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5 Strategies for Setting Shipping Costs

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Shipping costsShipping is one of the biggest hurdles for online shopping. In fact, a recent study performed by European retailers indicated that the biggest single cause of shopping cart abandonment was shipping issues such as cost and speed. However, with a bit of careful planning, your shipping strategy can become a beneficial sales driver instead of a hindrance. We’ve put together a quick guide for you that covers the options and some of the pros and cons of each. Take some time to gather the relevant data, such as average orders, current shipping costs, and shopping cart abandonment rates, and dive right in!

Free shipping, obviously, offers the biggest enticement to customers. It’s a big draw, one worthy of some front page attention, but depending on your product it can be a serious money-sink. For large and bulky items, it’s generally not worth it, unless you already have very low shipping costs. For smaller and lighter items with high margins, such as clothes and electronics, it can be a major boost to sales completions. Additionally, some retailers offer free shipping specifically for regular customers who ‘earn’ the benefit of free shipping by making a certain number of purchases or spending over a certain amount. This also boosts customer loyalty rates through the roof, as it gives them a concrete reason to keep shopping with you.

Flat rate shipping is also a big draw for customers, as they know for a fact they won’t be surprised when it comes time for checkout. Again, this is best for businesses shipping small or consistently shaped items that share a shipping cost. Set the flat rate high enough to cover your costs without driving customers away, but be sure to test various price points to see what rate appeals most to customers. You might want to consider it a loss-leader by setting the flat rate a bit below what your actual cost is – just think about it like a discount.

Variable rate shipping is arguably the most popular method among retailers, as it offers the flexibility to recoup shipping costs, while dangling enticements and deals on shipping for purchasing just a little more. Offering free shipping on orders over a certain price can increase average order size, so consider setting the trigger price to be 10-15% higher than your current average order. Through carefully cost-sourcing your shipping materials and methods, it may be possible to boost average order sizes without increasing your actual shipping costs, as some items may not completely fill the volume of your shipping containers. Be wary of setting too many different shipping cost tiers, however, as customer confusion can drastically increase shopping cart abandonment.

Percentage shipping is not always a popular method, as it can also lead to some inconsistencies that confuse customers, but for items which are extremely large, bulky, delicate, or high value such as furniture, custom jewellery and antiques, this can cover the cost of properly insuring the item throughout transit.

Finally, perhaps the best strategy overall is a combination of the above options that is tailored to your exact requirements. Every business is unique, and presents unique shipping challenges, so it should have a shipping solution that uniquely benefits it. Always remember that shipping processes can have a major impact on your sales numbers and conversion rates, and so should be continually tested for possible improvements. Good luck and happy testing!
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