How to Price Your eCommerce Shipping Options
Your shipping strategy is arguably one of the most integral parts of your whole eCommerce setup. It’s how you can easily lose money if you’re not paying attention to the details… but also how you can gain tons of loyal fans if you dial things in right. Customers expect orders to arrive fast and cheap - even when shopping for higher-end, luxury items. Most eCommerce shoppers expect some sort of deal for free or reduced shipping and want to see packages at their door in no more than a week. Long story short: it’s a lot to ask of the average small business owner to deliver on!
In this post, I’ll walk you through the most common eCommerce shipping options. We’ll uncover which one (or ones!) I recommend most to help you keep your customers happy AND keep some money in your pocket.
FIRST THINGS FIRST
Figure Out What Shipping Actually Costs You
Look, I know this seems obvious but you’d be surprised how many merchants I talk to who haven’t thoroughly worked through how much it actually costs them to ship each and every product in their inventory. 😲 Now, you don’t have to be a spreadsheet person but you are going to have to break out the calculator here. Also, I’ll admit that in a former life I managed shipping & logistics for a large company so things like shipping zones and carrier contract negotiations, and packaging pricing come naturally to me. Don’t worry if they don’t for you - all the details you need to get started are below!
Make note of each product’s specific weight and dimensions. When you’re running sample rates through carriers, you’ll need this info. If products normally ship on their own in one box, the weight should be the total of the item PLUS the packaging itself and the dimensions are of the box. If customers normally order multiple items, you probably have one or two boxes that are most popular. Use those package dimensions as your baseline and then calculate what it costs to ship it at various weights.
Factor in where shipments are going & how they’re getting there. Other factors that play into your actual shipping costs are the destination and the shipping method. For US domestic shipments, shipping is figured based on zip code; international orders will depend on the country + postal code. Since i’s not really reasonable to have five zillion different shipping rates based on all the possible destinations & methods available to you, I recommend just lumping things into buckets. For merchants in the US, you might have groupings such as contiguous US, Alaska & HI, Canada, and everywhere else. You may also decide that you’d like to offer two service options: priority/express delivery and ground/economy delivery. In which case, make note of the costs for both of those for all your buckets.
Don’t forget to include packaging & pack-in costs. You can sometimes score free boxes from carriers like USPS or FedEx depending on your volume but once you start seriously selling, you’re probably going to want to upgrade to branded packaging. It just looks so much better and goes a long way in building your brand. When tallying up your costs, you’ll want to include not only the cost of the boxes themselves but also any fill you use or other materials such as tissue paper, packing peanuts, etc. Lastly, if you include anything special like a postcard, flyer, brochure, or stickers in each box don’t forget to include that in the cost as well! While these are usually just a few cents each, you have to account for it somewhere otherwise it’s just a loss. (p.s. If those pack-ins weigh more than a few ounces be sure to include them in the total weight of each package as well!)
If you want to establish a solid eCommerce brand, it’s best to invest in custom box packaging for your business. Seeing your brand logo in the packaging improves brand recall, which is a great marketing strategy. This helps boost brand awareness and enhance the customer experience. Above all, it gives your customers the impression that your brand is legit and serious about doing business.
Optional: Run a Shipping Audit
If you’re already busy shipping orders, a shipping audit can really help you check in on how things are going. I used to do this quarterly when I was a shipping & logistics manager as a way to keep a pulse on how our expected costs were stacking up against actuals. This doesn’t have to be super complicated but it can definitely expose places where your assumptions based on the factors above need adjusting.
How to run a shipping audit:
Determine a period that you’ll track details that will include a good sampling of your average shipments. This will vary on your order volume and frequency so for some this might be a day or two… others might want to track for a whole week or more.
Keep track of each shipment’s details such as size, weight, destination, etc plus what you charged each customer for the shipment.
At the end of your tracking period, go back to your shipping extension (or your carrier statement) and note what each shipment cost you.
In doing this, you can see if there are destinations or order types that routinely cost more or less than you’re currently charging.
Important tip: don’t worry about one-off outliers! There are always going to be weird shipments that go to crazy destinations that unexpectedly cost a small fortune. Or oddball orders that need to ship in much smaller or much larger boxes than normal. Whatever it is. Don’t worry about them. Shipping is a “sometimes you win" and “sometimes you lose” kind of thing. We’re just looking for if you win more than you lose, you know?
Shipping Strategies to Consider
Now that you have a handle on what it actually costs you to ship your products, it’s time to decide how you’ll cover those costs. Here are the most common options:
Make customers pay for the full price of shipping on top of product prices. This can either be a flat rate average of your costs OR variable, carrier-calculate rates. (Note that I am not a fan of variable rates and customers aren’t either. Check out this post for more on that!) Since this option can be a huge turn-off, I would really only recommend it if you have a very well-established business that sells lightweight items such as jewelry.
Make customers pay part of the shipping cost by increasing product prices & charging a small flat-rate shipping fee. This option works well because it allows you to recoup all of your costs in a more palpable way than the first option. Customers like flat rate shipping fees because they are easy to understand and you’ll like that you’ll see way fewer abandoned carts! If you’re worried about raising your product prices, don’t be! Unless you are selling a highly commoditized product, customers would much rather pay more for something as long as they’re getting a “deal” on shipping than feel nickel-and-dimed at checkout.
Make customers pay for all or part of shipping by increasing product prices accordingly & offering free shipping. Make no mistakes - this is my favorite shipping option by a landslide and the reason why is because customers love it! It’s easy. It feels generous. There are no hurdles or obstacles to overcome once someone is on the checkout page. Whether you account for all or just part of the shipping cost in your product prices is up to you and also depends on how complex you’d like your free shipping offer to be. More on that below but this is the option I would recommend for almost all businesses & startups. Okay, now on to the free shipping fine print!
Free Shipping Fine Print
Because you know that nothing is truly ever “free” here are the ways to make a free shipping strategy work for you:
Free Shipping on all orders - works best if you sell mostly small, lightweight items with high-profit margins or luxury goods.
Free Shipping on only orders over a certain amount - works best if you’re trying to increase your average order value (more on that below). For all orders below the minimum threshold, set up a nominal flat-rate fee.
Free Shipping on only orders for specific products or services - works best if you’re trying to promote new products or clear out seasonal inventory. (For more on how to set up automatic free shipping discounts, check out: Squarespace Discount Rules.)
Free Shipping on only orders to certain locations - works best if a lot of your customers are local/regional and you want to cater to them while not paying too much on the other shipments headed farther away.
Free Shipping on only orders by loyal customers - works best as an incentive to boost repeat purchases and build brand loyalty.
How to Calculate Average Order Value & Determine Your Free Shipping Threshold
Since offering free shipping on only orders over a set amount is my favorite option from the list above, I thought I’d make sure you know how to calculate average order value (sometimes referred to as “average cart value.”) That’s because this option is a tried-and-true method for boosting that amount! The important thing to keep in mind when setting a free shipping threshold is that you want it to be:
Low enough that shoppers feel they can reasonably add an additional product or two without spending a significant amount more than they planned.
High enough that you can cover the additional cost of shipping while still retaining profits.
To calculate your average order value, simply divide your revenue by the # of purchases. Using that number as your base, you’ll then identify a point just above it that you can set as the free shipping cutoff. For example, if your average order value is currently $57 and your average product sells for $18, I would set your free shipping threshold of $75. This would encourage the average shopper to add just one more product to their cart (a reasonable ask) while providing you additional revue to offset any additional shipping costs. Win-win!
Bonus Shipping Strategies Worth Exploring
Local Pickup - I firmly believe that every online shop that has the capacity to do so should be offering some sort of free local pickup. There are just so many good things about this:
Allows you to compete with large retailers & big box sellers
Provides an alternative for your local customers to avoid shipping costs
Offers the opportunity for in-person upsells & engagement
Better for the planet!
Click here for more on how to set up an in-store or local pickup option on Squarespace.
Go Wild & Combine Multiple Options! Okay, okay, okay - I swear to you that I’ll stop saying that options are my favorite but I swear: this one is my actual favorite 💕 Some of the most successful online sellers don’t implement just one of the strategies outlined above, they combine several of them! An example of what this might look like:
Offering low, flat-rate shipping rates for domestic & international shipments. Again, this makes it easy for customers to understand what to expect at checkout and you’ll have accounted for some of the shipping costs by pricing your products appropriately.
Offering free, flat-rate shipping on orders over a certain amount in order to boost average order value. The bonus here is that even though shipping is “free” for your customer that you’ll have already accounted for some of your shipping expenses by pricing your products appropriately.
Offering free in-store pickup for local customers. This will allow them to get orders faster and cheaper and you’ll come out ahead because (you guessed it) you’ll have accounted for some shipping cost in the cost of your products. Bam - straight to the bottom line.
Using the occasional free shipping offer for specific product categories or customer segments as a marketing tool. This allows you to move slow inventory, reward your best customers, build your email list, or promote a new product line without sacrificing the integrity of your main shipping strategy.
Bottom Line
A successful shipping strategy can be as simple or as complex as you’d like it to be but the most important thing is that you start by understanding what it actually costs you and going from there. It’s so important to keep track of this type of info about your business and check back in regularly to make sure things are on track. Shipping doesn’t have to be a headache at all — especially once you realize that it’s one of the most powerful (and easiest) tools available to be able to increase average order values, reduce abandoned cart rates and make customers happy!
