Last updated - July 11, 2018
Consider this scenario: You land up with a superb idea to sell your products online to prospective customers. You set up an online store, integrate a payment gateway, and start selling through your store. A customer decides to purchase a particular item from your store and navigates to the payment page. Now to the dismay of the customer, there is an added shipping cost stumbling over his/her budget. According to the data of Statistica, this is one of the major reasons for shopping cart abandonment.
Shipping can actually make or break your budding business. It is a huge arena of various stages which involves quite a lot of planning and actions. The key is to have the right option at the right place at the right price. That way you can easily convert an abandoned cart to a successful order.
Most of the online buyers are concerned about shipping charges, delivery speed, product packaging and choice of shipping carriers. As a store owner, you need to take into account all these factors while framing a robust shipping strategy for your online store. Following factors could play the most imperative role in framing your shipping strategy:
Jump right into the concluding remarks or dive into the details of each of these aspects.
Shipping Pricing Strategy
Before deciding on your shipping pricing strategy, you need to first look at your actual cost of shipping.
Shipping cost estimation
Many small e-commerce companies outsource their warehousing, procurement, packaging, and shipping to external companies. If that is the case, the third party vendor will come up with all the shipping cost calculations. However, if you are storing your inventory in a warehouse and from there delivering to the end customers, you will have to estimate your overall shipping cost. The major points to consider while figuring out the shipping cost are as follows:
1. Shipping Carrier
The most important component of your shipping cost is the amount your carrier is going to charge you per shipment. Carriers such as USPS, UPS, FedEx, and DHL have different pricing and service options. You may look at using multiple shipping carriers based on the geographical area that you want to cover and the type of shipping services your business requires. Furthermore, you may want to utilize business accounts and negotiated pricing based on the volume of shipping.
2. Handling Cost
The handling cost is different for every seller and is somewhat governed by the product he/she is trying to sell. You could be selling apparels, a monthly book subscription, seafood, glassware or any other product imaginable. The prerequisites to keep that product in a good condition is what will cost you more. Any cost incurred to handle, package or ship a product need to be added to the handling cost. Shipping requirements like boxes, labels, bubble wraps, side loaders, wood crates, dry ice, etc can add up to the handling cost. Bulky products or hazmat (hazardous materials) can also be a challenge. Storing your inventory in the warehouse, electricity charges, and labor is also some of the components. For start-ups, it is crucial to calculate the handling charges differently from the shipping charges, so as to properly explain the charge distribution to the customers.
3. Delivery Location
With the rapid growth of the online consumer base, online retailers can now connect to a huge customer base across the globe. Delivery within the country or abroad, both will cost a substantial amount of the overall shipping cost. Sending products to a different country will involve multiple currency checkouts, international labels, taxation, customs duty, e-signature, different measuring units, etc.
4. Delivery Time
If somebody’s ordering a pizza, the tolerance time will not be more than half an hour. If it’s imported furniture, the expected delivery time could be a month or so. Similarly, if a customer needs to send a gift for someone’s birthday, the goodies should be delivered at a particular time, on that particular day. As a seller, you need to figure out the minimum time required to deliver the product according to the customer requirement to any domestic or international location. Based on your threshold, decide on the various delivery options (like standard, expedited, overnight, etc). This, in turn, will have an impact on the shipping cost. Also, the shipping carrier (UPS, USPS, FedEx, Stamps, etc.) needs to be decided based on the delivery timing and flexibility.
5. Delivery pricing
Once you have calculated your shipping cost, you need to decide whether this cost should be passed on to the customer as shipping charge or should this be made part of the product price. In some cases, you might want to pass a part of the shipping cost to the customer and the remaining you will absorb as part of the product margin.
Shipping pricing options
You can optimize the best shipping option from different choices. Let’s take a glance at some of these:
1. Free shipping
Free shipping is a great option if your focus is solely on increasing the sales volume. It is a wise decision if you are offering at domestic level, or for a particular price range and for a particular duration. Since free shipping eats into your margin, experts recommend to use it as a short-term strategy. Furthermore, you have to market the free shipping offer in a clear and vibrant fashion to get the customers’ attention. In order to support the free shipping option, a detailed research should be carried out to find the most cost-effective carrier option (UPS, USPS, FedEx, Stamps, etc.) too.
2. Flat rate/No threshold shipping
As the name suggests, a single standard rate is charged for a fixed package transportation. This function can be added to different delivery service levels (standard, expedited, overnight, etc.) to cater to different customer needs. It is easier to pack goods in a single flat rate pack, rather than individually packing every item. This effectively boosts the productivity on the seller side. However, offering flat rate will increase the number of orders and it will demand faster performance. Also, the chance of damage increases while attempting to put goods together in a single package.
3. Shipping with actual rate
This is a very good strategy and has the potential to improve customer satisfaction. Presenting the exact shipping cost to the customer can be done in several different ways.
a) Shipping by weight & zone: If you are selling tangible goods, preparing a rate table based on size and delivery zone (domestic or international) could be cost-effective. You can create a rate table based on the rates that you receive from the shipping company.
b) Real-time shipping: Offering real-time shipping can be a good choice in terms of saving money and time. Being aware of the live rates of delivery offered by various shipping carriers such as UPS, USPS, FedEx, Stamps, etc., can easily help you choose the right option.
c) Combination shipping: In combination shipping, you can offer a discount on shipping rates if your customer is buying more than one item in a single order. For this, you need to classify a group of products available from the nearest vendor and zones. An example would be selling a laptop with all its accessories procured from a single vendor. This will remarkably cut down your logistics cost as well as save time.
d) Bulk shipping: If you are receiving mass orders, you can provide a set number of products at optimum prices excluding or including shipping charges. You can also offer complimentary gifts or vouchers as a goodwill gesture.
In the current competitive scenario of e-retail, customers expect flexible delivery as per their convenience. There can be a case when the product is out for delivery and the customer asks for a sudden change in the delivery address or an exchange. Many such unexpected challenges can arise and trigger panic if not dealt with correctly. Such changes can also affect overall shipping cost calculation, carrier selection, printing new labels, stamps, order notes, etc. Offering flexible delivery means revamping the entire cycle which can be really cumbersome if done manually. You most likely will need a quality extension that can support you with comprehensive automation.
Handling Returns / Return Policy
From customers’ perspective, if they want to return or exchange a product, the procedure is quite simple. However, for the store owner, there are bigger considerations like the ones below:
- How to handle the return shipping?
- Where to store the returned merchandise?
- How to return money to the customer, cashback or direct bank transfer?
- What if the exchange product is not in my inventory?
- How to make the return process short and smooth for the customer?
- How to print labels for returns?
If you have an inbuilt mechanism for handling the above queries, life will be much simpler. Easy and hassle-free returns foster customer trust and invite them back to your store. In addition, there needs to a clear policy to be examined in case of any return request. This would simplify the whole procedure for the customer as well as for the store-owner. The decision of choosing the best shipping service for returns also need to be done well in advance.
Shipping and Fulfillment Automation
Since the speed, flexibility and cost of shipping could play a major role in differentiating your business, you might want to look at how to improve each of these areas. Bringing in as much automation as possible could be the answer to this. Automation could simplify your operations, warehousing, accounts management, packaging, etc., and save yourself from running numerous business errands. In addition, cases of miscommunication, mishandling products, and bad reviews can be avoided.
A comprehensive shipping solution takes care of shipping related queries, data integration, real-time shipping carrier rates (UPS, USPS, FedEx, Stamps, etc.), printing labels, tracking orders, etc. This will simplify and streamline a very important aspect of your online business. It will also help in reducing redundant costs that you incur while manually handling all the shipping related stuff. There are quality plugins available in the WooCommerce marketplace. Take a look here or here.