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Shipping Charge Strategies

I'd like to be able to offer Free Shipping

11:33 am on Sep 30, 2003 (gmt 0)

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I've been running an ecommerce website for the past couple months, and one of the biggest dilemmas that I have had is how to handle the shipping charges of orders.

I sell I wide range of products ranging from very small and cheap items from 50 pence (I'm in the UK), up to larger items over 100. Approximately my profit is about 40% on each order.

My courier charges 3.69 +VAT for sending the smaller items, with the postage on larger items being around 5 to 6 +VAT.

At present, I offer free shipping on orders over 39. Orders under this value, I charge for the customer shipping based on an estimtimated weight and size that I have specified for each product.

I'd really like to be able to offer free shipping all together, however I think this would be impractical on the small items. Another solution would be to raise my prices and drop the free shippihg thresh-hold level down, maybe to the 19 mark.

Just really interested how other people handle shipping charges and what they find works best. Any comments or suggestions would be gratefully received.

8:58 pm on Sept 30, 2003 (gmt 0)

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We offer free shipping on all orders within the US. We sell a niche craft product that comes in nearly 1000 colors (hope that's generic enough to avoid the mod's wrath... ;-)

Fortunately, our product is physically small enough that we can ship many orders by first-class mail. Larger orders go either by Priority Mail or UPS Ground service, whichever is cheaper. While I still don't understand how they can do it, the US Postal Service provides free Priority Mail packaging in a bunch of different sizes - so our packaging costs are almost non-existant when we use Priority Mail. And it's generally cheaper and faster to send 2lb and smaller packages by Priority Mail than by UPS.

For a very small order (one item), we end up with very little profit left after the cost of shipping and packaging. For the larger orders, the UPS Ground charges cut into profits but not enough to really cause a problem.

Our products sell at the MSRP or slightly below (approximately 100% markup), and we have a sale every month that makes the customer feel like they're saving some money - sometimes it's a percent-off sale, sometimes a flat dollar-off sale, with purchase minimums of course.

This last month, however, we simply offered $5 off a $50 or more order and ran a special on an accessory product that doesn't sell that much anyway. We had near record gross sales this month with the average order around $75.

These results indicate that customers are willing to pay MSRP for our products since we offer a complete selection of colors they can't get at any retail store. The free shipping is an obvious selling point when compared to our internet competitors.

The other side of the equation, however, restricts the kinds of products we can offer for sale -- they necessarily have to be inexpensive to ship relative to their selling price, and the markup has to allow us to make up for the shipping cost. If we decided to discontinue free shipping, we could expand our product line quite considerably. But then we'd just be another run-of-the-mill internet retailer.

So maybe if you can increase your markup, you can offer free shipping without losing too many sales? Or maybe you can offer subsidized shipping - rates that are obviously below the actual cost of shipping, but not quite free? And you might consider getting rid of those items that don't have enough margin built in to absorb shipping costs.

But the real question is, do you think you're missing out on sales now because of the shipping charge? Or can you increaes sales more by dropping your selling price a bit while retaining shipping charges that keep the shipping from becoming a cost center?

9:09 pm on Sept 30, 2003 (gmt 0)

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Here is something you could try:
- Leave pricing and free shipping level as is.
- Add some sort of functionality to your shopping cart that figures out how much more the customer would need to spend in order to qualify for free shipping. Display this message on the cart overview page or prior to checking out.
- Now below this "message" you could display related products to what they have in their cart that would get them to the free shipping level. (Kind of like selling a few more items to qualify for free shipping.)

For example:(Free Shipping on orders $100 or more)
-
Golf Club $75
Golf Balls $10

Cart Total: $85

ATTENTION: Spend an additional $15 and you qualify for free shipping on this order.

Suggested Products: (or something similar)
-Golf Club Head Cover $19
-Golf Shoe Cleaner Kit $17

This is a tactic I have used on other sites and it works pretty well. People like to have "free" shipping but you need to make sure that the Suggested Products are something of value. If they do not relate or are not of interest the customer could be turned off by them.

This strategy may not work for all sites. It certainly depends on what products you sell and if someone spends an additional X dollars do you make enough profit to give them free shipping. Sometimes it is not the case to recommend spending $5 more dollars and then you have to give them $10 worth of shipping free.


1:21 am on Oct 1, 2003 (gmt 0)

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Back in the beginning of 2002 I was briefly associated with the company I now work exclusively for. At that time we offered free shipping on all retail orders over $25 No free shipping for wholesale, period. But we were taking a beating on shipping, so we raised the free limit to $35.

The owner was concerned that he would lose sales, and in my best imitation of knowing what I was doing I tried to convice him that sales that were $25 would now jump to $35, my rationale was that people like free, no matter how much it costs - to a limit anyway. I turned out to be right. The number of orders that jumped to the minimum was amazing. Of course, that was 2 years ago, before things like politics and economics got in the way of everyday life.

Last year we spent $3000 more on shipping than we took in. We're now considering dropping the free shipping altogether. Again, in my best imitation of knowing what I'm doing, I convinced the owner to wait until after Christmas. It's my belief that sales will drop once we remove the free shipping. I'd rather move it up another notch, to say, free shipping over $50.

There was another problem with our shipping - which has been corrected. Over 90% of the products on our site had either missing or incorrect (over) weights. These are used by our cart to determine actual ship costs, and we add $3.00 for handling to that. In the first case, the shipping rates were far too low, and we ate those. In the other case, the customer balked and never made the sale because the shipping was too high. I've watched sales increase over the last month, and I'm pretty sure that's due in part to reasonable shipping charges. People are willing to pay for the cost of convenience.

7:42 am on Oct 10, 2003 (gmt 0)

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I completely agree with the power of free shipping.

I remember listening to the NPR in the morning (early August 2003). They stated that Amazon announced that for the summer quarter of 2003 they offered free shipping. Apparently, their revenues jumped 40%. Not sure what their profits were, but it does show the impact of those two words.

We have not added a price break for free shipping yet, but have been chomping at the bit to do this. The shopping cart that we currently use is pretty lame.

Any advice on a good Active Server Page dll that can be incorporated into a website without "Taking over" a web site? All these companies want to "do it all" and frankly they are a little lacking in design and functionality.

12:54 am on Oct 11, 2003 (gmt 0)

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I think free shipping works for very large merchants because they have massive promotional budgets but not so much for small and medium sized. I generally advise displaying as low a price as you can and charging fair shipping. Shoppers are looking for low prices and expect to pay shipping at small/medium sized online stores.
5:05 am on Oct 11, 2003 (gmt 0)

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Jupiter Research, June 2003 - 89 percent of respondents said free shipping is the top site-comparison value for them.

I'm a pro-free-shipping person, I see it work in sites I manage, in my own shopping, and in CTR in ads.

In the US at least, I'm certain that people will pay more net in order not to have the concept of tack-on charge in their purchase decision (just take it out of their brains).

So any way I can absorb shipping into the total price I do, and I recommend it to all.

7:41 am on Oct 11, 2003 (gmt 0)

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I agree with rossH. We started updating our prices to compensate for "free shipping" but only if they spent a certain amount (as grandpa suggested).

There are so many variables to shipping, . . . multiple warehouses (if some items are drop shipped) or if you ship out of the east coast and or west coast depending on the order, over size boxes that are reasonably cheap for ground, but triple when shipped second day, etc. The shipping module must be pretty complex to allow for so many different possible configurations.

We started to build a module to handle these variables, but then thought that there must be some company that has already covered this and is selling a DLL or CGI script that can be incorporated into the company site. Why build when you can buy.

Can anyone offer a suggestion or a place to look? Or is that a violation of the message board?

11:17 am on Oct 11, 2003 (gmt 0)

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From own experience, I have a lot of reservations concerning free shipping.

We were doing very well on eBay until our supplier forced us to raise prices, but allowed us to provide free shipping after the prices have been raised. Even the the price paid by the customer was exactly the same or lower than before, our sales completely collapsed and we don't sell on eBay anymore.