Shipping: What method of Calculation to Use?
Posted on 29/05/2007 in eCommerce

Just about everyone who is setting up an ecommerce store grapples with the concept of shipping rates. What is the best way to calculate shipping?  There is no “one size fits all” answer here. It depends on answers to questions like:

  • Are you willing/able to subsidise the cost of shipping to encourage more orders?
  • Are you selling products that are heavy or light or both?
  • Are you selling to just Australia or other countries?
  • What shipping method are you using?

One of the top reasons why customers abandon their shopping carts before completing their order (and some studies report this to be the No 1 reason) is shipping costs. So, you don’t want to artificially increase the cost of shipping in any way and, you may even want to subsidise the cost of shipping (if your profit margin is high enough to do so).Whatever you do – try and make it as clear as possible to your potential customers what the shipping costs for their order are going to be, at the earliest opportunity. If your shipping cost is postcode dependent, perhaps you can add a “shipping calculator” option – so that people can check the cost of shipping any product to their postcode.With most ecommerce systems (including ZenCart and OSCommerce), the standard options you have for calculating shipping are as follows:

1. Flat Rate Shipping

All products have exactly the same shipping cost, regardless of the actual cost of shipping. As long as your shipping rate is reasonable, buyers love this because they can see immediately what price they will pay. It also encourages them to buy more because the shipping cost will stay the same. You can make up a really good looking banner and add this in your side bars to tell people that you offer Flat Rate Shipping – and the price. The obvious risk here is that you may end up paying a lot more to ship out some orders than you are getting back in the shipping cost, so you want to make absolutely sure that your profit margin will cover this extra cost. Of course, there may be orders where the actual shipping cost is less than you are charging and so you will make a little bit!

2. Tiered Shipping

The shipping cost is set according to the sales value of the order. For example: $1-$50 = $8, $51 – $100 = $14, $101-$200 = $19, etc. So -you work out what each of these tiers will look like. The idea here is to roughly work out what the shipping cost will be by order value – though you probably again want to encourage people to spend more, so it is a good idea to reduce the amount of shipping paid as they spend more (even if the shipping cost doesn’t actually reduce).  You can also use this option to have “FREE SHIPPING OVER (say) $100” or whatever suits your business model. Again, this is encouraging people to spend more.

3. Shipping by Item

This approach calculates the shipping cost by the number of items purchased (eg 1 item = $10, 2 items = $17, 3 items = $25, 4 or more items = $30). There is also a plug in module for Zencart that allows for a two tiered system for pricing – national and international.

4. Shipping by %

Calculate the rough cost of shipping as a percentage (%) of the total sale price. So, it may be $10 plus 5% of sale value. So a $100 order will cost $15 for shipping.

5. Shipping by Weight

This is one of the most accurate, but most difficult to set up and maintain. Basically, you need to weigh every item in your store and then also work out what % of the total “ready to ship” weight (ie packed and in the box ready to go) is packaging costs. This can be altered by size of package (small, medium and large).  The problem with this approach is that your customers will not know the shipping cost until they get to checkout (unless you have a shipping calculator script added to your site which displays this much earlier in the process). You may also want to have different rates by weight to different locations – so if you are in Melbourne, the cost of shipping to Sydney will be a lot different than shipping to Perth or New York! See below for more info about this.

6. Shipping by Actual Supplier Cost

The open source ecommerce packages – ZenCart and OS Commerce – both have standard shipping modules that are already scripted to calculate the actual cost of shipping by certain providers. For example, for Australia, you can find shipping modules already built for Australia Post (ZenCart and OSCommerce), TNT (OsCommerce) and Toll (OSCommerce).  In particular, these modules provide for shipping calculations by both weight and postcode.

So, which shipping approach is best for you – whichever one will encourage your customers to buy, without costing you too much money!

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