October 18, 2010

Delivered by FedEx.

While browsing in a hotel gift shop during a recent vacation, I saw a Halloween figurine that I thought my wife would like. This created a “bad news, good news, bad news” situation.

The bad news: I didn’t have my wallet with me, and I forgot to go back and buy the item before returning home. The good news: I found the same item online through an independent retailer. The bad news: the $15 figurine cost $9.95 for ground shipping.

I called the online retailer to ask about this. She explained that it was a flat fee designed to encourage shoppers to buy more. “You can order up to $99 in merchandise and pay the same $9.95 shipping fee,” she said. While that’s great for someone who wants to buy more, it left me feeling cheated.

How to handle shipping costs is a vexing, yet vital decision. On one hand, you may not have enough volume to make up in sales what you’d spend by offering free shipping. On the other hand, a July 2010 comScore survey shows that 51 percent of consumers are at least “somewhat likely” to cancel their entire purchase if you don’t offer free shipping.

From a retailer’s perspective, there is no such thing as “free shipping.” Nevertheless, today’s consumers are conditioned to expect it. In response to this dilemma, shipping providers have created programs to help you reduce costs and streamline operations. With FedEx SmartPost, for example, you can ship low-weight packages to residential customers economically by using the U.S. Postal Service for final delivery.

The research on online buying habits shows that offering some form of a shipping discount is a good idea. Of course, one clear-cut approach is to build the shipping cost into the price of your products. Here are a few more strategies to consider:

• Crunch the numbers. It may make sense to offer free shipping of high-margin products and charge for shipping of items with a lower profit margin. Armando Roggio, senior contributing editor for Practical Ecommerce and an online entrepreneur himself, recommends using a free shipping equation that essentially adds the cost of your product (including the shipping charges you pay to receive it and any other fees) to the cost of packaging and shipping that product. And John Lindberg, owner of EFulfillment Service Inc., has created a spreadsheet that allows e-tailers to compare shipping options side by side.

• Offer flat-rate shipping. The assumption is that people will spend more on merchandise because it costs the same to ship it. Whether or not this is true, flat-rate shipping can be a good way to pass along a portion of shipping costs to your customers. But keep in mind that online shoppers expect shipping to be less than 10 percent of the order value, according to Forrester Research.

• Deliver for free with a minimum order. Determine your average order amount and set the free shipping minimum somewhere above that to encourage larger orders. Be sure to promote this throughout the online shopping experience. And notify customers during the checkout process about how much more they must spend to qualify for free shipping.

• Provide limited-time free shipping or shipping discounts to loyal customers. To help entice last-minute holiday shoppers, a number of prominent retailers — from Apple to Saks Fifth Avenue and Overstock.com — participated in Free Shipping Day on Dec. 17, 2010, and reported higher-than-normal single-day sales. Make good use of social media to promote your own free shipping specials.

Paul Nolan is editor of SalesForceXP magazine, a bimonthly publication that provides sales managers with insights for getting “Xtra Performance” from their sales teams.

American Express OPEN and FedEx have teamed up to provide discounts and a comprehensive resource for shipping, business and print services. To learn more, go to fedex.com/opensavings.

Related Topics

• The World

Related keywords

Paul Nolan, Article, shipping, FedEx Small Business Insights, Armando Roggio, John Lindberg