Ecommerce Shipping Strategy: Set Your Strategy for 2023
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Ecommerce stores can be complex businesses to run. By implementing smart strategies, you can carefully consider key elements of your business to ensure you make the best decisions.
In this guide, we run through one area which is often overlooked – shipping. We’ll also help you understand the best ecommerce shipping strategies out there and offer you advice on which one might be best for your unique situation.
What is a Shipping Strategy?
Strategies can be applied to any part of business and are common within specific functions, such as sales, marketing, hiring, and finance. For successful businesses, an ecommerce shipping strategy is also a common occurrence.
A shipping strategy will outline your approach to getting the product from the store/warehouse to the customer. This will include shipping options, costs, and the speed with which they aim to deliver products.
Why Do I Need a Shipping Strategy?
To many, the concept of a shipping strategy may seem strange. After all, isn’t shipping just shipping? Not too much to think about there, right?
This approach is the reason that shipping is often overlooked as a purely logistical, non-strategic part of running a successful ecommerce business. But online stores that fail to realize the importance of shipping can leave themselves vulnerable to unnecessary costs and competitors who might better serve their customers.
You visit your favorite online store. You browse its fantastic range of products and add a couple to your basket. You grab your credit card and hit “Checkout”. You fill out all of the details and make it through the “Shipping” screen, only to find the shipping cost is astronomical. It’s almost 90% of the total cost of your products and it’ll take three weeks to get to you!
What do you do? There are two courses of action you’re likely to take:
- Close the tab and forget you needed/wanted the products in the first place
- Open a search engine and see if any competitors can offer you a fairer deal
Unless you’re in desperate need of the product and no competitors can offer a better shipping deal, it’s highly unlikely that you’ll buy from the website with expensive shipping.
The statistics back this up…
One study found that almost 70% of shoppers that add products to their baskets don’t check out. When surveyed, it was discovered that the biggest reason for this was because extra costs, like shipping, were too high.
But having an ecommerce delivery strategy doesn’t just lower your chances of losing customers, it can also be a powerful selling point. This is just part of the reason why Amazon has rocketed in success – thanks to its swift and low-cost shipping options.
So, it’s clear. A good shipping strategy is actually a powerful tool for ecommerce business. But which one is right for you?
Best Shipping Strategies for 2023
In this section, we’ll explore four of the most commonly used strategies for shipping products. For each, we’ll highlight what the approach entails, why it can be a good strategy, and which businesses typically benefit from it the most.
Free shipping is becoming an incredibly common aspect of shopping online. In many niches, this is the norm, especially among those that compete with ecommerce giants like Amazon. Those charging for shipping put themselves at a considerable disadvantage.
Offering a free shipping option is a powerful tool. It helps buyers understand exactly how much they’ll be paying when they’re browsing your store. It can also be a strong selling point that’s included in marketing materials.
Of course, the downside of free shipping is that you need to absorb shipping costs as a business. Doing this is easier for stores that sell small, uniformly sized and weighted items. This allows you to easily calculate shipping costs and then include those costs within the product price.
ExampleLet’s use a simplified example of a box of chocolates to illustrate this point:
- Cost to store = $5
- Shipping cost = $2
- Retail price = $8
- Profit = $1
As you can see from the example, many businesses that offer free shipping will only make small profit margins to stay competitive. For this reason, this approach is typically best suited for stores that sell high volumes of products.
Shipping costs for larger and heavier products can be substantially more expensive, so businesses that offer these types of products will often find it difficult to offer free shipping while keeping competitive pricing.
Flat Rate Shipping
Flat rate shipping offers an alternative to free shipping. This approach brings many of the benefits of free shipping, such as predictability for customers, but it lowers the risks associated with low-profit margins for businesses.
Offering flat rate shipping is the act of charging one shipping fee regardless of the purchase. For example, an online furniture store may use a flat rate of $50. So, whether you buy one or ten items of furniture, you know you’ll only pay $50 in shipping.
Online stores need to be smart with this approach. Although they charge a flat rate, they need to be aware that larger orders will cost more to ship, meaning businesses should partially build shipping costs into the cost of the product. This means when larger orders are made, businesses will recoup some of the additional shipping cost from each item sold.
ExampleHere is an example of an online furniture store using flat fee shipping. It shows that if a customer purchased one armchair from the online store – the store would make a total profit of $50.
To the store:
- Cost of armchair = $100
- Cost of shipping = $25
To the customer:
- Cost of armchair = $125
- Flat fee shipping = $50
$175 (cost to the customer) – $125 (cost to the business) = $50 (profit per armchair for business)
However, using flat fee shipping, if the customer ordered five armchairs, the business would make significantly less profit per armchair sold:
To the store:
- Cost of five armchairs = $500
- Cost of shipping (10 armchairs) = $125
To the customer:
- Cost of 10 armchairs = $625
- Flat fee shipping = $50
$675 (cost to the customer) – $625 (cost to the business) = $50 (profit for business) = $10 profit per armchair
As order volumes get larger, flat fee shipping will increasingly eat into your profit, eventually turning into a loss. To resolve this, you could build larger profit margins for each product and reduce shipping costs based on higher order volumes.
Local Pick Up
Local pick-up is a popular and cost-effective method for online stores that have a physical location. This works simply by allowing customers to order online and then pick up their products in-store. Local pick up is usually done free of charge since your business will not face any shipping costs as a result.
Another major benefit of this approach is that it lets customers get what they want quicker, rather than having to wait for a delivery.
Real-time shipping is what it sounds like: setting your shipping fee based on the exact cost of the order made. This is easier to achieve for stores that don’t update their stock regularly or for those that offer a low number of product options. However, ecommerce tools can make it much easier for online stores to offer real-time shipping options regardless of their product offering.
This option is good for businesses and customers. It ensures that customers always get a fair deal on their shipping and that businesses never make a loss. A win-win!
However, some customers might be put off by the fact that shipping costs aren’t calculated until checkout.
Ecommerce Shipping Strategy: Summary
Shipping costs obviously have a major impact on the success of your ecommerce business. A good ecommerce shipping strategy can help you stand out from your competitors and delight customers, so it’s important to find the right shipping method for your business. If you fail to consider shipping, you might not meet the needs of your customers, which could have a serious impact on the profitability of your business.
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