Freight Costs & Your eCommerce Store
As with everything dealing in logistics you need to make sure you have planned properly when launching a new business initiative. Often, when decisions are made, business forget to consider the impact on the business as it relates to logistics. With the rise of eCommerce in general, the use of ECommerce logistics, and of course the rise of eCommerce freight in the use by manufacturers, distributors, and those in the industrial space, businesses often want to jump on the bandwagon and launch eCommerce quickly so they can either simply say “we did it” or they want to stay competitive and offer customers a new option. If your goal is to not just do it because everyone else is, and you want to have profit in your new ecommerce initiative, due diligence and planning will allow you to meet your goals.
If you already ship freight, in such modes as less-than-truckload or small package, then when you put your catalog or products online for direct purchase there is a very important aspect you must consider before you go live. That is how are you going to determine the eCommerce freight costs you will charge your customer? A wrong decision in the planning, and ultimately the implementation stage, will cost you thousands and will lead to dozens of hours a week in maintenance, inventory control, double handling, and most importantly, angry or lost customers…..
It’s the all too familiar story.
A new customer comes to your website, finds a product they want at a price they like and adds it to their cart.
They get to the checkout page and then it happens. They get hit with the shipping and handling rates and all of a sudden they start second guessing their decision to buy.
Suddenly a product they thought had a fair price is starting to seem a little expensive. One of two things happens next. Either they decide to press on despite the increased costs, or they abandon their cart and leave your website disappointed.
What can you do to influence this decision?
Let’s take a look at some eCommerce freight shipping strategies and how you can use them in your business.
Shipping Rates and Abandoned Carts
The real challenge when figuring out your shipping strategy for eCommerce freight is determining a solution that cuts into your margins as little as possible yet remains attractive to your customers.
And this is something you’re going to want to get right. Studies have shown that shipping and handling fees are the number one factor driving shopping cart abandonment.
Understanding Freight Shipping and Doing Research
Setting shipping costs can be rather difficult, especially with eCommerce freight shipping. You need to research the fees and costs involved in freight shipping in North America or wherever you want to ship, in general and then go about determining the various shipping costs so you can select the option of what you will charge your customers at checkout in the shopping cart for eCommerce freight. Typically, if you ship freight already, you have an idea of what it costs to ship to various areas, but work with your logistics service provider or work with your carrier to let them know of your upcoming initiative. In doing so, those partners will arm you with great knowledge of what you can expect with rates. Next, you will then have to choose the right technology to execute what options you choose. The technology you choose truly is the make or break part of achieving your stated goals. There are numerous shipping options available, but you have to find the right applications and technology for less-than-truckload and small package.
With this information in mind, let’s look at the three most common shipping options and the pros and cons of each.
eCommerce Freight Costs Option #1: Offer Free Shipping
Offering free shipping – usually just for domestic orders – is a sure-fire way to get your customer’s attention, however, depending on your margins, it can also potentially cut into your profits.
That said, the marketing punch that displaying ‘Free Shipping’ on your website provides can be a significant advantage over any competitors that don’t offer the same perk. Deciding to offer free shipping will require you to either absorb the cost or slightly increase your prices to cover it.
You could also try offering free shipping with a minimum order amount or minimum number of items. This should drive up your average order value and help you have more profit dollars to apply the shipping cost against.
Prominently advertising that you offer free shipping can be an effective way to drive up conversion rates.
Determining whether to offer free shipping or require a minimum threshold often comes down to your margins and the niche you operate in.
If you offer luxury or handmade, one-of-a-kind items, rolling in an extra percentage for shipping and handling into the cost of your products probably isn’t too much of an issue. However, if you’re in a highly competitive market where both free shipping and the lowest prices are the norm, like refurbished cell phones for example, marking up your products to cover shipping costs may not the best idea. This is where you have to consider either a different option entirely, or absorbing the cost for shipping on most of your items.
There are, of course, exceptions.
Large or particularly heavy items that get into the realm of less-than-truckload modes of shipping, like furniture, bulky items, such as our customer Grower’s House, or tile, can cause some problems for your ‘Free Shipping’ promotion.
Doing your research and knowing your numbers about things like how much each of your products actually costs to ship freight (as determined in your initial research), how your competitors handle shipping, and your allowable profit margin can help you make the right decision.
This area of larger freight may mean you need to seek out the best technology to serve up real live shipping rates so you and your customer know exactly the cost of shipping (not a freight rate quote that will change).
eCommerce Freight Costs Option #2: Charge What You Get Charged
In most shopping carts it’s possible to setup real-time eCommerce freight shipping rates – in other words, your customers more or less pay exactly what you would pay to ship your products.
There are always small discrepancies that can happen, of course, but in many cases you can end up breaking even between the shipping charges you collect and what you ultimately have to pay to ship the freight.
Using a real-time freight shipping rate can win you a lot of trust with your customers. It shows that you aren’t inflating your quoted shipping fees or raising your item prices to cover the charges.
This strategy doesn’t have the same persuasion power free shipping does but it’s an easy way to make sure that you’re not draining shipping costs out your ears, and that your customers are getting the best deal possible.
This is also a good option to use for heavy or oversized shipments that you simply cannot or do not want to allow to ship out under a free shipping promotion. If your freight is heavy, bulky, or is simply large, less-than-truckload is a great option. However, there are not many options out there to offer an end-to-end LTL eCommerce freight shipping calculator. This is why Grower’s House came to Cerasis. They wanted to offer this option, as their items are very large and shipping small package didn’t make sense. They also didn’t want to eat at their own margins, and wanted to pass the cost of shipping onto the customer, yet still make the customer feel confident there was not a profit made on the shipping (although, this is another option). Grower’s House is using our eCommerce freight LTL freight rate application which also comes with our full line of managed transportation services.
eCommerce Freight Costs Option #3: Offer Flat Rates
Your third option when determining eCommerce freight cost is to offer a flat rate for every freight package, or flat rates for weight ranges and order totals.
This particular method of charging for shipping requires a bit of preparation as you need to figure out your average cost of shipping the freight. This is a best practice you should be doing anyway to make sure that you don’t drastically undercharge or overcharge your customers.
When you hit the right cost, you’ll probably be over – or under – the actual shipping cost by a little, but it should even out in the end.
With flat rate shipping there comes an important point about the nature of flat rate eCommerce freight shipping: figuring out what flat rate works for you, and if you need to do it by order totals or weight ranges will require some testing.
Of course, every business is different and only through testing will you find out what works best for you.
You’ll need to find out the statistics on your products and the best ways to ship them to be able to make the most strategic decision possible.
If you have an eCommerce store and know that you will have needs to ship via less than truckload when a customer checks out, due to the nature of your product, or you are looking to open up the market to online customers, feel free to reach out to us and set up a logistics consultation with one of our account executives.