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Five Shipping Strategies to Keep Customers Happy While Protecting Profits

Written by Lynn Jatania on June 4, 2020 Blog, Shipping.

A few huge retailers have fueled the expectation that shipping should always be free. Business owners and most shipping companies know that this simply doesn’t make sense. Shipping costs money, and it always will. Someone has to pay. 

But 36% of online customers who abandon a purchase do it because they don’t want to pay for shipping.

No matter which carriers you work with — USPS, UPS, FedEx, or others — offering free shipping will cost you money. The good news is that just because other businesses offer it doesn’t mean you have to. Your goal is finding a shipping strategy that pleases customers without eroding profits. 

In other words, you need a shipping strategy where everyone wins.

If you’re just learning about shipping methods and fulfillment, you have three general options: variable rates, flat rates, and free shipping. But within those options lies a lot of wiggle room; costs vary widely between major carriers based on a few different factors.

Let’s find the best shipping strategy for your business — and the right tools to accomplish it.

Factors that affect shipping costs

Each of these below play significant roles in your final shipping costs. This is why you need a well-considered and deliberate strategy.

Weight and size 

A heavier package that is smaller in size may or may not cost more to ship than a lighter package that is larger, depending on the carrier. If all your products have a similar weight and size, your best shipping strategy will be different than if you sold products in a variety of sizes and weights.

Packaging and packing materials

Some products require extra padding to ship safely; others are temperature sensitive, fragile, or perishable. Special packaging, materials, and shipping methods all increase shipping costs. (Learn more about safe packaging that delights your customers.)

Cured Shop page listing products that they ship
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Cured, an online store selling cheese, wine, and other fine foods, admits that shipping can get expensive, especially for perishable foods, “It’s very much worth the time to talk to a number of shipping companies and negotiate rates. You won’t have much wiggle room at first, but let them know what you’re doing and what you’re hoping to do in the future, and come up with a pricing structure that hopefully rewards that.” While customers are willing to spend money on fresh food shipped across the country, it’s still important to keep your rates down. 

Human resources

Shipping products also requires time and personnel. You either have to deliver packages to your carrier or have them picked up. You have to create labels. You have to place each product in the box, secure it, and seal it. Someone has to manage all of this and make it happen. Consider the time and cost of the work that goes into this process. Consider extensions like WooCommerce Shipping, which automate this process and save you enormous amounts of time.

Margins: Determine your shipping costs

Once you select a carrier, you’ll be able to determine your shipping rate for a particular size, weight, destination, and method. You may be able to negotiate discounted rates with your carrier, or use an extension like WooCommerce Shipping to save up to 90% on USPS shipping rates.

But how much should you charge customers for shipping, if anything? You want to make sales, but don’t want to crush your margins. 

Let’s say you have a product that costs $20.00 to produce, $8.00 to ship, and $5.00 to package properly. Your cost, before any profit, is $33.00. 

If you want a 40% profit margin, the total amount charged to the customer would need to be $46.20. So, you might list the product for $38.20 and add $8.00 in shipping fees. Offering free shipping brings your profit margins down to 15%. You could also charge customers a portion of the shipping costs, and end up somewhere in the middle.

What’s better? That depends. Here are five shipping strategies to consider when deciding what makes sense for your online business.

1. Offer live rates 

Live rates, also known as real-time shipping calculations, allow you to offer shipping rates at the carrier’s exact cost for various sizes, weights, and distances — charge what you want to charge for products, without worrying about shipping costs They sync in real time, so if your carrier increases their rates by 5%, the shipping costs on your site will also update. And since customers pay the exact amount for shipping specifically calculated for their order, it increases their trust that you’re honest about shipping charges. 

Your customers can also choose between a variety of shipping options that meet their needs. The FedEx Shipping Method extension offers more than ten domestic options, including priority overnight, two day, freight, and more. You can offer any combination of these without having to calculate rates for each and every product, and know that you’re charging the right amount. Similar extensions perform this functionality for other carriers, including UPS Shipping Method and USPS Shipping Method

One of the most common reasons to use live rates is because they give customers options. Live rates put the decision in their hands, which they will appreciate. Plus, because they’ll have several choices, including more expensive shipping options, they’ll be more willing to pay for lower-cost options, removing the need for you to offer free shipping.

2. Offer table rates

Table rates use a set of rules to calculate shipping rates based on everything from weights and sizes to shipping classes, order totals, destinations, and number of items purchased. They provide the most customization options and are especially helpful if you sell products that vary in shape, size, or type.

Here are a few examples of rules you could create:

  • Only ship a specific product if it’s part of an order totaling $20 or more.
  • Charge $5.00 for shipping for any package weighing less than eight pounds. Charge $10.00 for anything that weighs eight pounds or more.
  • Offer free shipping if the destination is in the state of New York.

You can combine conditions to create complicated shipping rules without complicated setup. The WooCommerce Table Rate Shipping extension makes creating rules painless and intuitive.

Joco Cups home page with photos of their products
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Joco Cups uses this extension to simplify their shipping processes. They sell reusable bottles and straws and ship them internationally, which can become complicated quickly. Table rate shipping gets their products into customers’ hands all over the world while keeping costs reasonable.

3. Offer flat rates

Flat rate shipping is often the easiest system to set up — you charge the same amount regardless of order weight or size. This makes the most sense if your products are similar in size and weight, or if the majority of customers order similar amounts. Otherwise, you risk overcharging your customers and losing sales, or undercharging and losing money.

Customers appreciate flat rate shipping for the same reason business owners do: it’s simple and straightforward, and takes the guesswork out of calculating rates.

You can also use flat rate shipping in your marketing efforts. A message like, “Shipping is always just $5.00” has a natural appeal for its simplicity and clarity, and may encourage shoppers to order more items without fear of exorbitant shipping costs.

With default WooCommerce settings, you can choose to charge a flat rate per item, a percentage based cost, or a minimum fee

If you want to charge a flat rate based on box size, try the Flat Rate Box Shipping extension. It automatically groups products into boxes based on their size and volume, then allows you to charge a flat rate for each box size. It’s slightly more complicated than traditional flat rate shipping, but provides many of the benefits while calculating even more accurate rates.

4. Offer free shipping

Customers love free shipping! 93% of shoppers purchase more products if free shipping is available, and 58% add more products to their carts just to qualify for free shipping.  

This isn’t the right fit for every store, though. If your shipping costs vary dramatically or if your margins are extremely low, you could end up losing money, even with increased sales.

The trick is to not blow all your profits on shipping — for example, by raising prices to fold shipping costs into your product prices. If you typically charge $8.00 for an item and it costs $3.00 to ship, you could offer free shipping and charge $11.00 instead. This helps customers know exactly what they’ll pay without any surprise fee at checkout.

You’ll need to consider how much shipping costs for your products and if customers will tolerate higher prices. You might also try a half-and-half approach: add some of the shipping costs into the product price and pay the rest yourself, hoping that increased sales will offset smaller margins.

Scratch home page with information about their dog food
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Scratch Pet Food, an Australian dog food company that uses all real ingredients, sells food subscriptions that include free shipping to all customers in Australia. Because they generate recurring income from loyal customers, they can safely afford free shipping knowing that the benefits outweigh any potential downsides.

5. Combine several shipping options

If you’re having a hard time deciding which shipping strategy to use, mix and match them to create the right fit for your business. 

One common approach is to offer free shipping for orders that meet a minimum total: you could offer flat rate shipping for orders under $50, and free shipping for orders over $50. If your average order size is $30.00, this approach might be a smart one; it encourages customers to add more to their carts and ensures you don’t lose money on shipping costs.

On the other hand, if you have a variety of order sizes, product weights, and prices, you could offer free shipping for USPS Ground only and calculate real-time rates for faster delivery options. 

You can also offer free shipping for a limited time as part of a larger marketing strategy. If you normally charge for shipping, this gives you a way to boost sales for a particular holiday or time of year. 

Implement your shipping strategy

An effective shipping strategy is all about balancing the needs of your business and your customers. Consider shipping costs for each of your products, then determine the best shipping methods to offer without losing money, while delighting shoppers. And don’t be afraid to shift tactics as you learn more about your audience!

WooCommerce offers everything you need to implement a shipping strategy for your products and business. Check out all of our shipping extensions here.

Simplify your shipping with WooCommerce Shipping