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Shipping Strategies Series Part 1: Cost of Shipping vs. Cost of Order?

Nov 17, 2016

Box on conveyor belt in shipping area

When developing a smart shipping strategy, it’s necessary to take into account the right balance of cost of shipping compared to the cost of the order. Walking this fine line can mean the difference between the customer making a purchase from you and going elsewhere. E-commerce shipping and order costs represent a delicate balance that must be well planned out in advance.

Shopping cart abandonment: this phrase strikes fear into the hearts of all online retailers. This is the tipping point when a customer has a product in their shopping cart but gets to the check out page and is shell shocked by the cost of shipping and handling. They do one of two things: buy the product anyway or leave. Studies show typical shopping cart abandonment rates for online retailers is between 60% and 80%. Cam you afford that type of risk?

That’s why you need to strike that fine balance between what is costs you to ship the product vs. the cost of the actual order. No one wants to pay $12 in shipping when the cost of the product is $20. However, if you charge nothing or very little, you end up absorbing that extra cost.

That’s why you need to invest some time in researching your shipping plan before jumping in with both feet. Generally it’s important to understand that the cost of shipping must be proportionate to the cost of the order.  If you have a heavy product that has a low price point to the customer, you may create a situation where shipping costs are high.  As illustrated in the previous paragraph $12 is 60% of $20. That’s too high, but if you raise the cost of the product to $26 and shipping is $6, the shipping cost are only 23%.  It’s a perception game. You’ve subsidized the cost in the price of the product. You can also charge $32 and offer free shipping.

The ideal scenario with e-commerce always is to have a higher retail order value compared to the cost of the shipping.  If you had a $40 product that weighed 1 pound or less, that might cost you $2.50 to $7.00 to ship.  Some specific examples:

  • Bottle of health supplements: weight 12 ounces, selling for $25
  • T-shirt or apparel: weight 4 to 12 ounces, selling for $20 to $30

Set up appointments with shipping vendor reps, who are happy to sit down with business owners to review their shipping needs and explain options, says Entrepreneur. Small businesses in particular assume they don’t have the clout to negotiate shipping service rates, but they do.

At the end of the day, you have to have margin in the product.

Charge too much money for shipping and your customers will think you’re running a profit game here. Too little and you’ll take a hit to your bottom line. Studies show that 45% of companies make money on shipping, 45% lose money and 10% break even. While it may sound appealing to your bottom line to pad your shipping rates, your customers may resent you for this. In a world where customer loyalty is something many companies scramble over them to attain, you can’t risk turning them off when it comes to e-commerce shipping. Contact us today to get a free quote on e-commerce fulfillment

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“Prompt, courteous service. Warehouse staff is attentive, orders are shipped in a timely manner. Issues are immediately addressed”

“Good service, reliable and flexible. Good communication and systems know how”

“We’ve had a great experience with Fulfilltopia. They’ve been flexible to fit our needs and hhelped us establish a previously non-existent supply chain for our business”