a key influence.
If you are still unsure about which e-commerce shipping method to use, please do not hesitate to drop us a line at firstname.lastname@example.org, we’ll be happy to guide you!