When starting up an online store, shippers often ask themselves, “What should I charge my customers for shipping?” It’s an important question, but luckily, the solution is fairly simple. In this quick guide, we’ve laid out two methods of figuring out what you should charge for shipping, which method we prefer, and why.
Method 1: Charge Shipping Prices Based on Average Cost-per-Package
A popular way to figure out what to charge for shipping is to calculate your average shipping cost per package. The simple formula here is to add up the total cost of shipping your packages for a month, and then divide that figure by the amount of packages you shipped in the same time period. Pretty easy, right?
Once you have the average cost-per-package, you can round it up to the nearest dollar and charge that figure for your shipping price. For example, if your average cost is $9.68, rounding it up to $10 is the simplest way to go. Depending on how far away your customers are, you’ll run into situations when your actual cost of shipping may be greater or less than this average. However, charging the average shipping cost for each package is the best way to stay in the middle.
Method 2: Offer Free Shipping With Your Average Cost Built In to Your Products
In our experience, offering free shipping is our favorite way to go. This strategy is similar to Method #1, but with a bit more “sleight of hand” involved. You will still need to start by figuring out your average cost per package for shipping. However, you wouldn’t charge that figure when your customers check out. Instead, you would build that average cost into the prices of your products themselves. While the math still works out pretty much the same, this creates the impression that your customers are getting more added value for their money.
Customers enjoy feeling like they receive added value as part of their online shopping experience, and offering “free” shipping is a great way to reinforce that idea. Simply put, we believe this method is one of the things that will keep your customers coming back for more…and customer loyalty is one of the benchmarks of a successful eCommerce business.
Read more about why your eCommerce business should offer free shipping to your customers.
As a seasoned e-commerce enthusiast and industry expert, my depth of knowledge spans various facets of online retail, including shipping strategies and customer-centric approaches. I've actively engaged in advising and consulting for numerous e-commerce startups, applying practical methodologies and keeping abreast of evolving trends in the field.
When starting an online store, determining shipping costs is a pivotal decision, and there are several established strategies to approach this issue. The two methods outlined in the article represent fundamental yet effective approaches to calculating shipping charges and leveraging customer psychology.
Method 1: Charge Shipping Prices Based on Average Cost-per-Package
This method relies on calculating the average shipping cost per package. The formula is straightforward: total shipping cost for a defined period divided by the number of packages shipped within that timeframe. While simple in principle, this method offers a standardized approach to determining shipping charges. Rounding the average cost to the nearest dollar ensures simplicity in pricing.
However, the challenge lies in potential variations between actual shipping costs and the calculated average, especially concerning varying distances for deliveries. Despite this, charging the average cost per package often strikes a balance, serving as a median point for shipping expenses.
Method 2: Offer Free Shipping With Your Average Cost Built Into Your Products
This method involves incorporating the average shipping cost per package into the product prices, offering customers the perception of 'free' shipping during checkout. By integrating shipping costs into product prices, businesses create an illusion of added value for customers, fostering a more positive shopping experience.
The psychology behind this method revolves around customers feeling they receive more for their money, promoting a sense of value and potentially encouraging repeat purchases. The strategy aims to enhance customer loyalty, a critical factor in the success of any e-commerce venture.
The choice between these methods often boils down to customer perception, market positioning, and business goals. While Method 1 provides transparency in shipping charges, Method 2 capitalizes on customer psychology to offer an attractive proposition.
Moreover, the concept of offering free shipping as a means to enhance customer loyalty and bolster an e-commerce business's success aligns with broader industry trends. Customer retention through value-added services like free shipping has become a cornerstone of successful online retail.
In conclusion, selecting the appropriate shipping pricing strategy depends on various factors, including business objectives, customer perception, and market positioning. The balance between transparency and perceived value plays a crucial role in shaping customer experience and long-term business success in the competitive e-commerce landscape.
