Shipping in the age of eCommerce is a game of tug-of-war.
On one side are your customers who want fast and free shipping like from Amazon Prime. Holding the other end of the rope is you, who foots the bill for fulfillment (especially for “free shipping”).
Your challenge as a business is to keep the customer satisfied and keep costs low. A shipping strategy helps you find this happy medium, to balance the cost of shipping with your customer experience.
At Easyship, we recommend that you try to keep your shipping costs between 15-20% of total revenue. We also know that shipping can be a competitive advantage if done well – helping your drive conversions, retention and customer loyalty – and is worth investing in.
A shipping strategy helps you to:
- Price your shipping sustainably
- Discover the cheapest shipping rates
- Pick the right shipping services
- Choose the best couriers
Here are the seven steps to creating a shipping strategy that’s both cost-effective and customer-friendly.
1. Consider Your Customers
Your customers – including their location, preferences, and expectations – should be top of mind as you craft a shipping strategy. This is because, in the age of Amazon, online shoppers expect a lot from companies, and favor brands that offer premium shipping experiences like free shipping.
All customers are not the same, however. Research shows that Gen Z shoppers are more likely to expect same-day shipping (54%), while older shoppers are more willing to wait. Similarly, the 66% of shoppers who say they expect free shipping on every order also skews young.
Are you selling iPhone cases? You'll want to consider free shipping. Selling hearing aids? You can probably skate by without. Selling overseas? Your customers are more likely to be patient, but some 70% of buyers would appreciate the chance to add shipping insurance.
Evaluate your audience’s expectations for shipping in terms of cost and delivery speed. Your products are also a factor here, as buyers are often more patient when receiving high-value or bulky items instead of cheaper, smaller items.
Ultimately, it’s important to offer shipping options that appeal to your audience. Remember the customer experience as you look for courier services that are cost-effective for you. Of course, you can always adjust your shipping options later.
2. Weigh and Measure
You’ll need to weigh and measure your products before you can price your shipping.
Courier companies like USPS set their shipping rates based on a handful of factors, including shipment weight and size. The full list of cost factors for shipping rates includes:
- Shipment weight
- Package dimensions
- Delivery lead time (speed)
- Value-added features like shipping insurance, signature confirmation, etc.
Your actual shipping rate is based on all these factors taken together. In other words, you pay more or less for a shipment depending on where it’s going, how much it weighs, and how fast you want it delivered. The faster the delivery and the larger the item, generally, the more you’ll pay for shipping.
The only exception to this rule is flat rate services, which charge a single fee for any package under 50-70 pounds, depending on the courier. Available from all common domestic couriers, flat rate services are a cost-effective way to ship heavier items over great distances.
Weigh and measure all the items in your inventory rounded to the nearest pound and inch. Be sure to account for the box and packaging weight, as rates are assessed by the weight of the package itself, not the item inside.
Record the weight and size of each unique shipment. You’ll use the size and weight of each item to get accurate rate quotes from couriers. This information will enable you to estimate your shipping costs per item, your average cost to ship, and to price your shipping in a way that’s palatable to customers.
3. Compare Courier Rates
At this point, you should have a sense of where your products are headed, their size and weight, and the desired delivery speed. This is all you need to get accurate rate quotes from couriers and estimate your shipping costs.
The goal when comparing rates is to match each item in your inventory to the optimally-priced shipping service. All couriers offer a wide range of shipping services, some tailored to shipping items of specific sizes, weights or those headed to faraway locations. Unfortunately, this plethora of options can make the research process a bit tedious.
To find the right courier services at the best rates, you can take on of two approaches:
- Visit each courier site and get estimates for each service: Couriers require you to create a full shipment to receive a rate quote. These forms are tedious because they ask for a heap of shipment details that are irrelevant if you’re just collecting estimates.
- Use a free shipping rate calculator: These handy tools surface the cheapest rates from all available couriers for any shipment in seconds. You only enter two data points: the shipment weight and delivery destination. The rate calculator sources all rates from all courier websites in real time, giving your accurate rates from all best-priced couriers for easy comparison.
For example, here are the courier rate estimates for a two-pound shipment from New York to London.
Notice the diversity of couriers and services with real-time rates with accurate delivery lead times. Our calculator top-ranks the cheapest, fastest and best-value rates to make rate comparison a painless process. By contrast, comparing all these services on individual courier websites would take hours.
DHL Packet Priority is cheapest at $23.90, but also takes a month to arrive. For double the price, you can use DHL Express Worldwide. For my money, I’d use the ‘best value’ option at the top which arrives in 8-12 business days and costs $27.22.
As you conduct research, match each of your products to its cheapest shipping service. Be mindful of the delivery lead time. Fast delivery is a priority for all shoppers, and critical to some. Sacrificing speed for savings is good for your bottom line, but can lose your hard-won buyers in the long run.
4. Factor in Global Considerations
Only shipping domestically? You can skip this section. But if you plan on selling outside your country, remember that shipping to foreign countries is a tad complex.
Every cross-border shipment is subject to import duty and tax in the receiving country. These fees, if applicable, are levied at customs in the receiving country. Customs agents will review the customs paperwork included in your shipment to determine if any tax or duty is owed. Before your shipment can clear customs, you or the customer will need to pay these fees.
In other words, international shipping only costs more if you incur duty and tax. Your items may also take longer to arrive because customs clearance may take a couple days. Not all shipments incur taxes, but it’s smart to check what items in your inventory will cost more to ship on a per country basis. Knowing where your customers are is helpful here.
Follow these fives steps as you prepare to ship internationally:
- Research the restricted and prohibited items in your target country
- Look up the exact duty and tax for your shipment (assessed by shipment value)
- Determine if you’ll pay duty and tax or ask customers to pay
- If customers are paying, choose when to collect fees (in-cart or upon delivery)
- Learn which customs documents are required to import to each country
International shipping is easier than it looks. This is because the shipping courier handles the customs clearance process for you. The courier will also prompt you to complete all necessary customs paperwork when you purchase the shipping label.
If you use Easyship, our software then generates all customs documents for you automatically based on the shipment data. All told, our all in one shipping platform makes cross-border shipping as easy as it can be.
5. Account for Returns
The flip side of shipping is returns, an increasingly common and costly aspect of eCommerce.
Research shows that profit margins on returned items can be as low as 1% (ouch). Offsetting this, however, is the fact that 3 in 4 first-time eCommerce site visitors say they're more likely to purchase if the company’s returns process is easy. Sixty-seven percent of consumers also say they read a company’s return policy before they decide to purchase.
“Easy” returns are convenient for customers but this may also translate to “free.” Can you afford to offer free returns? Just like shipping, the cost of your return shipping labels will depend on the package weight, dimensions, and distance of return delivery.
If your items are low-weight and cheap to ship, you can likely afford to absorb the cost of free returns. Heavier items or those in faraway regions will cost you more to ship back, though, and may not be worth it. Consider the costs of returns per item in your inventory to create a returns policy that won't break your bank.
Takeaway: a lenient return policy helps you secure sales but incurs the cost of return shipping labels. Research from McKinsey shows that return rates are around 10%, so make sure to account for revenue lost on returns in your final shipping costs.
Learn more: The Secret Process of Handling eCommerce Returns
6. Calculate Your Shipping Costs
Your shipping costs aren’t yours alone – they’re shared with your customers.
Unfortunately, online buyers are sensitive to shipping costs and adjust their purchase behavior accordingly. Nearly half of buyers (43%) say that unexpectedly high shipping costs cause them to abandon their shopping cart. Conversely, free shipping is a major purchase incentive for most eCommerce shoppers.
You can price your shipping in four different ways:
- Exact courier rates: You source real-time rates from couriers and charge customers that amount to the penny in checkout.
- Flat rate shipping: Charge a single flat shipping rate for each order. For example, $10 to anywhere in the US and $20 for worldwide shipping.
- Free shipping: You can offer free shipping on all orders, past a certain cart value threshold, or on special occasions. For example, 64% of merchants offer free shipping on orders above a specific order threshold.
- Discount courier rates: Shipping platforms like Easyship give you instant access to our discounted shipping rates from USPS, UPS and FedEx as well as hundreds of international couriers. You can also set rule-based shipping preferences to use the optimal courier service for each shipment without lifting a finger.
How do you determine which rates are right? Refer to your rate quotes from couriers, then match each item to a cost-effective shipping service. Remember that the delivery speed for each service must be palatable to your audience. Also consider alternatives if your shipment needs to go to other geographies, which can make certain services too expensive. It’s common for businesses to use a handful of shipping services from different couriers to ship their various items to different areas.
For best results, you can offer multiple shipping options in checkout with different delivery speeds to appeal to all shoppers. Sixty-six percent of surveyed shoppers say that the shipping options offered by a merchant influence their purchase decision.
For example, the design studio Craighill uses the Rates at Checkout feature from Easyship to offer three shipping options at different speeds to manage costs and satisfy shoppers.
Craighill uses USPS First Class ($3.35) for its basic shipping option, Priority Mail for faster delivery ($8.52), and FedEx Overnight ($86.77) for expedited delivery.
This way, every buyer can find a rate and delivery speed that suits their needs. These options were chosen because they’re cost-effective for the company but also appealing to shoppers.
How to Set Your Shipping Rates with a Profit Margin
Most merchants price their products to include their total cost to ship, plus their desired profit margin. Other pricing strategies exist, but this is a good place to start. To help you get an accurate tally of costs, here’s a basic ledger that accounts for the typical cost factors in shipping with a 50% profit margin:
This is a basic example calculation, but it shows you how to add all costs together then multiply by the margin amount to get your end-price. If you expect import fees, be sure to add those as well. Do this for each item in your inventory to determine the right price to set for shipping in your cart software.
If you integrate your store with a shipping platform, you can automate which rates are displayed for which item based on rule-based shipping preferences. All label generation will also be automated for you to save time, including any customs paperwork for international orders.
Creating an Effective Shipping Strategy
A shipping strategy helps you be cost-effective and customer-friendly at once. Be thorough as you research shipping rates, and match your products with an optimal shipping service per the item’s weight, size and destination. The more services you use, the more likely you are to save on every shipment – and don’t forget about discounted shipping rates.
Easyship gives you instant access to discounted shipping rates for USPS, UPS, FedEx and 250+ global shipping couriers – all up to 70% off retail. Easyship is free to use for your first 50 monthly shipments without any hidden fees, volume limits, or other nonsense like that.
Just create your free Easyship account and see for yourself why 100,000+ global merchants use Easyship every day.