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Shipping is often one of the last things many eCommerce retailers consider when running their business. It’s only when the sales start coming in and piling up that the dilemma arises: how to ship and handle products in the most efficient and cost-effective manner? There has to be a balance between satisfying customers with affordable and fast shipping and keeping costs low to make profits.
Nowadays, customers expect to have free shipping for all orders, or, at least, have a free shipping option. And that’s not all. They also want it fast. Really fast. Amazon’s Prime program has set this fast and free shipping standard or shopping trend for the whole eCommerce industry. A new study from L2 found that a quarter of shoppers would abandon a cart online if same-day shipping wasn’t available. This proves customers have an increasing expectation of short delivery times.
Although you may not be able to compete with Amazon’s huge budget for fulfillment facilities, robots, or personnel, there are still shipping strategies that can keep you competitive in the industry. Use this article as a guide on how to decide on the best shipping strategy for your specific eCommerce business. Let’s get started with important things to consider while deciding on a shipping strategy.
Deciding on a Shipping Strategy
When creating an effective shipping strategy, first you have to consider and factor in all costs involved. What works for your business may not work best for another one. Go over the variables below to create your own tailored strategy.
Do you have a warehouse or enough space to store your merchandise? What about if your business grows? Compare the costs of having a warehouse or hiring a third party to store and fulfill your orders. The latter may work best if you’re just starting out. Either option carries costs that should be factored into the cost of shipping.
Will you need merchandise insurance? If you’re shipping outside the U.S. or if you sell high-end products, you may want to consider purchasing high-coverage shipping insurance. This is another cost that should be factored into the cost of shipping and handling.
Packaging Size and Weight
Are you packing products on your own or will you get help? It’s a question of paying employee fees vs. spending extra time fulfilling orders.
Your Shipping Goal
Your immediate answer to a shipping goal may be to increase eCommerce conversions—but think again. There are other goals besides conversions you can reach with attractive shipping alternatives. For instance, you can set free shipping options according to set order values to increase your average order value. Victoria’s Secret uses this strategy by setting their 2-day free shipping on orders $125. In this way, they push their customers to spend at least $125 or more to get free shipping.
On the other hand, if you’re looking to lower operational costs, you may opt for charging a flat fee or offering real-time pricing according to the number of products purchased.
Finally, if you’re just looking to increase conversions, offering free shipping for all orders may be a good idea if you can still be profitable after accounting for all costs.
As we’ve previously mentioned, free shipping is a must in the eCommerce industry. The question is how to offer it while still being profitable. There are a few different ways to do this:
- Absorb the cost of shipping.
- Increase product pricing.
- Set a minimum order value to get free shipping
The first option, absorbing the cost of shipping, may make sense if your profit margins are high. However, if you’re already working with slim margins, increasing the product price slightly may be your best bet. Otherwise, you’ll end up losing too much money in exchange for free shipping. The last option, setting a minimum order value to get free shipping, can help you get the best of both worlds by offering free shipping while still being able to cover costs.
Offering a flat shipping rate can help your customers shop with confidence, knowing their shipping cost won’t change regardless of their order. Just make sure the flat shipping rate is affordable for your average order value. Otherwise, your customers may feel like they have to make a big order to compensate for the high price, which can deter them from making any purchase.
For example, if your average product costs around $3, having a flat shipping rate of $15 may seem too high. A customer would have to purchase five items to equal the cost of shipping. On the other hand, if your average product costs around $100, and your flat shipping rate is $15, it would make much more sense.
When choosing a flat shipping rate, consider the total cost of shipping. This includes all the variables we discussed previously, such as package size and value. The rate has to be affordable enough to encourage potential customers to make a purchase while keeping profit margins.
Real-time pricing offers benefits and disadvantages for both retailers and customers. Retailers have the benefit of getting a fair shipping price on all orders; however, not knowing the final shipping cost can create purchase doubt and uncertainty for customers. On the other hand, customers can also get a fair price for small orders. Website platforms like Shopify can help you calculate the rates automatically for your store without heavy coding.
Be flexible! Your shipping strategy can—and will—change as your business grows or special occasions come along. Test different strategies to find out which suits your business the best, but always offer some kind of free shipping option. This option should not be hidden. Display it somewhere visible to encourage your customers to make a purchase.
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Best Shipping Strategy for Your eCommerce Business