Once you know what it'll cost you to ship items to customers, then you have to develop a sensible shipping policy to pass onto your customers. If you charge too much, you risk losing business. In fact, 63 percent of consumers surveyed by Jupiter Media Matrix Inc. cited excessive shipping costs as the reason they cancelled a purchase.
Retailers looking to make big profits on shipping stand to lose business. "Shipping shouldn't be a profit center, or customers will resent it," warns Strauss.
True. But on the other hand, if you don't charge enough, you may well lose money. Jupiter found that of the companies it surveyed, 45 percent make money on shipping fees, 45 percent lose money, and 10 percent break even. Breaking even may be the best way for retailers to keep a good relationship with customers.
Small Dog Electronics, which has a brick-and-mortar store as well as online business, has developed its shipping policy over the past eight years. "We do not make money off the customer on shipping. We charge them exactly what it costs us to ship," Mayer says.
Padding shipping charges to make a little extra profit might sound like a good idea at first, but in the long run, it can hurt you. "Customers find that a major turn-off," warns Ray.
Doing the right thing by customers and keeping costs contained goes a long way to building a strong and loyal customer base. "In this competitive environment where there's very little customer loyalty, things like shipping matters," small-business consultant Strauss says. "Look at it this way: If you don't have a store location, you're saving on rent and employees. Eat the shipping. It's a small cost to you, and customers will respond."
"Customers love free shipping," agrees Abrams, "so when you can afford to offer it, do. For instance, if you have high profit margin and lightweight items like jewelry, offer free shipping. It won't cost you much and it'll been seen as a great value to your customers."
E-tailors like Amazon.com and Circuitcity.com have proven that free shipping, particular on items that are costly to send like books and electronic equipment, can be an effective incentive for customers.
"Shipping costs, especially on heavier items, surprise some customers. They may not understand why it's $50 to ship a 20-pound computer monitor when it was only a couple of bucks to ship a PDA," explains Ray. "The transaction can fall apart at the end over the cost of shipping."
In these cases, Ray suggests offering free or low-cost shipping. If that's a financial impossibility, post shipping charges alongside the price of the item to avoid last minute sticker shock. And if you're going to charge for shipping, charge by weight, not cost of merchandise, he recommends.
That's advice many retailers ignore. In fact, the Jupiter Web Track Survey of online retailers found that 54 percent base shipping charges on the cost of items, while only 30 percent base them on weight.
That's a mistake, says Ray: "E-tailers who do this, especially those who sell products that can be bought at local stores, risk losing customers who next time will get in their cars, drive down the block and purchase items there to save on shipping."
Periodically Small Dog will offer free shipping on certain items. "We like to keep things interesting on our Web site, so every so often, we'll pick a few special items and offer free shipping," co-owner Mayer notes.
Free shipping can also be used to reward good customers. "I'm a big believer in customer segmentation. If you have a loyal customer, give them free returns and give them free or low-cost shipping," recommends Ray.
The Planning Shop offers discounted shipping on large orders. "If customers buy more than one book, the shipping costs per book drop," Abrams explains. "We cut our profit margins for combination purchases, because we want to encourage multiples."
If you aren't sure what impact free or low-cost shipping will have on your business, try it out, suggests Ray. "Pick a period of time, say one week, and test market it. See what happens when you offer options like free or low-cost shipping," he says. "That's an inexpensive and fast way to find out if your customers will respond to this kind of offer."