Posted on October 29, 2007
Filed Under (Advice) by jennifer
Offering free or discount shipping increases sales, but it can also reduce your bottom line. How do you decide if free shipping makes sense for your business? I outline the pros and cons in my new article “Package Perfect: Free Shipping Without Going Broke” for Ecommerce-Guide.com. (Note: To read this and other articles I’ve written, please visit my Clips page at http://www.schiffandschiff.com/clips.html.)

Here’s a free taste:

In October 2005, L.L. Bean announced it would offer free shipping throughout the holiday season. That year the company posted record sales. In 2006, L.L. Bean reversed course, not offering free shipping. The result? The company did not meet its sales goals. So this September, in honor of its 95th anniversary and as a reward to customers for stronger than expected spring sales, L.L. Bean announced it would again offer free shipping throughout the holiday season.

Coincidence? Maybe. But before you decide to offer free or discounted shipping, read the article, or at least the following tips.

Shipping Tips
“Businesses need to make money,” explained Paul Buisson, a small business shipping consultant who runs the site SureShip.com. “If you have a high enough margin, or you’re paying discounted rates, then you can afford to [offer discounted or free] shipping,” he said.

But before you put that discount shipping offer on your home page, you need to figure out what your margins and actual shipping costs are.

Shipping costs are particularly important to understand as each carrier has different rules and rates and discounts, based on the volume of business (that is, how much you are shipping), what you are shipping (the item’s weight and dimensions), how you are shipping (for example, ground, air, overnight or two day), and where (the farther away you ship something, the more it costs).

“Fully understanding your products and the cost of shipping them has a direct impact on your bottom line,” explained Donna Barrett, a spokesperson for UPS, which has a small business Web site. “If your product falls into a larger-load category, or does not conveniently fit into a box, shipping charges can go beyond the cost of the actual product. If you do not know the dimensions of your final package, the total shipping charges can show up on your bill after the customer has already received the order, leaving you responsible for the additional charges,” she said. “So it’s critical to know your products shipping dimensions and weight — and use a carrier that offers a variety of shipping options.”

Per Buisson, shippers like FedEx and UPS are more likely to offer discount rates to companies shipping in excess of $20,000 a month, whereas if you are shipping less than $5,000 a month you’re pretty much going to have to pay the counter rate, what you’d pay at the counter of a UPS Store or FedEx Kinkos, unless you use a discount or third-party shipping service.

Clearly, shopping around for the best rates is critical.

“It’s amazing how many small businesses don’t realize they’re wasting thousands of dollars a year on shipping by not trying to get a better rate,” said Buisson. “There’s really no reason for anyone to be paying full price for their shipping.”

In addition to his company, SureShip.com, there are plenty of resellers, many affiliated with DHL, that offer small businesses lower shipping rates. And Buisson recommended smaller businesses also ask associations they belong to, even credit card companies like American Express, if they offer some kind of discount on shipping. Even a 10 percent discount is worth something, he said. And you can pass that savings along to your customers in the form of, say, 5 percent off shipping, and still make money.

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