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Free Shipping vs. Flat Rate vs. Actual Cost

If you make something, chances are you have to ship it. Whether it’s roasting coffee, craft beers, wall calendars or bicycles, you have the to get the goods to a customer.

When dealing with shipping costs you may have asked yourself how you should charge for shipping. Should you just build it into the cost of every item and make shipping “free”? Or should you calculate shipping on each and every purchase based on weight and size? Perhaps flat-rate is the simple way to go?

We’re going to look at three methods of charging for shipping and the pros and cons of each.

First off – as a recent UPS study showed, shipping costs matter:

Free Shipping

Let’s just clear one thing up: shipping is never free. If you’re going to offer free shipping, you need to build it into the cost of your product.

The benefits of free shipping are fairly obvious: you can slap a banner on your site saying free shipping, and your customers know the price is the price. On your end, it simplifies the shopping cart process. There’s no need to shipping plugins where people need to input their zip or postal code. Plus, “Free” is a powerful word:

“The concept of “free” is so powerful that when Amazon introduced free shipping in some European countries, the number of orders increased dramatically … People place such a huge value on “free” that they viewed 10-cent shipping as not a good enough deal to sway them.”

The negatives are also fairly obvious: your product could appear more expensive than a competitor that charges for shipping. When the products are sitting side by side, users may not calculate shipping costs into the purchase themselves, and just see that your competitor is 15% cheaper.

Actual Cost

Many tools allow you to assign a weight or value to a product, and when the customer hits the checkout, they can calculate shipping on a per-shipment basis.

There are some advantages to this method. The biggest one is that you, as the shop owner, never have to worry about whether your able to cover the shipping costs. It’s calculated at checkout, and you’ll always get your shipping fee. Unlike flat rate, or free shipping, you can be a lot more accurate and don’t need to inflate product pricing or lose a bit of shipping costs on expensive-to-ship items.

Although that’s one really big advantage, let’s look at with the negatives – because there are a few. As the chart above shows, when users get hit with shipping charges, it’s a problem:

“Free shipping helps us rationalize buying something online instead of going to a store. If shipping turns out to be too expensive for an item that we could just as easily get at the store down the street, the rationalization fails, and we abandon our carts.”

Beyond the psychology of it, there’s also implementation. You need shopping cart plugins that calculate the costs for you based on your preferred shipping method. This has become much easier, but can still be a headache.

Flat Rate

This is a hybrid shipping method. It attempts to take the best of both worlds, and apply it to a shipping method that makes sense.

The theory here is that when customers buy just one item, there’s a shipping cost attached so you don’t have to inflate the product pricing. However, if they buy more stuff, the shipping rate stays the same. This assumes the more the customer buys, the more margin you make, and the overall shipping costs can be absorbed.

It also allows the customer to know upfront what the exact cost is going to be. No surprises.

The major downfall (besides that study above that shows that charging anything for shipping can affect conversions) is that you may overcharge for shipping on small items, thus turning customers away.

In Summary

The best shipping method is the one that works for you. It may take some trial and error, but tracking conversion rates and cart abandonment rates should point you in the right direction.

Why not offer both?

If you’re still not sure, use cart abandonment software. If a customer abandons the cart when they see shipping rates, send them a followup email with a coupon for free shipping. Just because they leave, doesn’t mean you can’t bring them back.

If you’re still not sure about the best approach, contact us and we’ll take a closer look at your business specifically.

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