Ecommerce businesses have been flourishing in recent years. The modern consumer has completely different shopping habits than a customer from any previous era. Convenience and choice are crucial factors in decision-making about purchases, creating an extremely competitive online marketplace.
The shipping price of an item or basket of goods has an enormous influence on consumer purchasing behavior. While a variety of shipping options and delivery times are also important, 9 out of 10 customers cite free shipping as the leading incentive to shop online more. To provide the best customer experience, businesses must focus on offering the lowest possible shipping prices.
One of the most logical approaches to lowering your shipping prices is to focus on reducing your shipping costs. This ensures you keep customers satisfied without negatively affecting your bottom line too severely. Let’s take a look at how to determine the best shipping cost for your business.
What Factors Determine Shipping Costs?
When discussing shipping costs, it’s essential to ascertain what exactly determines the cost and outline where the process starts and finishes.
Shipping costs are accrued when transporting an item from your inventory storage to a customer’s doorstep. The main expenses shipping costs cover include packaging and related packaging materials, such as boxes, labels, and tape, staff wages, courier expenses, and import or export fees for international shipping.
Several additional charges can affect shipping costs. These extra costs aren’t always mandatory but are quite common in international shipping.
Duties and Taxes
If you ship internationally, you’re likely to have to pay duties and taxes before the goods are delivered to their final destination. The main reason for this is that governments want to protect domestic businesses from being undercut by overseas competitors. It is also an effective way to govern the transport of goods and to raise additional tax revenue.
The most common types of duties and taxes include import duty, goods and services tax, and VAT tax. A small business must pay these fees or risk having their merchandise confiscated.
Protecting your goods through insurance is paramount, particularly if you’re transporting expensive, fragile, or important goods. An unfortunate reality of long-distance shipping is that goods can get damaged. An insurance policy covers your business against merchandise that’s lost, damaged, or stolen during transit.
Depending on the type of goods you’re shipping, insurance may or may not be essential. If insurance costs are relatively low compared to the cost of losing a shipment, it is almost certainly worth the investment.
Some products require special handling by the shipping service. This is common for dangerous goods or bulky items that take multiple people to deliver. If your merchandise needs special attention, you’ll most likely have to pay an additional fee.
In certain instances, there are additional shipping-related charges added to the cost of shipping. These include pickup location charges, fuel surcharges, and fees due to shipment errors.
Pickup location charges are generally in relation to pickups and shipments made outside of the usual service area of shipping service.
Fuel surcharges are often paid for special delivery services such as same-day or next-day delivery. The fees vary, depending on the current cost of fuel.
Charges due to errors include returns, failed deliveries, incorrect addresses, and package refusals.
How are Shipping Costs Calculated
Depending on your shipping strategy, shipping costs are calculated differently. A quick and easy way to calculate shipping costs is through a shipping calculator. These are available online from some leading shipping companies.
Alternatively, you can calculate it yourself. First, you must outline what method of transport you’re using.
For international shipping, ocean freight is the most cost-effective method. However, it can take a long time for your goods to reach their destination.
Air freight is the fastest transport method for international shipping. An ocean liner may take up to 30 days to reach the US from China, whereas a plane takes a matter of hours. Air freight is very expensive, and you may be limited by space and weight.
Trucking is generally used in the fulfillment process. Although, it is frequently utilized as the core shipping method for national and local transport.
Calculating shipping costs for each of these methods of shipping varies significantly. However, some consistent factors are used to determine most shipping rates.
In some cases, the dead weight (total weight) of a package is used to calculate shipping costs. In other circumstances, the dimensional weight may be considered.
The dimensional weight is calculated by multiplying the length, width, and height of a package (in inches). You must then divide this number by the dimensional (DIM) divisor to calculate the dimensional weight in pounds. The DIM divisor is a specific numeric value set by the shipping company.
The speed of delivery has a significant influence on the shipping costs. The faster the delivery time, the more expensive the shipping costs are likely to be.
Shipping Pricing Approaches
The cost of shipping is determined mainly by the strategy that you adopt. Typically, a business will offer one of three shipping methods to its customers.
Free shipping is becoming an increasingly common offering from retailers, and for good reason. Customers value free shipping highly, with many willing to spend more money to take advantage of it. It is an extremely powerful marketing tool.
Businesses don’t have to lose out on profit to offer free shipping. It can be incorporated into product pricing in other ways. Alternatively, you can offer free shipping when a customer spends a certain amount of money. Adjust your pricing so that you cover at least some of the shipping costs.
Flat Rate Shipping
Businesses that offer flat rate shipping charge the same price, no matter the product type, weight, or size. It’s attractive to customers because of the consistency of pricing.
The key to offering flat rates is to calculate your average shipping cost for all products. This is problematic for companies who sell a diverse set of products to several shipping zones.
Calculated shipping determines the price based on the product’s dimensions and the distance it must be transported. By following a set formula, this process is relatively straightforward. However, if you sell a wide variety of products, you will need to calculate each individual item’s shipping price.
Tips For Reducing Shipping Costs
Having a basic understanding of how shipping is calculated and what factors can affect costs allows you to determine your business’ best approach. Whatever method your business adopts, there are some effective ways of reducing your overall costs.
Hire A 3PL
A third-party logistics (3PL) provider specializes in order fulfillment. These services can handle every aspect of fulfillment, from storage to delivery. As a specialist company with connections to a vast network of carriers, a 3PL can often ship your products for a fraction of the price you can.
Negotiating improved shipping rates might seem obvious, but many businesses don’t do it. Shipping companies can offer discount rates, particularly if you agree on long-term deals.
Limit Shipping Destinations
It may not be worth shipping items to certain areas. Unless you want to build a market in a specific region, going above and beyond to fulfill orders can be a waste of time. Focus on your core demographics and limit shipping destinations to cut costs.
Partner With a World-Class Shipping Company
Shipping costs can significantly affect your company’s bottom line and online sales conversions. It is crucial to determine the correct shipping costs, including fees, duties, and insurance, to ensure that your business isn’t taking a loss. However, you also need to balance cost-effective shipping and cost-cutting methods with exceptional customer service to retain brand loyalty and avoid abandoned online shopping carts. Hiring a 3PL company can help you find a solution.
For international shipping, it’s always beneficial to work alongside a world-class shipping organization like Asiana USA. For further information from one of our expert staff or to request a quote, call us today at (855)-500-1808.