HOW COMPANIES DETERMINE HOW MUCH TO CHARGE FOR SHIPPING?

According to a survey published in a paper by Harvard Business School, 44% of people said that the most recent reason for cancelling a purchase midway was the high shipping fees. It was also found that this was the most common reason for a customer abandoning a cart. So, it becomes important for companies to ensure optimal shipping charges. This can help reduce cart abandonment, as well as customer dissatisfaction.

Here’s a look at the key factors that go into making up the total shipping costs for a business.

PACKAGING COSTS

Packaging can form a significant part of the total shipping costs for a company. You need to evaluate three factors for this:

  1. What: The item or product that has to be shipped to the customer.
  2. Weight: The total weight of the item plus packaging.
  3. Where: The delivery location where the package has to be sent.

Collectively, these are known as the three W’s of cost evaluation.

In case your company is selling and shipping lightweight products to nearby locations, it is better to use your own packaging. This is because flat rate shipping can cost you a lot even if the destination is close, since there are predetermined prices.

But make sure that you use an efficient courier tracking software that can help you provide the best last mile services to your customers. Such software can help you to track the movement of your package and even find the best route for your vehicles, helping your business cut costs. Efficient last mile delivery not only helps manage costs but could drive immense growth for businesses, says an article by Key Software Systems.

However, if you deal with heavy items or shipping to customers in distant locations, then flat rate shipping can be a good idea. You can get flat rate boxes completely free of cost and use them for sending goods at fixed prices. The only thing to consider here is that the items should fit in the box.

HANDLING COSTS

There are 4 main questions that need to be answered while estimating handling costs:

  1. Is there a need to pay a third party to pack your orders properly?
  2. If a third-party is involved in packaging, how much is it going to cost per unit time?
  3. How much time is the packaging company going to take to pack each item?
  4. Is there a warehouse where you can store the packed items?

Once these questions are answered, other factors can be taken into consideration as well.

POSTAGE COSTS

This depends on the postage service that you are using to deliver products. Most companies check the rate chart of various mailing services for a proper comparison of their cost effectiveness.

The main aim of the analysis of various factors is to calculate the average shipping charges per order. If it comes out to be more or less the same for most products, you can charge customers a fixed shipping rate.

The selection of a shipping structure includes a balancing act between consumer base growth and operational costs, says a research paper in the Journal of Retailing.