Configuring and setting shipping rates can be a bit of a struggle. There’s many options: free shipping, flat rate, dynamic rates that are calculated at the checkout, free shipping with a threshold… Have I lost you yet?
Choosing the right shipping option for your online store is important from both a conversion and customer experience perspective as well as a financial perspective. You may be offering the best option from your customers point-of-view but how is that playing on your profitability? And vice-versa: you may be doing what’s financially sensible but it doesn’t matter much if you can’t make any sales.
So, when it comes to setting your shipping rates you need to juggle a few things and select the option that provides the right balance.
Here’s a quick look at the three main shipping pricing options:
What it says on the box. The customer doesn’t pay for shipping. This could be on all orders or may be predicated on the customer spending over a certain amount—this is called a ‘threshold’.
These are the basic pros and cons in offering free shipping to your customers.
The pros of offering free shipping:
- Customers love not having to pay for stuff. This isn’t a hard and fast rule though. Sometimes, in e-commerce, our assumptions are disproven.
- Easy to communicate. If you offer free shipping on all orders it doesn’t get much easier to communicate than that. However, if you have a free shipping threshold (e.g. $75) you need to be clear on what the customer would pay if they didn’t meet that threshold—they’re going to want to factor that into their decision as to whether they’ll spend over the threshold or not, and if they don’t want to, then they need to know how much they’re paying.
- Easy to set up. See screenshot above.
- Keep up with the competition. This isn’t the case in all categories, but in many free shipping is the norm. Unless you have a clear point-of-difference it could be a struggle to try and charge your customers shipping if they expect to get it for free.
The cons of offering free shipping:
- It’ll cost you more. If you’re not offsetting shipping costs with shipping revenue then you’ll need to ensure your margins are otherwise high enough to cover the cost. In fact, brands often set their prices higher to accommodate this cost and customers are willing to pay it, even if the order total rings up as the same. Bit of consumer psychology at play there.
- Sets a precedent. Why do customers expect free shipping? Because the precedent has been set. If your competitors are offering free shipping and discounts it really does become a bit of a race to the bottom.
Flat Rate Shipping
This is where you set a fixed rate on shipping regardless of what the customer buys and where it is being shipped to. Like with free shipping you could set conditions, e.g. orders up to $50 get $10 shipping, $50-100 get $7.50 shipping, and so on. Or, keep it simply and to one (and only one) rate.
The benefits of flat rate shipping:
- Easy to communicate. Flat rate Australia-wide shipping, $7.50. Pretty easy to get across in your copy, right? There is a barrier, for sure. The customers is knowingly paying for shipping and that may weigh on whether they’ll shop with you or not, especially if your competitors are offering free shipping. But, it’s easy to understand and it’s easy for them to include it in their evaluation of your product and store.
- Easy to set up. On platforms like Shopify and Shopify Plus it’s so easy to set up flat rate shipping, or even with a threshold like explained above. See screenshots above.
- Covers or subsidises shipping costs. For e-commerce merchants that sell lightweight and non-bulky products shipping costs (i.e. what we pay our shipping carriers like Australia Post and Toll) are on average pretty low. If you’re selling Australia wide from, say, Melbourne, chances are 20-40% of your orders are local, the majority come from other capital cities, and there will be a sprinkling of regional, rural, and remote orders. I’m talking clothing, skin care, gifts, and so on. On average, you may be only paying $7.50-9.00 per order. That’s perfect flat rate territory. Doesn’t really matter if you get the odd package going to Broome or what not that’s costing you more as the local orders (which may only be $5-6) will subsidise those. Calculate your average shipping costs using our average shipping cost calculator.
The downsides of flat rate shipping:
- May not cover all shipments. If you’re doing a lot of shipments to rural or remote locations, or your shipping bulky or heavy items, this may not work for you. Maybe your average shipping rate is too high. The dilemma some brands have is that they don’t want to turn off city customers by setting too high a flat rate to cover rural customers. Let’s imagine you’re selling camping gear. You city orders might only cost you $12.50 to ship and $12.50 would be a nice, stomachable flat rate to charge. However, if your rural customers that make up a solid percentage of orders are costing you $32 to ship setting a shipping rate based on the average may be great for the rural customers but may alienate your city customers. What I’ve seen some e-commerce businesses do in this instance is charge an extra flat fee for rural or remote, or even bulky orders. Takes a bit of effort to set up on your ecommerce platform but could be worth it.
- Customers don’t expect it. If your category is plagued by free shipping this might not stand up to customers expectations.
Dynamic Shipping Rates
I’m going to be upfront here—in most instances I despise dynamic (or calculated) shipping pricing. Why? Because in most instances it’s unnecessary.
If there is a significant variation between rates depending on the customers location and what they buy, a case for dynamic shipping rates could be made. However, this is so often not the case, or at least not in a way that’s going to smash your average shipping costs. I’ve spoken to e-commerce business owners where 95% of their orders are less than a kilogram and go to city or metro areas. But, they get the odd heavier order going to, I don’t know, Mt Isa. The city orders might be averaging a cost of $11, let’s say, but that rare order from Mt Isa might come in at $25. The possibility of an above average shipping cost ‘forces’ them to penalise all customers (and potentially their conversion rate) by requiring them to enter their details in the checkout before they know how much shipping is going to cost.
Why you might choose to offer dynamic/calculated shipping rates:
- Allows you to charge what it costs. This is the reason most merchants that run dynamic rates do it. They want one to completely offset the other. Tamara in Melbourne buys a bottle of eye serum—$6.15 thanks. John in Alice Springs buys 10 bottles of shampoo—that’ll be $22.75 thanks, bud.
Why you might avoid offering dynamic/calculated shipping rates:
- It’s hard to communicate. On your shipping information page you could present a take that gives a rough indication of the tiers but there is probably too many combinations. For the customer to get an accurate indication they will need to calculate it—on Shopify this is done on the second page of checkout after they have entered all their details.
- Crappy customer experience. As above. Requiring customers to enter details before they know how much their shipping will cost is a leading cause of checkout abandonment.
Communicating Shipping Rates
There are three main ways shipping rates lead to order abandonment.
- Customer is put off by the prospect of having to go calculate it at checkout
- Customer sees the rate, it’s too high, and they leave
- Customer can’t find the shipping rate, gets jack of it, and gives up
The first one can be solved by going free or flat rate. The second by setting an appropriate flat rate that’s competitive and inline with expectations, or going free. The third by communicating your rates in an accessible way.
I’ve shocked by the number of e-commerce sites that aren’t upfront about their shipping rates even when they offer free shipping or flat rate. It’s kind of like hiding the price of your product—it’s part of the price! I’ve seen hundreds of stores that don’t have shipping information pages or they might, but they don’t contain any useful information—or the information is there but is lost in a wall of text.
Rather than communicate this in a wall of text here’s some examples of how it can be done well.
Setting Up Shipping Rates
Best bet is to have a look at the support documentation for your e-commerce platform and shipping carrier if you’re going the dynamic route.
I’ve done a bit of the leg work for you. Here are some guides to setting up shipping rates for your e-commerce business:
Calculating Average Shipping Rates
Check out our calculator here. Also, we did a bit of a video—where I say ‘um’ and ‘ah’ way too much—that explains how to use it. Hopefully.