With the holidays quickly approaching, it's a good time to review your shipping strategies. Free shipping is ubiquitous as ever, even though shipping costs are increasing. If you choose to charge for shipping, even a nominal fixed amount, like $4.99, you risk a shopper abandoning your cart for a free shipping offer from another store. If you offer free shipping with no limitations, you run the risk of losing money on a sale. If you choose to ship via the lowest cost option, the transit time may exceed your customers' expectations and lead to an unsatisfactory experience.
On the cost side, you need to weigh not only the cost of service, but also the packing materials required. As shown in my comparison table, below, the U.S. Postal Service offers the best options for home delivery in almost every scenario, through its flat rate boxes. But, if the items you sell don’t fit into those boxes, you could be exposed to a much larger charge. This means you need to closely monitor the size and weight of the items you sell to determine if you will be able to leverage the USPS Priority Mail choices or be forced into the more expensive carriers, UPS and FedEx.
Review Your Competitors
The first order of business is to review your competitors' shipping choices. Pay attention to the shipping promotions they offer and which carriers and service levels they use. I did a quick survey of some top retailers to see what their policies were on free shipping. Most are trying to match the Amazon Prime offering that includes free 2-day shipping for all Fulfillment by Amazon items for only $7.99 per month. Note that this does not include marketplace items. I found that many other retailers are putting some type of limitation on their free shipping promotions.
- Walmart. Free home shipping on selected items for orders of $45 or more. Also, free shipping for store pickup on even more items.
- Hayneedle. Free shipping on more than 400,000 items. However, many items that do not qualify for free shipping.
- Wayfair. Free shipping on orders of more than $69.
- Best Buy. Free shipping on all items.
- Sears. Free shipping on orders of $49 or more. Or you can join their Shop Your Way Max program and qualify for free shipping on all items including its marketplace offerings. That costs $79 per year, with a 3-month free trial.
- Vat19. A niche retailer that offers $4.99 flat rate shipping or free shipping on orders of $125 or more.
- Artbeads. A niche retailer that offers free shipping on orders of $10 or more.
Many of these retailers are trying to make sure they do not lose money on low margin items that are costly to ship. In other cases, they are simply trying to increase their average order size. I like the idea of flat rate shipping — it simplifies the consumer's understanding of the shipping cost. Combining that with a higher level of free shipping seems to be a good mix.
Carriers and Costs
Once again, you need to do your own research here. If your shipping originates from either coast in the U.S., your costs will be higher than those incurred from a warehouse in the center of the country. You also need to account for the packing materials. Most boxes cost from $0.40 to $2.00. Synthetic peanuts, bubble wrap, or other filler materials can also add significant costs to your package.
On the carrier side, if you ship to residential addresses and your packages weigh 1 to 10 pounds and are not larger than roughly a shoebox, ship via USPS Priority Mail. It is, hands down, the cheapest alternative if you can leverage the various flat rate boxes. It also offers free boxes, further reducing your costs. Though USPS Priority Mail does not offer true tracking — like UPS and FedEx — its delivery confirmation service is included at no charge. Packages are now scanned at most major postal centers in the U.S. as they travel to their destinations.
When your packages get larger or customers demand faster service, the choices are more complicated. Try to negotiate rates with UPS and FedEx. In almost all cases, a commercial business can negotiate discounts. Higher levels of discounts are available on their air services. Also, do not offer expedited services in your free shipping offers, unless you have the volume of very large retailers.
Here is a table of costs to ship from Boulder, Colo. — where I live — to various U.S. cities. With the USPS rates, I used the commercial pricing you would likely receive from Endicia or Stamps.com, or from integrating directly to the USPS. For UPS and FedEx, I used their standard rates for residential delivery. Importantly, remember that UPS and FedEx impose a substantial surcharge for residential delivery. As such, check the "residential" box when preparing every shipment to ensure you are seeing the accurate cost. Also, realize that rural shipments may also incur an additional fuel surcharge.
The first set of charges shown below is for a stocking hat with an attached beard — called "The Original Beard Hat." —from Vat19. It weighs less than 13 ounces and fits in a small box. The second set of charges is for a Microsoft Xbox 360 Holiday Bundle — available at many retailers — weighing just under 8 pounds with dimensions of 3”x12”x10.” In all cases, the prices reflect the most common services levels in an appropriately sized box. For UPS and FedEx, as well as USPS First Class, you would be paying for the boxes.
|Shipping Costs from Boulder, Colo.|
|New York City||Chicago||Seattle||Sacramento||Dallas|
|Beardo Beard Hat||USPS First Class||$3.48||$3.48||$3.48||$3.48||$3.48|
|USPS Priority Mail - Flat Rate Small||$5.15||$5.15||$5.15||$5.15||$5.15|
|USPS Express Mail||$26.46||$22.81||$22.81||$22.81||$22.81|
|UPS 2nd Day Air||$29.75||$23.27||$23.37||$23.37||$23.37|
|UPS Next Day Air Saver||$59.79||$52.10||$52.10||$52.10||$52.10|
|FedEx Standard Overnight||$59.79||$52.10||$52.10||$52.10||$52.10|
|FedEx Express Saver||$23.77||$17.78||$17.78||$17.78||$17.78|
|Xbox Bundle||USPS First Class||N/A||N/A||N/A||N/A||N/A|
|USPS Priority Mail||$10.85||$10.85||$10.85||$10.85||$10.85|
|USPS Express Mail||$39.95||$39.95||$39.95||$39.95||$39.95|
|UPS 2nd Day Air||$63.73||$42.69||$42.69||$42.69||$42.69|
|UPS Next Day Air Saver||$101.12||$91.09||$91.09||$91.09||$98.84|
|FedEx Standard Overnight||$101.12||$91.09||$91.09||$91.09||$91.09|
|FedEx Saver (3day)||$44.40||$30.32||$30.32||$30.32||$30.32|
When deciding shipping policies for your ecommerce business, do your homework and monitor your analytics. If you implement a shipping program and see your abandonment rates increase, then adjust your policies. Continually compare carriers and packing products to make sure you are shipping in the most efficient manner.