Businesses must take the following into account when it comes to their shipping fees:
- packaging costs;
- time (hours or days) needed to prepare each order, and therefore the manpower required;
- shipping and transportation costs; and
- return costs, if any.
However, while shipping fees include various elements, they shouldn’t appear too high to the consumer.
This is a decisive factor, both in terms of profitability and customer loyalty.
The idea is to find the right balance to distribute shipping costs as well as handling costs appropriately between the retailer and the end customer.
Generally speaking, the charges invoiced to customers only include a portion of the delivery costs actually incurred by the company. If the ecommerce site charged its customers the full cost of delivery and preparation, consumers would consider them far too high, which would be a significant disadvantage when selling.
If ecommerce sites strive to be competitive in their pricing of this service, including in terms of shipping fees, it’s quite simply because price plays a major role in conversion.
According to a Statista survey, extra costs (including shipping fees) being too high is the top reason why shopping carts are abandoned by online shoppers in the US, putting off 48% of those polled.
In other words, when customers find the costs of delivery to be too high, many decide not to finalize their purchases.
On the other hand, providing free shipping is a major sales lever, especially when shipping is not charged if the order exceeds a certain amount.
In this case, many customers will add additional products to their shopping carts to avoid paying for shipping.
Occasionally offering free shipping has become a common practice in ecommerce. Free shipping can be offered for a variety of reasons:
- When a certain purchase amount is reached.
- When customers make repeat purchases, to build loyalty.
- For certain products, free delivery helps to clear stock more quickly.
- When delivery is done in-store or at a relay point. In this case, the e-tailer saves on shipping fees and passes this savings on to customers, using this as a competitive advantage.
