Shipping Strategy: Get Packages to Customers Without Cutting Into Your Bottom Line

Ecommerce is booming—more, you could argue, than ever before. As technology continues to advance and the COVID-19 pandemic influences the way people shop, the way you do business is changing.

According to our survey, more than half of consumers feel uncomfortable with in-store shopping and have shifted to ecommerce as a result of the pandemic. And this shift is creating long-term behavioral changes.

One challenge growing ecommerce sales bring is shipping. As a business owner, it’s normal to be apprehensive about shipping and delivery. Even though you can do everything in your power to pick, pack, and mail your product as soon as a sale comes in, you’re relying on a shipping carrier to deliver a package on time and in good condition.

The courier you choose plays a role in the formation of a customers’ experience and how they end up feeling about your business. But there are ways you can take your shipping strategy into your own hands.

Why you need to choose the right shipping strategies

It's an all-too-familiar story. A new customer comes to your online store, finds a product they want at a price they like, and adds it to their cart. They get to the checkout page and then it happens: they see the shipping price and start questioning their purchase.

Suddenly, a product they thought was well-priced seems a little expensive. One of two things happens next:

1. They decide to continue, despite the increased costs
2. They abandon their cart and leave your store

More often than not, they abandon their cart. The seminal research from Baymard Institute shows unexpected shipping costs are the top reason for shopping cart abandonment.

Because of this, shipping isn’t just a cost of doing business—it’s a strategic lever that can influence your business as a whole. With the right shipping strategy in place, you can:

• Create a better customer experience. By setting clear expectations with your shipping strategy, you’ll ensure customers have a consistent and positive experience when they shop with you. Remember to be transparent about shipping delays due to COVID, natural disaster, carrier delays, the impact of peak volume, and whatever else might hold up your customers’ packages.
• Increase your average order value (AOV). Promotions and offers around shipping are excellent ways to encourage shoppers to buy more and can effectively increase your average order value. You could offer free shipping with a minimum purchase on select items or for a limited time, for example.
• Expand your business. With an international shipping strategy in place, you can sell to more people in more places around the world to grow your business.
• Increase your conversions. When customers know what to expect at a price that feels fair, they’re more likely to complete their purchase. Giving them options also encourages a sale—you can give customers a choice of carrier, delivery time, and even fulfillment method, including options like local delivery and curbside pickup.

Make price a core component of your shipping strategy

How you charge customers for shipping is a crucial component of your shipping strategy and directly influences both your conversion rate and profit margins. Let’s take a look at some of the most popular strategies for pricing your ecommerce shipping:

1. Offer free shipping. Some merchants offer free shipping on all orders, while others choose conditions. For example, free shipping on all orders over $100.
2. Charge exact costs. Typically, this involves using real-time shipping carrier rates that are exact, down to the penny (ex., $8.36).
3. Provide flat-rate shipping. You can apply a single flat fee for shipping to every order. For example, $10 for any order sent to anywhere within the United States.

Shipping strategy #1: Offer free shipping

In the US, 21% of small and medium-sized online retailers always offer free shipping. Free shipping is never truly “free,” as it means the shipping cost has shifted to you.

Depending on your margins, offering free shipping may or may not make sense, and you may need more information about your customers before you can confidently adopt this approach. Generally speaking, free shipping without conditions is best for high-margin products where you can account for shipping expenses in the overall price of your products.

Free shipping is never truly “free,” as it means the shipping cost has shifted to you.

If you’re a newer merchant, look into your pricing strategy and profit margins and see what your competitors offer. You don’t have to mirror their shipping strategy, but it’s important to keep in mind and offer what makes you comfortable as a business owner and from a profitability standpoint. To test it out, start by offering free shipping with a condition for a minimum purchase.

As you sell your products at this rate, you’ll also be able to gather data to shape your future shipping strategy: Who are your customers? Where are they located? What do they buy? What’s your AOV? Which products are more expensive to ship?

Now it’s time to look at the impact on AOV. Has it increased with the new free shipping offer? If yes, then look at your profit margins to ensure you’re still generating ROI. If not, it’s time to raise product prices, use a different order minimum, or consider a different shipping strategy.

How to offer free shipping and stay profitable

Know your margins

Your ability to provide free shipping is contingent on knowing two numbers: the cost to ship an order and the profit you’d make on that order. While it’s difficult to predict this for every potential order, you can look at your current AOV and the cost to ship your most common products and orders. Those estimates will give you a sense of the feasibility of offering free shipping as it stands today.

Incorporate it into your pricing strategy

If free shipping is a competitive must-have in your niche, one of the strategies to remain profitable is to plan for the cost when you price your products. Remember, there are many things that can influence your pricing strategy, and covering shipping costs is only one of them. You’ll also have to consider your niche and the competitive landscape.

Use free shipping to increase your average order value

The most common strategy for offering free shipping over a certain amount is to get some sales under your belt and determine your average order value, then offer free shipping on all orders X% greater than your average order amount.

For example, let’s say you have some orders already for the following amounts:

If you add them all up and divide by the total number of transactions (five in this case), you’ll get your AOV. That works out to $87.90. With this particular example, you might want to offer free shipping on all orders over $100. This will help increase your average order size, which can give you additional profit to help partially cover the cost of free shipping.

One beauty and hair care brand had its minimum order at $80 to qualify for free shipping. It found that more than half of people would get past the shipping stage but drop off at the payment stage—likely because of high shipping costs. So it decided to adjust the condition for free shipping, lowering it to $45, which was the average cart size for abandoned checkouts. As a result, the brand doubled its revenue and almost tripled its number of sales.

Optimize your packaging

The weight of your packaging is a significant factor for your shipping costs, and luckily, it’s one that’s somewhat within your control. Consider how much packaging you need to ensure your items arrive at their destination safely with no damage.

For delicate items, you might need heavier packaging like cardboard to protect them, but for items like clothing, you can opt for lightweight packaging, like a poly mailer, to save money on shipments Merchants can also benefit from free packaging provided by carriers such as USPS.

Get competitive shipping rates

When you’re offering free shipping, reducing the cost of each shipment is a way to make it more sustainable for your business. After all, shipping is the top expense for more than half of online retailers. To do that, research shipping options in your area to see if there are ways to save money by providing lower rates than retail pricing on the mail classes and services you need.

Offer short-term free shipping promotions

If free shipping isn’t sustainable year-round, consider using it as a promotional lever to boost sales. For example, if you can’t offer free shipping during your busiest times, use it as a promotion to clear out older inventory at full price during a slower time of year. Plus, many carriers add surcharges during the holidays, so you can end the promotion in time to avoid eating that additional shipping expense.

Offer free shipping on some products, not all products

Large or particularly heavy products like furniture may not fit in with your overall shipping strategy, as shipping on items like this can be extremely expensive and cut into your margins significantly. Do your research about how much each of your products actually costs to ship, how your competitors handle shipping, your average order size, and your profit margin to make the best decision for your business.

Determining whether to offer free shipping on all orders or require a minimum threshold comes down to your margins, the niche you operate in, and what your competitors are doing.

If free shipping isn’t sustainable year-round, consider using it as a promotional lever to boost sales.

If you offer luxury or handmade one-of-a-kind items, rolling in an extra percentage for shipping and handling probably isn’t too much of an issue, and it will be hard for consumers to notice.

However, if you’re in a highly competitive market where both free shipping and the lowest prices are the norm, marking up your products to cover shipping may not be the best idea, as consumers will immediately notice the increased product cost. This is where you have to consider either a different option entirely or absorb the cost for shipping on most of your items.

Shipping strategy #2: Charge exact shipping costs

If free shipping isn’t in the cards, or isn’t an option for every shipment, charging your customers exactly what it’ll cost you to ship their order is a strategy that can empower them to choose the best fit for their needs.

For example, a customer who needs an order to arrive before a specific date may be willing to pay $20 for expedited shipping, but a customer who’d rather save money and wait a few extra days might be more likely to convert if they can choose a $5 shipping option that will take a bit more time.

Queen Majesty Hot Sauce employs this approach. Once a customer gets to the checkout, they select where they want their order shipped to, and the calculator does the rest.

Using a real-time calculator can help you earn trust with your customers. The calculator acts as evidence that you’re not inflating your quoted shipping fees or raising your item prices to cover the charges.

This is also a good option to use for heavy or oversized shipments that you simply can’t or don’t want to ship for free.

But shipping can get pricey, and when a customer can order the same product at a higher price point but inclusive of shipping, they might opt for a competitor. It’s important to negotiate the best rates and partner with companies that can give you the best shipping discounts.

With Shopify Shipping, you can purchase shipping labels directly in Shopify to simplify your shipping process and receive the lowest rates with USPS, UPS, or DHL Express in the United States, Canada Post in Canada, and Sendle in Australia.

Shipping strategy #3: Offer flat rates

Your third option is to offer a flat rate for every package or flat rates for weight ranges and order totals. For example, The Sill, a houseplant company, charges a flat rate for shipping. The rates vary depending on the order value.

This flat-rate method of charging for shipping requires a bit of preparation to figure out your average cost of shipping a package. This is a best practice you should be doing anyway to make sure that you don’t drastically undercharge or overcharge your customers.

When you hit the right price for your flat rate shipping, you'll probably be over—or under—the actual shipping cost by a little, but it should balance out in the end.

One important point about the nature of flat rate shipping: find the flat rate that works for you. This will require some testing so you can determine if you need to do it by order totals or weight ranges, or something different.

Add alternative delivery methods

Ecommerce shipping is no longer limited to third-party carriers. You can manage your own shipping with innovative options like curbside pickup and local delivery, among others. These methods can attract local customers and are a great way to connect with your local customer base.

In a COVID-19 economy, businesses have implemented physical distancing measures to limit person to person contact. Consumers needed an efficient way to continue to shop and support local businesses.

Local and curbside pickup

With limitations on dining out and in-store shopping, local and curbside pickup allows customers to purchase your products online and visit your store for a quick pickup—sometimes never even having to leave their vehicle. And the convenience of these options is likely to make them stick around post-pandemic.

40% of shoppers selected curbside pickup for online purchases in the first three months of the pandemic.

This piggybacks off the BOPIS, or “buy online, pick up in store” trend. In 2018, BOPIS accounted for up to 30% of online revenue for some retailers, and 28% of retailers said internet orders picked up in store could be up to 20% of total online sales, according to a Signifyd survey. In our consumer trends report on how purchasing habits have changed during the COVID-19 pandemic, 40% of shoppers selected curbside pickup for online purchases in the first three months of the pandemic, and 38% plan to continue to use it going forward.

Local delivery

Local delivery is another way to get orders directly to customers nearby and skip using a third party shipping carrier. Our survey responses indicate that 31% of shoppers used local delivery during the first three months of the pandemic, and this trend isn’t slowing down anytime soon.

Not only is it a great way to decrease shipping costs and take shipping into your own hands, if you are able to, delivering orders yourself can encourage more local sales with the draw of free or a lower-cost delivery. And if you don't have a storefront location, you can also use a warehouse and deliver in the area local to that location.

💡 Note: Looking to set up local delivery for online orders? Check if you’re eligible to offer local delivery, then log in to set up local delivery or local pickup in Admin > Shipping and delivery in your Shopify store.

Prepare your ecommerce business with a return shipping strategy

You can have the best product pages in the world, but no matter the industry or niche, there are going to be cases where a customer gets their product in-hand and decides it’s not right for them. Even if the reasons for a return have nothing to do with you or your product, you still need to be able to handle them.

There’s no one right answer when it comes to pricing your return shipping, but there are a few standard options you have to choose from, and they mirror the three main shipping pricing options you worked through to price outgoing shipments.

1. You can offer exact cost pricing for return shipping
2. You can offer free return shipping
3. You can offer flat-rate return shipping

According to our analysis, 36% of consumers want to see free returns. But that’s not cost effective and it’s sometimes impossible for newer businesses or for those with a high returns rate.

We spoke with Sharon Reeds, co-founder at Intuitive Shipping, to get an expert perspective on how to handle your return shipping strategy. For newer businesses, or those just starting to figure out how returns will work, Sharon says that a flat-rate strategy can be a great way to set expectations and make customers feel confident with their returns without needing to absorb the full cost.

“Offering a flat rate for return shipping is similar to offering flat-rate shipping, but on returns," Sharon says. "With this strategy, you can offer a return shipping option where the burden isn’t on either side, it gets split between the two. It’s a good compromise for your customers, and they know exactly how much a return will cost them before they buy.”

Figuring out which return shipping option is best for your business boils down to a few key questions:

• Which options are financially feasible? This includes how often you anticipate getting a return as well as general information about your margins and your shipping costs. If you have a generous return policy, you’ll likely have more returns.
• Which option do you want to offer? This is focused on the competitive environment and your customer service strategy, within the subset of affordable options you just identified.

Once you’ve figured out how you want to price your return shipping, you can move on to your process for accepting a return. This can include your communication about return shipping with your customers and the process you use to make the shipping labels available to them, if at all.

When you’re splitting or sharing the cost of return shipping with your customers, however, you’ll want to add a step to make sure everything is clear before they send their items back.

“If you’re doing a subsidized return, I would recommend having an email step in place. That’s because, to be frank, a lot of people won’t notice the terms of the return when they’re buying an item,” says Sharon. “Think of it this way: if you send the return label pre-printed, your customer will likely see it and assume that the shipping is covered. When they send their return and see that money has been deducted from their total, they’ll be wondering, ‘Why is there money missing?’”

That’s where extra communication can actually help you deliver a better, clearer, overall experience.

“The extra step is a place for you to remind them that the return shipping rate will be taken off their total return. Adding an extra step in this case can actually help make sure you’re delivering a better customer experience.”

Make sure your shipping strategy is right for your business

What you choose to charge customers for shipping can have a significant impact on your conversion rates as well as your overall profitability. You’ll need to decide what will work best for your brand, business, and customers, and will likely have to test a few methods before you settle on the one that’s best for your business.

Thank you to Mike McGuire and Adam Rogers for their contributions to this post!

Illustration by Rachel Tunstall