How Should I Charge For Shipping?

Just when you thought your ecommerce pricing strategy was sorted, you realise the most complicated factor is yet to come: Shipping. This is the final step in your product’s journey – delivering it safely to your customer in a timely manner.

There are a number of options available to you but remember, your decision about which to offer, may very well impact your potential customers’ propensity to purchase from you. Think about your own preferences when shopping online and ask around before settling on your final shipping price strategy.

How to Calculate Shipping Costs

First thing’s first though, let’s take a look at how to calculate shipping costs.

Most shipping rates are based on either the cubic weight or dead weight of an item (whichever is heavier). While the dead weight of an item like a fishing rod is quite light (around 1.5kg), because they can take up quite a bit of space (and thus have a higher cubic weight), their shipping cost will be calculated based on the heavier, cubic weight.

The dead weight is simply the weight of an item. The cubic weight is calculated by measuring and multiplying the length, height and width of the parcel, and then multiplying the result by the cubic weight modifier (which the carrier sets, but the industry standard cubic weight conversion factor is 250).

Cubic Weight = (length x width x height (at the maximum point)) x cubic weight modifier

E.g. a parcel measuring 60cm long (0.6m), 30cm high (0.3m) and 40cm wide (0.4m) is equal to

0.6 x 0.3 x 0.4 = 0.072
0.072 x 250 = 18kg

If the actual weight is 10kg, postage will be calculated on the 18kg.

Once you’ve completed the calculations for the various products in your online store, you can start running comparisons between carriers. You’ll also need to account for destinations within Australia and overseas and be sure to double check service to remote locations.

You’ll find that freight carriers will provide software or online calculators so that you can figure out your shipping costs and we’ve detailed a number of trusted carriers you can begin with, in our Guide to Shipping and Order Fulfilment.

Many freight companies will also offer prepaid satchel or carton prices or you can negotiate a flat rate for a particular satchel or carton size.

Now that you’re armed with exactly how much your shipping is going to cost you, it’s time to decide on how to charge for shipping.

Per Item Shipping or Live Rates

Your first option is to quite simply pass on the cost of shipping directly to your customer. You can either add it as a set shipping cost for each individual product or you can build in a live shipping calculator as part of your checkout process.

Many ecommerce platforms (Neto included) offer integrated shipping as an option and it will allow both you and the customer to request a live shipping rate from a number of suppliers. This option is ideal if the costs are just too variable to estimate beforehand allowing merchants to evaluate their position while processing orders, and it also ensures that you’re not eating into your profit margin.

Customers are happiest when they know what they will have to pay upfront, so it can be a little difficult to market this option to your customers, but the message simply needs to assure them that they’ll pay the cheapest rate available. You will probably find that your rate of converting shoppers to sales will be lower with this option compared to some of the others we explore below.

Free Shipping

Here are some pretty important stats to consider if you’re deciding whether you should be offering paid shipping or free shipping. In 2013 it was found that a huge 76% of online shoppers expected free shipping or shipping to be included in the cost of their purchase (source: UPS). And we’re going to put it out there and say that this figure has probably only increased! In fact, our 2018 State of Ecommerce Report found that free delivery is the second most important criteria driving customers’ purchase decisions, behind price. Numerous studies have revealed that free shipping not only decreases abandoned shopping carts but also increases the overall average sale as it helps overcome the psychological hurdle of that additional cost.

So how do you make free shipping work for you, the online retailer? One pricing structure is to increase your sale price by 5-10%. However, this option will probably only work if you’re selling unique items. If you have competitors offering the same item at the RRP, you’re going to lose out on sales so be sure to do your research. Most retailers will simply absorb the cost. When you don’t have the expense of bricks and mortar overheads, you should still have a workable profit margin but again do your research, watch it closely and keep in mind that you’ll hopefully see an increase in volume of sales (more product, less margin).

Limited Free Shipping

As an additional option to free shipping, why not consider limited free shipping, especially when you’re just starting out. Maybe you can offer it as a promotion for a limited time, say over a weekend or as a thank you for returning customers.

Another option is to set a minimum spend. One retailer experienced a 90% increase in orders and a 7.32% increase in order value by making this small change. And with a little research, you’ll find that this is quite a common story. We’ve all been guilty of spending an extra $40 to save $10 on shipping! And if you’re looking to move certain products in your range, rather than putting them on sale, why not offer free shipping? You might also consider offering free shipping but charging extra for customers who would like their parcel sent by express.

Flat Rate Shipping

As the name suggests, flat rate shipping is to apply the same shipping rate to every item in your store, regardless of size or weight, or offering flat rates in bands like weight or product type. It’s a great way to work around the challenge of free shipping and it’s also easy to communicate to your customers in marketing messages and on your website. If you can manage an easy average price, you’ll be ahead on some products and behind on others – just be sure it’s a price that customers will happily accept.

Mixed Rates

We all like to mix it up a little and with a robust ecommerce platform you’ll have the option to offer a mix of rates for customers to choose from. It may be free for standard shipping (longer delivery) and then you can step your rates up according to how quickly the customer wants their order delivered. This option will also give you great data to work with and insights into customer preferences so that you can tweak your shipping options as you go.

Ready to Ship?

Here at Neto we’ve done some of the hard work for you with a shipping option that’s quick and easy to set up. Our native integration with leading shipping carriers including Australia Post, Fastway and Couriers Please make it easy to get real-time shipping quotes, print shipping labels and dispatch all from the one platform.

Free Guide: Optimising Your Order Fulfilment

We’ve also partnered with Sendle who offer a low cost, flat rate, door-to-door courier service. And the best part is that they guarantee to pick up on the scheduled day and guarantee their price is on average, 15% cheaper than standard parcel post. That’s equivalent to a saving of up to $1 on every parcel, which is quite significant in your overall business costs.

Sendle is fully integrated with the Neto platform, which means you can be set up and running in just a few clicks.

Shipping can be a very complicated beast, but with a little knowledge and the right platform and shipping integrations, it can be one last thing to worry about in your ecommerce business. So what are you waiting for? It’s time to get started with your free Neto trial or send with Sendle… or both!

Editor's Note: This post was originally published January 21st 2012, and has been updated for accuracy and comprehensiveness May 22 2018.