Setting your shipping and handling fees too high or too low can wreck your e-commerce business model. If you charge too much, your cart’s abandonment rate can skyrocket. If you charge too little, your profit margins can quickly disappear. For most online merchants, cost of goods sold and operating costs are fairly easy to capture, but shipping and fulfillment costs are sometimes difficult to determine.

The decision on how to price shipping and handling fees can be a complex mix of marketing factors and operational choices. At TAGG, we reduce the complexity for our clients by first focusing on gathering facts about what your true shipping and fulfillment costs are. Then, we use this knowledge to help our clients make informed decisions on how to recoup these prices without sacrificing sales.

While it sounds easy, determining the shipping cost of your product can be a difficult task.We recommend you simplify and approach it by determining averages.

Take a look at your products, how many items are in a typical order and what is the average weight? Be careful also to consider volume. If most of your products are 2 pounds but you have one 4 pound item that accounts for 80% of you volume, the average shipment weight needs to reflect this.

1. What is the average weight of your shipment?

For example USPS, UPS or FedEx? If you ship other than First Class USPS, we recommend you take the average as a Zone 5 shipment using your average weights determined in Number 1 above. This can be your base-line shipping price. Have your fulfillment provider price out a Zone 2 and a Zone 7 so you can establish a floor and ceiling as well.

2. What is your shipping method?

For example, if you ship to a residence there will be a surcharge for every shipment. Also, are there any dimensional charges? Your fulfillment provider can determine what assessorials might exist based on the characteristics of the average shipment we discussed in Number 1 above.

3. Watch assessorials!

Contact » Tod Yazdi 866-991-TAGG (8244)

tod.yazdi@tagglogistics.com

Turn Your Shipping and Handling Fees Into a Marketing Tool

Determine your Shipping Cost

How to Price Shipping and Handling Fees

Nevada Missouri Pennsylvania 866-991-TAGG info@tagglogistics.com

Nevada | Missouri | Pennsylvania

Handling costs can be tricky too. Like shipping costs, we recommend sticking with the ‘average order’and working with your fulfillment provider to determine all the related pricing.

Shipping is typical presented as a stand alone line-item upon checkout. To determine what this charge should be, at TAGG we like to talk about the ‘Shipping Fee Spectrum’ with our clients. It captures the range of options that exist. On one end of the spectrum, a shopping cart works to calculate the actual cost of the shipment charging customers variable shipping rates. On the other end of the spectrum is ‘free shipping’ providing the customer with a positive marketing experience but also meaning that shipping costs need to be recouped within the product’s margin... and there are countless variations in-between.

Now that you are armed with the understanding of what your costs are, it is time to make some marketing decisions on how you would like your shopping cart to capture these costs. The typical e-commerce platform includes handling costs in the Cost of Good Sold (COGS) and therefore accounts for that in the sale price of the product. As with all these variables, there are plenty of exceptions, and we have seen carts charge a shipping and handling (S&H) fee that is all inclusive – this is more typical in the Direct Response TV (DRTV) model.

Setting your shipping and handling fees too high or too low can wreck your e-commerce business model.

The direct costs will be the easiest to measure. These are the per order fees, pick fees and packaging/material costs associated with a specific order.

1. What are the direct costs of your shipment?

There are likely some indirect costs as well. For example, you probably pay a monthly storage fee and there was probably a cost to inbound the product to the warehouse. A quick approach to these indirect costs would be to take your expected order volume and divide total indirect costs by that volume to get to a per order figure. See TAGG’s Fulfillment Cost Calculator to get more information on these costs.

2. What are the indirect costs of your shipment?

VariableShipping

FreeShipping

Free ShippingOver a Dollar Spend

Flat Rate Shipping

Shipping Fee Spectrum

Determine your Handling Rates

Nevada Missouri Pennsylvania 866-991-TAGG info@tagglogistics.com

Setting your online shipping and handling fees too high or too low can be a serious mistake. Don’t get overwhelmed with the options, it really isn’t that difficult to create a shipping-and-handling cost model based on determined averages. Your fulfillment provider should be your partner in developing this. Armed with good information, it is then time to put on your marketing hat and determine where you want your shopping cart to fall along the Shipping Fee Spectrum.

Work with your e-commerce fulfillment provider to gather accurate data. This is a simple way to ensure your shipping and handling fees are based on facts, and not just guesses.

Finally, don’t get stuck in a rut! Monitor your abandonment rate at check-out and try promotions based on shipping rates to fine-tune and adjust your methodology as needed. Turn your shipping and handling fees into a marketing tool instead of just another cost.

Shopping carts have the ability to take the weight of the product and the delivery address and access tools from shippers (i.e. UPS or FedEx) to calculate costs. These shipping costs are typically published rates allowing you to charge clients an actual rate for the delivery of the product. Often carts apply a discount to that actual rate in order to reflect their negotiated rates and/or provide a better feel for customers.

1. Variable Shipping Rates

Using the rules of the averages we discussed earlier, a cart can charge a flat shipping rate based on a pre-determined level. Flat rates are often appealing to customers and are an efficient and simplistic approach. Often our clients use a Zone 7 shipment as ceiling for their costs allowing them to take margin on shipment that are less than a Zone 7. Another common approach is to simply charge the average rate (i.e. average weight and Zone 5) with the assumption that this rate is appealing to customers and some shipments are loss-leaders and some are money-makers.

2. Flat Rate Shipping

Free shipping is becoming more common and can be extremely attractive from a marketing standpoint. In addition, we are seeing more and more free shipping ‘holidays’ or promotions. When offering free shipping, like handling fees, it is important to look at those averages we calculated earlier so some level of costs can be captured in product margin.

As a variation of this along the Shipping Fee Spectrum, many on-line retailers offer free shipping at certain order breaks. For example, any order over $50 shipping is free. These levels are usually set when the margin of the product exceeds the cost of shipping.

3. Free Shipping

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

Notes:Give TAGG a call for yourfree, no obligations, quote!

tools&resources

TAGG has the fulfillment expertise to help you grow your e-commerce business.

Nevada Missouri Pennsylvania 866-991-TAGG info@tagglogistics.com