How to Choose a Shipping Strategy for Your Ecommerce Business
Last Updated Aug 2, 2023
In the e-commerce world competition is fierce. Consumers are getting more selective about purchases as the number of available sources to purchase items increases. They can easily compare prices, quality, and more to narrow in on the specific place they’ll make a purchase. And if your business has done its job and won the customer’s business the last thing you want to have happen is to have that customer get to the checkout only to abandon their cart once they see the shipping charges.
But at the same time, you also need to ensure that you’re making enough profit to make your business viable. It is a business after all and that’s the goal of a business.
So what should you do?
Make selecting an appropriate shipping strategy a top priority for your company so that you’re able to achieve a proper balance between keeping customers happy (and minimizing shipping charge related cart abandonment) and protecting your profit margins. To help you choose a shipping strategy we’ll provide an overview of the three most common strategies used by e-commerce businesses and the pros and cons of each.
Variable Rate Shipping
This shipping strategy works exactly as it sounds—shipping prices vary by order depending on what customers purchase, how far away they are and how quickly they need the item. Typically this shipping strategy relies on an in-checkout shipping calculator that provides fields for customers to fill in. They are then given the shipping cost based on the data they entered.
Why this strategy works is two-fold. First, because customers can see that what they’re paying for shipping is based on actual, tangible information (like they’re location, item weight, etc.) they’ll see you’re not inflating shipping charges for extra profit. Instead, you’re simply charging the going rate for shipping that item. And, second, it’ll ensure that you don’t end up taking a financial hit for large, heavy or bulky items that have higher shipping costs as the customer will pay what you’ll pay.
Nothing beats the marketability of free shipping, we all know that. Customers love that they can have the convenience of ordering an item online and still paying what they would pay for it in a store. This is a surefire way to minimize abandoned carts for shipping-fee shy customers. However, depending on the products you sell it can be difficult to cover the costs of free shipping.
Large or heavy items will be more costly to ship and if you offer free shipping you might be limiting the amount of profit you can make. You can get around this in a couple ways. First, you can increase your prices to offset some of the shipping cost (a customer is less likely to notice an item is slightly more expensive than they are a shipping fee) or you can offer free shipping on orders over a certain amount. This way you can better control the balance between profit and shipping costs you cover.
Flat Rate Shipping
This type of shipping strategy can be done in one of two ways. You can either offer one flat rate starting rate for all packages (usually ground shipping with an increase for expedited shipping times) or can offer multiple flat rates for certain ranges like weight or order total.
In order for this strategy to work you need to do some initial legwork to analyze the shipping costs of your average orders to select a price that doesn’t over or undercharge customers. However, once you have the rates in place it makes it easy for both you and customers and leaves no room for confusion or second-guessing on shipping charges.
This strategy works well with customers who don’t need items particularly quickly because they’ll be able to choose the lowest cost shipping for their items, which feels like a win for them. And it works well for a business because they’ve put in the work to know that the shipping charges are high enough to maintain healthy profits.
Once you have a thorough understanding of each of these potential shipping strategies you can take the time to analyze your current product offerings, your customer base’s preferences, and your desired profits to determine which strategy makes the most sense. Each has its benefits but only one will give provide your business with the optimal balance between happy customers and reasonable shipping costs. Here at LTX Solutions, we have worked with all of our e-commerce customers on their shipping strategies and what works best for them and their customers. If you aren't sure which strategy is best for you, or how to implement it, contact us and we're happy to help!