So you’ve settled on a price for your ground-breaking new product. No doubt deciding pricing was a decision that caused you some headache, but unfortunately you’re not quite out of the woods yet as you still need to decide on shipping rates. In this blog post we’ll explore how to calculate shipping rates and complete your pricing puzzle…
Of course, your online customers won’t just be paying for the product itself you see. They’ll also be paying for shipping – either that or you will – and that means you need to factor this into your pricing strategy. So how do you go about that? To start, you need to calculate shipping rates for your startup.
How To Calculate Shipping Rates
On the face of it, this might seem simple: all you have to do is calculate the amount it costs you to ship your products and then pass that expense on to your customers. Well, not necessarily – as it happens there are a wide range of shipping rate strategies available, and even the simple act of calculating costs can be a little more complicated than it seems.
Let’s start with how to calculate shipping rates. For starters, you need to consider the costs of the delivery company that you’re going to be using, and the type of delivery service you want to use. On top of this, there are costs such as packaging and tracking. Do you invest more into some high quality packaging? Or do you cut overheads here and hope for the best? Do you want to offer tracking for your deliveries, or would you rather keep costs down for your buyers? If you’re shipping internationally, then you might need your product to go through customs, and this means working with a freight forwarder. If you are shipping a parcel through UPS or FedEx, they will take care of the freight forwarding. However, if it is a larger shipment like a palette of goods, then you will most likely use someone else such as Flexport or Great World Logistics as your freight forwarder.
The other thing you need to consider when shipping internationally is who is paying for the those duties and taxes on those goods you are shipping. Duties in some countries can be astronomically high, and it’s important to forecast this cost or make your customers aware that they will be responsible for paying those duties. The recipient of the goods is normally responsible for the payment of duties and taxes, unless the invoice specifies that the shipper or a third party should be billed. The shipping provider will pay the duty and VAT taxes to Customs on behalf of the recipient, and will often charge an advancement fee for providing this service.
Once you choose the company you want to handle your shipping, then you may be able to use a calculator on their site to at least workout the times and costs of that aspect. Here is an example of a calculator from UPS, which estimates the time and cost of delivery based on the destination and service, and other services such as delivery times for your package and freight services using simple inputs about your shipment details.Keep in mind though that you probably won’t have to pay that price. Normally you’ll be able to get some kind of discount from the carriers, so shop around and don’t be afraid to get in touch and tell them you need a better rate. If you’re a big client who will be offering them repeat business, then it’s worth their while to offer you something a bit better.
There are some other questions you might want to ask them too. For instance: where do they ship to? And if you’re shipping something lighter, would you do better with a hybrid solution like FedEx Smartpost or UPS SurePost? These services reduce costs by using the postal service for the final delivery of your parcel – but of course, this won’t be suitable for all kinds of products.
But it gets more complex. If a customer orders items of different weights, sizes, or quantities, then of course, shipping costs will vary. Likewise, customers in different parts of the world will also cost different amounts to ship to.
Flat Rate Shipping
Flat rate shipping means paying a single rate for all your shipping consignments. This keeps things simple, and makes it easy for you to boast about your low, low rates. You can offer flat rates if you work out the average cost of shipping, and that way you’re also rewarding your bigger buyers. That said though, it works best if you are selling items of a similar size and weight. It feels odd to be charged the same for postcards as you would be for dumbbells. Here is an article on calculating flat rate shipping by FedEx.
But it gets more complex. If a customer orders items of different weights, sizes, or quantities, then of course, shipping costs will vary. Likewise, customers in different parts of the world will also cost different amounts to ship to. You can get around this by adding a different price tag to every order but that’s a little complicated for your buyers, and can be off-putting as a result. This is what’s known as variable rate shipping. However, you can still charge a flat shipping & handling fee if you use variable rates from the carriers. They’re not mutually exclusive.
Free shipping of course means that your customers don’t get charged shipping costs. This is a great marketing strategy, as it provides added incentive to buy from you versus the competitors. It’s easy to set up in sites like Shopify, and it saves buyers the headache of calculating the extra cost, or the nasty surprise when they see shipping added on.
The downside to this strategy though, is that it costs you money. Generally, this is only a good idea when your shipping cost is no more than 20% of the product price. You could always increase the price of your items in order to absorb that cost, but then this makes the customer feel that they’re getting worse value. The hope is that your free shipping will increase volume enough to offer good ROI.
Another question you’ll need to ask yourself is where you’re willing to ship to. If you’ll be using oceans shipping then of course things get a lot more complicated but you will massively expand your potential market. Now you’ll need freight forwarding, which means you’ll be going through a contractor who can help you deal with international carriers. They will also deal with customs brokers for you (and you’ll need to decide whether you’re going to pay the tax and duties or whether your customer will).
Shipping to different countries will of course cost you different amounts, so it’s up to you how broad or narrow you want to make your potential consumer base and then choose whether you want to bill your overseas customers for the trouble.
Combining Shipping Strategies and Using Special Offers
Just like your pricing for your items though, there’s no reason you can’t alter and tweak your shipping costs, and even run some split tests to find out what ultimately attracts the most sales and biggest profits.
Otherwise, you can use your shipping as a form of incentive. Maybe offer free shipping on orders of over ‘X’ amount, or use flat rate shipping for 90% of your products, but make a few exceptions for those really big items.
You might also give the user the option to choose their type of shipping – perhaps your free shipping is slow, but you also offer a faster delivery option for a flat rate (which is similar to Amazon.com’s model)? This can work as a form of upselling, and you can even get more profit this way.
Shipping Locations & Limitations
If you intend on crowdfunding your product, you may receive many orders all at once. If you have thousands of units that need to be fulfilled and the locations of these orders are dispersed throughout the world, a possible cost saving solution is to use multiple warehouses around the world. This may also result in a better customer experience with faster lead times and better parcel tracking. Fulfilment companies like Rush Order provide these types of global warehousing solutions for companies launching on crowdfunding platforms and continuing with large scale volumes from there.
Also, never settle on the retail price that is provided from the carrier you are getting a quote from. More than likely you will be to receive a discount when you purchase in volume. If you are like most hardware entrepreneurs, this will apply to you when your crowdfunding campaign goes wild and there a lot of orders to fulfill.
Of course, for budding hardware startups, this might be a lot simpler. If you only have one product to ship, then the real question is just how much you want to charge for each order, and whether you want to offer any special incentives. If you have multiple though, then you’ll need to look at these different options and decide which works best for you. Flat shipping rates are simpler, but using combined offers might help you to increase turnover. There’s no one-size-fits-all answer here but what you certainly can do is to try a few and monitor the impact it has on your profits!
The key point is that shipping can make a big difference. For proof of that, look no further than Amazon. Their option to combine shipping on products bought in a close time frame has no doubt drastically increased revenue and most of us can probably remember a time we decided to add to our pending orders as a result.
How do you calculate your shipping rates? What have you found to be the best strategies for shipping your products and keeping your customers satisfied? Let us know in the comments section below; also, sign up for our newsletter to get latest tips and updates on topics like shipping, costing, and manufacturing.