Shipping and delivery fundamentals: How to choose a shipping cost method

Delivery fees can be a big decision-making factor for customers when they’re choosing which business to spend with. The Telstra Business Intelligence report on Customer Experience found that small businesses are underestimating customers’ sensitivity around shipping costs.

What’s more, customers’ shopping behaviours have changed due to COVID-19. Online shopping rates have risen, driven by both necessity (lockdown restrictions) and preference (the convenience of shopping from home). eCommerce sales also rise during peak retail periods, like Christmas.

With all this in mind, it’s important to consider how you’ll calculate shipping charges in a way that works for your business and your potential customers (and ensure you’re transparent about it on your business website).

Here, we share an overview of the options and why you might choose one over the other.

Flat rate

Best for: businesses that typically have orders of the same approximate weight and size, that only ship domestically.

Think twice: if you’re sending items overseas – flat rate shipping might not be the right fit. International shipping can incur taxes and import fees, so (unless you absorb these costs) your customers might get an unpleasant surprise when they collect their package.

Make the most of it by: checking your sales history to see if your orders are generally of a similar stock – then use this data to determine how much it would cost you to send an average online order.

Consider this method if:

• your business only sells in Australia, and
• orders tend to be a similar weight and size.

Based on order weight

Best for: businesses that sell items that may be roughly the same size, but can vary significantly in weight. For example, if you sell big-ticket items like furniture.

Think twice: if weight is not a critical factor for shipping your products and if it will be difficult or unfeasible to manually enter the weight of each item you sell in the backend of your online store.

Make the most of it by: planning how you’ll input product weight data to your online store (and make sure it’s manageable). Consider adding a shipping calculator to your online store, so that customers can calculate their shipping costs prior to purchasing.

Consider this method if:

• your business sells products with clear, unchanging weights, and
• your online store can host a shipping calculator.

Based on quantity of items

Best for: businesses that sell uniform or similar products that mainly vary by colour, flavour, or another trait that wouldn’t impact the size or weight of the item (like candles or bottles of wine).

Think twice: if you sell one-off items or products that vary considerably in weight and size. In this case it might be best to look at other options, as the shipping cost per unit won’t be consistent. For example: if one customer buys five Smart TVs and another buys five DVDs, the shipping costs you’ll have to outlay will be very different.

Make the most of it by: offering a lower shipping cost (or free shipping) when customers purchase a greater quantity, to help encourage customers to buy more. For example, $10 shipping for 1–5 items, then $5 shipping for 6 items or more.

Consider this method if:

• your business sells products that are fairly uniform in size and weight.

Based on order price

Best for: most businesses. Simply put, the more a customer spends with you, the less they’ll pay for shipping.

Think twice: if you don’t want to absorb any shipping costs. In this case, it might be better to look at an option like flat rate shipping.

Make the most of it by: offering a lower shipping cost (or free shipping) as an order total reaches a certain threshold, to help encourage customers to spend more with you.

Consider this method if:

• you want to encourage customers to spend more when they shop with you, and
• you’re happy to absorb some costs if it means customers are placing larger orders.

Free shipping

Best for: businesses that want to gain a competitive advantage. Small businesses often underestimate how attractive free shipping can be to consumers. The Customer Experience report found that 32% of SMBs thought free shipping would be considered important to customers when interacting online with a small business – however, 73% of consumers said it was important.

Think twice: if it’s not feasible for your business to offer free shipping for every order and maintain a healthy profit margin. In this case, you could offer free shipping once an order meets a certain threshold - either by quantity or price.

Make the most of it by: incorporating “free shipping” messaging into your marketing communications, to help customers choose your business over another if they’re shopping around.

Consider this method if:

• the retail cost of your product accounts for shipping costs, or
• it’s feasible for your business to cover shipping costs when an order total reaches a certain threshold.

In the Customer Experience report, Ben Franzi, General Manager of Parcel and Express Services at Australia Post, highlights the importance of shipping costs on customer satisfaction. “The delivery experience starts at the checkout,” he says. “Make sure you give your customers choice and are upfront about shipping costs, delivery timeframes and your return policies.” So, whichever approach to shipping costs you take, being transparent and sharing this information clearly with customers is most important. Don’t forget, if the shipping calculation method you’ve chosen for your business means that shipping costs can vary by order, you should consider adding a shipping calculator to your business website.