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Ecommerce Forum

Actual cost shipping as key selling point.
Minimum order requirement.

 1:13 am on Jun 2, 2008 (gmt 0)

We are getting close to launching a new site and a big focus is 'guaranteed actual cost Priority Mail shipping'. This niche is rife with competitors making out like bandits on the 'handling', so we see this as wedge that can be driven pretty deeply and hope to draw a lot of blood.

However, to protect markups and unjustifiable labor for small dollar orders, we are using this wedge as a 'very understandable' rationale for explaining the need to adhere to a minimum order policy.

There is considerable internal discussion about a high enough minimum ($20.00) to ensure profit on every order, versus a lower minimum ($10.00) where we will take more 'marginal' orders to get the business, and then keep the new customer forever.

We will be the best deal overall; it's a question of how to present that. If they buy $10.00 in product from any of our competitors they will pay dearly for the privilege. We are doing the customer a favor, in which we both come out ahead with a higher minimum order.

Minimum order thoughts? Tolerable amounts in the customer's perception?



 1:52 am on Jun 2, 2008 (gmt 0)

It's easier to start high and come down, so the marketeers say, so you might start with $20 and work your way down fairly quickly for select customers or for all...




 3:06 am on Jun 2, 2008 (gmt 0)

99 out of 100 customers probably don't know how much "actual cost" shipping is. They don't run ecommerce websites or mail packages on a regular basis. It's better to come up with an amount that will entice the customer to buy.


 4:23 am on Jun 2, 2008 (gmt 0)

and then keep the new customer forever.

Heard that thinking a lot before the 90's Dot Com collapse :) No matter what you do, most customers will probably never buy from you again.

And unless you are experienced in this new field, you don't know whether shippers are "making out like bandits." Shipping is the hard part of many ecommerce operations and needs to be amply compensated for.

My experience is that newbie web sellers are quick to give away shipping, while old line retailers charge a lot for it.


 12:37 pm on Jun 2, 2008 (gmt 0)

I agree with BananaFish, most people don't know or care about "actual costs". What people really want is something that is easy to understand. You might be better off going with some type of flat rate shipping, like:

$9.95 shipping on all orders

$19.95 shipping on all orders



 1:54 pm on Jun 2, 2008 (gmt 0)

you don't know whether shippers are "making out like bandits." Shipping is the hard part of many ecommerce operations and needs to be amply compensated for.

Been doing this, for myself or for clients, for a long time. For many shipping is a key part of the business model and/or a deep look into their ethical soul.

Some target shipping formulas to be pretty darn close to actual cost, others 'pad' it bit, and 'bandits' is a kind description for a great many.

Yes, shipping can be a PITA, primarily managing labor. And yes, most customers are blissfully unaware, don't know to ask, and then get whacked with whatever the merchant feels like charging. As a customer my first interest is the shipping/handling policy. The answer to that one question tells me most of what I need to know about deciding whether to do business with a company. Why is it, beyond lowball pricing, that internet retailers feel the need to pad every cost into 'shipping'? And there are reasons that stealth shipping is so popular with merchants. They know that the merchandise is underpriced and would be embarrassed to get caught out in the difference between actual cost and charged amount.

Tiered flat rate shipping is still on the table for us, but we feel that shining a light in the dark corner of shipping/handling practices will help to differentiate the company from the competition. The product will cost more from us; the 'bottom line charge' will be less than most, but not significantly so; but we think that it is a smarter longterm play to charge an honest price for what the product needs to sell for and play the shipping straight.

And yes, my databases have a goodly percentage of dead customers also, and lots of people will dump you for a dime difference on product cost, but also think that I do a fair bit better than most at retention and that business model integrity is the key reason.


 11:55 pm on Jun 2, 2008 (gmt 0)

Why does shipping / handling have to break eaven? Why can it not make money? I don't understand your position.

If someone charges for packaging material and handling (putting into box) heat in the wearhouse, lables and actually makes money, resending a package when the customer "forgot he moved" need not to become a loosing proposition... what about the free samples people asks... why couldn't surplus shipping / handling cover this.

What about the miscalculated shipping / handling charges in the client's favor, who pays for that if you are too close.

Bottom line
Show me the MONEY!

If I was an unethical bandit, why did my sales drop not become affected when I gradually increased my base S/H.

Why did my small orders become bigger?

In some twisted manner, a higher shipping / handling seems to inspire confidence. It actually makes the exact same goal you want to acheive and all of that WHILE making MONEY!

For me in May, Shipping / handling revenues were close to 13% of my sales and so far twice the actual postage costs including incomming shipping - yes you have to pay for shipping when items are delivered to you right? Last year in May, 9.8 % of revenues were in S/H and only 11% higher then actual shipping cost.


 12:30 pm on Jun 3, 2008 (gmt 0)

"Why does shipping / handling have to break eaven? Why can it not make money?"

Because you are not selling shipping, that's why. If you have to make money off your shipping, there is something wrong with either your business model or your ethics. Look at it this way--would you feel comfortable explaining to your customers why you think they should pay you a profit on your shipping?

As for recovering the cost of reshipping when someone moves, exactly what percent of your shipped orders are of this nature? 1%? That's part of the cost of doing business.

I think retailers fall into the ethical bog of making a profit off shipping because they have caved to the race to the bottom in their pricing. That is your error.


 7:05 pm on Jun 3, 2008 (gmt 0)

I disagree. I am not selling shipping but a service which includes shipping and packing and driving and customs papers preparation and preparing shipping lables and packing lists and etc. If I was a USPS reseller I would be selling shipping and making money on it (mailboxes, Paypal) Do you think Paypal sleep bad at night because they don't charge actual shipping costs?

I know there is nothing wrong with my business model but this is quite objective. There is also nothing with my ethics because I do care about my customers and products as much as you. Indeed I am not trying to screw anyone with undisclosed charges.

All I'm saying is why does a valuable service like shipping / handling not be allowed to be profitable? Who says it is unethical, who can tell me it is unethical to charge money for a real service?

If it was not a real service - tangeable service I would agree. This is indeed a real service and an essential one at that.

I will even consider increasing my s/h without loosing sleep over it because this is indeed a business issue which has nothing to do with ethics but a simple supply / demand issue.

Also since shipping is a product which USPS charges what's wrong with marking it up like another product (I buy a widget and sell it for 1.5 the cost of the widget) Why do I not have ethical issues with that? Should I then just give my widget away without profit? What's the point? Let's not loose track of a for profit organisation and the point of this exercise is to make MONEY!


 7:58 pm on Jun 3, 2008 (gmt 0)

Ive found that by stating that you make a one off packing charge regardless of order size works well, I then charge shipping at around a thid of true cost, the rest is in the price.

So basically I swallow the shipping charge.

If you offer free shipping customer know they are paying for it somewhere, so a reduced shipping makes them think youve a good deal with ashipper.


 9:27 pm on Jun 3, 2008 (gmt 0)

"Why do I not have ethical issues with that? Should I then just give my widget away without profit? What's the point? Let's not loose track of a for profit organisation and the point of this exercise is to make MONEY!"

Let's not lose track of the idea that making money should not come at the cost of being able to look the customer in the eye. Would you be able to look a customer in the eye while you explain why you require they pay extra for shipping so you can make a profit off it in addition to the profit you make off the widget? Would you like your friends and your family to be treated this way by other merchants? Do you like it when this happens to you as a customer? Would you have any problem with explaining on your website how you have to make a profit on shipping too?


 10:48 pm on Jun 3, 2008 (gmt 0)

Let's not lose track of the idea that making money should not come at the cost of being able to look the customer in the eye......Would you have any problem with explaining on your website how you have to make a profit on shipping too?

We see real opportunity here, which is what prompted my original 'minimum order' inquiry, and the best way to make sure that we do make money on the small orders, or just pass on them.

When an airline starts charging $25.00 for the first checked bag - I am not happy. Be honest and raise the ticket price.

Today's USA Today Money section has an article about how hotels are getting out of control on their fees and people are starting to get sick of it.

At a real store I pay the real price. They don't charge extra yet to put my purchase in a bag. Costs are in the product price, which is where they belong IMO. In this forum (Ha. Ha.) I didn't have particularly high expectations of finding people who share this view. Shipping is a profit center for a lot of people here. It is for the niche we are about to hit, and we plan to sell our approach hard. Front and center.

I'm not looking for a fight on the ethical question though - our customers will decide that. I am still looking for minimum order experiences and lessons learned.


 11:01 pm on Jun 3, 2008 (gmt 0)

Do you question the "ethics" of professional sports teams that also charge a fortune for food and event parking? (YOU BET SPORTS TEAMS ARE IN THE PARKING BUSINESS!)

When you buy a toy, do you expect the store to sell batteries at cost?

When you get a Gillette razor do you expect a lifetime of at-cost blades? (see below)

Have you priced alteration charges for a $!,000 suit of clothes?

Ethics? Go to the hospital, even a non-profit one. You'll get huge bills for the 1) doctor; 2) hospital room; 3) Every pill you take 4) And even for parking. All far above cost. As for transportation charges, sit down when you open the ambulance bill!

May explain why few hospitals or pro sports teams fail but many small dot coms do!

What I consider to be unethical (and simply stupid) are the many small web businesses that fail because their prices are too low. There's the owner, his/her spouse and their kids to think of.

On a larger scale, Warren Buffett has made billions finding rare businesses that have the ability to make "out like bandits" for decades... Gillette, American Express, GEICO, Coke.

Businesses like those don't survive for decades by giving things away.


 11:30 am on Jun 4, 2008 (gmt 0)

Gillette, American Express, GEICO, Coke - Thats true, but what have these firms all got in common ?

High cost of entry into their markets, anyone and I mean anyone can start an ecom site hence the need to keep shipping costs down


 11:41 am on Jun 4, 2008 (gmt 0)

Minimum order thoughts? Tolerable amounts in the customer's perception?

I've found that for the most part, people are ordering over the minimum order value in many instances so the "forcing" of the minimum may not even be an issue. If it is, maybe offer different shipping rates for those orders over minimum? This whole shipping business is really challenging. For one particular client, he cannot lower his online prices beyond a certain point due to manufacturer guidelines. So, we all end up at the same low price point and now need to figure out other ways to entice the consumer. One way is with Free Regular Ground Shipping within a particular region, country, etc.

I've come to the staunch realization that online profit levels are going to be a bit lower than you want them to be if you "really" want to compete and entice today's price comparison shopper.

Price and Shipping

Those are the first two things the consumer looks at.

Minimum Order Values?

Unless you have a notoriously low average order value, I'd avoid the minimum. You may be able to insert something into your Shipping and Handling policy that explains the minimum order value if it is absolutely necessary.

Actual Cost Shipping?

What is that? I'll bet that my researched rates are lower than your Actual Cost Shipping. ;)


 11:49 am on Jun 4, 2008 (gmt 0)

Please keep the thread on topic! The OP has asked about

"minimum order experiences and lessons learned"

Further discussions about ethics will be removed. Thanks.


 2:09 pm on Jun 4, 2008 (gmt 0)

I would avoid minimum order values. We found our customers "stuffing" with items which often meant shipping from multiple warehouses and actually increasing our costs of business.

Just pad your shipping on below x.xx value orders and offer incentives for people to buy more and you will be better off.


 3:08 pm on Jun 4, 2008 (gmt 0)

we charge a flat fee, i pondered over the minimum order thing for a while and decided to not have one at all, consiquently you could say that on our very cheapest items, if they are bought alone - we lose money due to the shipping.

but VERY few people purchase only one single very cheap item, so for us, the occasional loss is swallowed by the benefits of having a straightforward system.
(this may not be the case in other sectors of course)

also, i thought about it another way - which is that, being set up to process shipments costs money, eg. stocking packaging material, arranging deleiveries/collections or going to the post office. also having someone spend time doing the packaging costs money, but in my way of thinking the more packages then the cheaper these costs come to per package.


 3:23 pm on Jun 4, 2008 (gmt 0)

I tried using a minimum and found I had to waste time explaining to people who are not very web savvy why "the cart won't work," even though it described the minimum thing in large letters right on the cart.

I charge a flat fee for shipping a class of small widgets I sell. Shipping for 1 or 100 is $3.50, which I can offer because they go USPS. People seem to buy more on account of this.

I have found that some people do test the waters by placing a small order, but generally the small orders tend to be for one widget and the person is not interested in buying anything else I sell. I do go over which sales are along these lines and actually discontinue items that seem to attract people who want to buy only that.

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