Online Retailers: 3 Steps to Know What to Charge for Shipping

 In Industry News

Online retailers realize that to grow market share these days, they need to be able to meet customer demands for free or low-cost shipping that’s also fast. Those that don’t are seeing climbing rates of cart abandonment and lost sales.

So how do you figure out the right balance of cost and service — one that satisfies customers while still keeping costs within acceptable margins?

Do online retailers have to eat the shipping costs?

In ecommerce, what to charge for shipping has become a strategic decision. Online sellers must balance the wants of consumers with the reality of the balance sheet. The carriers aren’t going to eat their cost, so someone has to pay for shipping. But increasingly, thanks to the well-documented “Amazon effect,” consumers feel that the cost of shipping is the seller’s responsibility, and they’re quick to seek out other webstores when they discover the shipping isn’t free.

Caught in this bind between margins and customer expectations, ecommerce retailers are having a hard time finding the right strategy. But fortunately, for most stores there is a middle ground. It takes some work to find it, so let’s look at how you can discover the balance point of happy customers and profitable sales.

Step 1: Research

The first step in evaluating how and what to charge for shipping is to study top ecommerce companies as well as competitors within your industry. Your goal here is to determine what’s normal in your company’s particular marketplace. Perception is 9/10 of reality, and the norm in your marketplace is what your customers perceive as being what they should expect.

As you gather data you will notice patterns start to emerge. These will likely fall into a few broad categories, such as free shipping, flat-rate shipping, and shipping cost (or not) based on spend threshold. Once you’ve identified the main categories and how they’re used, see where your sales fit within these patterns.

Step 2: Test

Now that you have a good idea of what customers are likely to expect, you can start testing. The goal, of course, to identify the options that maximize both sales and profits. An A/B/C test of different cost structures and shipping options will measure the impact of each strategy on sales and allow for analysis.

Use the data from the testing phase to determine which model is the best fit. You might find that different options work better for different product lines, spend thresholds, or seasons. Take all this information and craft your shipping strategy.

It might be necessary to repeat this process a few times before you find the right balance. Testing the different alternatives is the only way to quantify the impact of the shipping options on both the customer and the bottom line.

Step 3: Go live

Et voilà! You can roll out the finely tuned shipping policy with a good degree of confidence that it is optimized to balance the needs of your business with the desires of your customers. Better still, you can know that you have taken one step ahead of most of your competitors, because few, if any, will have taken the time and done the work to find the best solution to this make-or-break ecommerce challenge.

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