How do you charge your customers for shipping costs?

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When some one visits your store, the price tag is usually one of the first things they will notice. This is especially true in the online world where your competitors are just a few clicks away. Pricing strategy is an important of your business’ overall strategy and can affect everything from revenues to customer relations. If you are an ecommerce business, then shipping costs are a very important variable in this equation. According to a study 51% of shoppers abandon the shopping cart  because their total purchase price doesn’t qualify for free shipping.

Factoring in the ship to and bill to addresses will account for costs like shipping or tax that vary regionally. Dealing with shipping rates can be a hassle, even if you ship all your orders from one location. If you ship from more than one warehouse, or dropship through multiple suppliers, it can be a nightmare. Instead of stressing about multi-location shipping on every single order, take a step back. Look at the big picture. What are you trying to achieve? Accurate shipping rates? Or more sales, happy customers and repeat business? Sometimes the best answer is to keep it simple stupid!  Take a look at past orders and use them to work out a flat shipping rate. Or perhaps a tiered rate based on cart value.

If setting a flat rate is not possible for your business, here are a few different geographic pricing methods to give you an idea of what some companies are doing.

F.O.B. Origin

The F.O.B. origin pricing method simply means that the purchaser pays the shipping cost. Responsibility of the shipment is transferred to the buyer the moment that it leaves the warehouse or factory. Although this may sound simple and ideal, be sure to listen to your customers. Depending on what products you’re selling and what target market is buying, they may not like the cost and responsibility.

Uniform Delivery Pricing

In this method, the consumer pays for the shipping, but it is a standard price no matter where the product is being shipped to.

Zone Pricing

With this method, prices increases with the distance of the shipment. There are a couple ways to go about zoning:

  1. Concentric circles – These circles begin at the factory or warehouse and expand out on a map. This is the most simplified zoning method but may not be the most efficient.
  2. Irregularly shaped boundaries – This allows you to account for the geography of the land, population density, transportation infrastructure, and shipping costs. You can also use these irregular shapes to reflect competition, supply, and demand rather than costs.

Freight-Absorption Pricing

The seller absorbs all of the transportation costs. This is typically done as a promotion and does a great job of upping your competitive edge. A lot of sellers will use it as an incentive to encourage consumers to buy more by offering free shipping for a certain order size. Here are some examples.

Base Point Pricing

Each city is assigned a specific price so that all shipments from a given city are charged the same amount. In the end, the purchaser pays whatever the total is plus the assigned shipping price for their region.

So how do you know which pricing method works best for you? Take a look at what competitors are doing. If they are offering free shipping, you may want to consider doing the same thing. Get to know your consumers and what they value so that you know what type of price incentives they respond to. Give the people what they want! If you don’t already know, try running some promotional tests to find out. There are more pricing methods than the few that are mentioned in this article. Look around at your competitors, listen to you consumers, run some tests, and get creative.