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Shipping cost strategies: Which is best?

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Deciding how to charge for shipping is always a dilemma store owners struggle with. It's important to ensure you cover costs on even the worst case order, but you don't want to be putting people off. Here are the most common strategies along with some benefits and drawbacks of each.

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When considering postage costs it's worth remembering that there are two 'P's in P&P and the cost of packaging and handling can be a significant amount compared to the postage, especially for complex, light orders. If you are using a fulfilment house these additional cost will be easy to quantify, though of course they still exist in your overheads and labour costs if you fulfil orders yourself.

    • Free shipping on all items
    • Free shipping on all orders over £x
    • Flat rate shipping of £x on all orders
    • Two tier shipping by weight
    • Free shipping membership

Free shipping on all items

Adding free shipping to all orders is certainly desirable but its feasibility will depend on the product you are selling. Stores where items are over £30 or so and have a good margin are likely to be able to offer this, though beware if you also stock cheaper accessories. Someone ordering a £2 accessory with free shipping is likely to represent a loss.

This technique can work especially well if you sell hard to find items or big ticket items, where the cost of shipping can easily be absorbed into the items price. Make sure you clearly advertise the shipping is free though, especially on highly competitive items such as computers as those making a comparison need to understand that the item might be a few pounds more, it will be cheaper than your competitors including delivery.

Free shipping on all orders over £x

This gives many of the benefits of the method above, but also ensures that the cost of postage is reclaimed on smaller orders. The prospect of free shipping is likely to make customers increase their basket size to make the limit too, so its a good idea to place the threshold 10% or so over the average basket size.

Again, it's worth checking some of your lower margin products to ensure that if someone orders 10 and gets free shipping you are still making a profit. Often in these cases it can be the item that is the problem (not enough margin) and not the free shipping threshold, so make sure you consider both.

Flat rate shipping of £x on all orders

This is a popular method that gives the customer good visibility of shipping charges upfront and also encourages larger basket sizes to some degree. If a customer has to pay £4.95 postage and they shop with you regularly, they are likely to order more than they would normally but may return regularly still.

The price you set will obviously depend on the value and weight of the items you send, so beware of setting the price too high if your products are low value - it may put customers off.

Two tier shipping by weight

What do you do if you sell lots of small accessories, but also a range of much larger items? Set a weight threshold and charge a smaller amount for orders up to x kg, and a higher amount for orders over x kg. The weight bracket is likely to correspond the point where you stop using Royal Mail and start using a courier as this is usually where the cost jump is.

Free shipping membership

If you have a lot of regular business to your site, then it may be worth looking at a free shipping membership. You can offer to give a customer free shipping for an annual fee, prompting them to not only order more often but also to ensure that you are their supplier of choice. It may generate a lower margin compared to other methods, but this has to be offset against what could be a significant increase in turnover. Several larger companies are offering this now, with memberships such as Amazon Prime costing £49 a year (2011).

November 22nd, 2011 by Hannah Newman

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