How to Set Shipping Pricing Model for Your Online Store?

By | March 6, 2018

You’ve set up a visually appealing online store and have stocked it with some amazing products.

Everything is in place except the shipping rates.

You are yet to decide which type of shipping pricing model you should opt for, so that neither do your profits suffer, nor do your customers find it overwhelming.

Free shipment, flat rate shipment, matrix rate shipment, dynamic rate shipment or a combination of multiple shipping rate types – confused?

It’s the final piece of your ecommerce puzzle that still needs solving.

We suggest that you start from the bottom, that is, first find out how much an average shipment will cost you and then decide what to offer to your customers.

Because let’s be honest, every customer wants zero shipping, but can you afford to offer free shipment to your customer? If you can, then good, but of course it’s hard to tell at this stage whether you can or you cannot until you’ve worked out the actual shipping cost.

To calculate your shipping costs, you’ll need to factor in all the overheads. This includes:

Handling cost, which is basically the wages you pay to your packaging staff to process a single item. Simply, take the average number of minutes it takes your employee to package one item, divide it by 60 and multiply the result with the minimum hourly income you pay to your employee.

Packaging material cost, which includes cost of boxes, tape, filling material etc. Of course, you need to work with averages since it’s impossible to track material cost for each order.

Postage, for which you’ll need to calculate how much your carrier will charge you for shipping an order to its destination. To establish a baseline for reference, you can work with average weight and packaging dimensions and test out different destinations to reach an estimated figure. Every carrier provides a shipping calculator on its website so you don’t have to worry about how you’ll get the postage price from your carrier.

Finally, add all three, and you’ve your average shipping cost. Now you can proceed with choosing a shipping rate type for your online store.

Basically, you’ve four shipping pricing models to choose from.

Free shipment

As the name suggests, your customers don’t have to pay anything in shipping charges. If your previously calculated average shipping cost is too low and you feel your profit margins will be healthy enough to accommodate the cost of shipment, it’s the best option to go with.

If you think you can’t afford a free shipment model for every order, you can offer it over a certain cart value. As a suggestion, set the threshold a bit higher than your average cart value.

Flat rate shipment

In flat rate shipping model, you offer a fixed shipment price on all your orders – big or small. The good thing about this model is that your customers know what to expect in shipping rates. Just make sure that you don’t set your flat rate shipment too high. A good strategy would be to set it at break-even; you aren’t here to earn profit on your shipping costs.

Matrix rate shipment

It’s determined by calculating:

Product weight x Cart value x Shipping cost x Destination

If you sell big-ticket items, this could be the pricing model for you. However, it also carries a disadvantage – your customers don’t know what to expect in shipping rates until they’ve entered their address. The final price can take them by surprise and may force them to abandon their carts.

To get your way around this problem, you can try incorporating a shipping calculator on the product page. This way, your customers will know about the expected shipping rates in advance.

Dynamic rate shipment

Last but not the least we’ve dynamic rate shipment, also known as real-time shipping rate model. In this, you connect your customers directly to a carrier by integrating a redirect link on your checkout page. All the calculations are performed by the carrier.

While this certainly helps establish transparency in your shipping pricing model, it’s also one of the least liked among consumers. Again, the reason is, that your customers don’t like surprises when it comes to calculation of shipping rates. You can provide a redirect link on the checkout page but still it’s a model that you should try to avoid.

You can also try a combination of the above discussed pricing models, just be sure that whichever model you choose is convenient for your business and super convenient for your customers.

A BONUS read: 4 Tips for Cutting E-Commerce Shipping Costs