Business owners often overlook the intricacies of moving products from point A to point B. All customers demand timely delivery along with a reasonable cost of shipping. If your business is not actively searching for the best transportation methods, you are falling behind the competition – especially competitors who can offer free shipping.
How to Calculate the Cost of Shipping
Shipping costs depend on many factors and vary based on what products you are shipping and the mode of transportation. Of course, the further your goods travel, the more costs will increase. But distance is not the only thing to consider before shipping.
Modes of Transportation
There are four primary modes of transportation for moving freight: air, water, rail, and road. Air transportation is the fastest way to ship freight but is also the most expensive. On the other hand, maritime shipping is a cost-effective option for international transportation. The only con to this method is it will take longer for your goods to get from point A to point B. Lastly, rail freight ships bulky or special cargo such as raw materials and hazardous goods.
The most popular option for domestic shipping is truck freight. Moderate costs, efficient delivery times, and accessibility make full truckload (FTL) and less-than-truckload (LTL) shipping the go-to option for most businesses.
When calculating shipping costs, it is essential to understand the trade-off between speed and price. For example, Air transit is about 4-5 times more expensive than road transit and 12-16 times more costly than shipping by water. Yet, it is highly efficient. Whether you value speed or cost more depends on your business needs and consumer demands.
Product Size and Value
As you can imagine, the larger your product is, the more expensive it is to ship. Product length, width, height, and weight contribute to the cost of shipping, but some factors are not as easy to measure as size.
Stackable packages are the least expensive to ship. Goods that can be easily fit into standard packaging, moved on pallets, and stacked are the gold standard of shipping. Fragile products such as glass or electronics require special handling, resulting in increased costs. Bulky and odd-shaped items, including furniture, require paying for extra freight space, typically filled with standard-sized packages. Try to make your products a standard and stackable size to lower prices.
Value is also a contributor to freight costs. High-value products that run the risk of damage or theft will cost more to ship, even if the product is physically small. Hazardous and refrigerated products cost more than shipping standard goods. Hazardous materials such as chemicals, paint, fuel, and lighters require additional permits and packaging. Shipping refrigerated products require more fuel to ensure the cargo is temperature-controlled. Expect higher costs when shipping any products that require extra care than your average freight.
Who pays for free shipping?
Free shipping is a tactic used by e-commerce retailers to increase sales successfully. In 2021, 230.5 million U.S. internet shoppers demanded inexpensive shipping and fast delivery. The option of free shipping significantly influences consumers’ online purchases, but who pays for it? In e-commerce, most rate increases, including shipping expenses, are absorbed by the retailer (the shipper).
Cost of Shipping
Retailers state that shipping costs typically range from 5 to 20 percent of their total revenue, so any free shipping offer forces them to absorb an extra expense. These costs are harrowing for companies with thin margins or previously viewed shipping as a profit center.
Free shipping might result in unexpected costs for shippers. While the cost of delivering a package is the key component associated with free shipping, additional challenges persist. For example, increased labor, customer service, and IT cost should be considered before offering free shipping to customers.
Free Shipping with a Minimum Purchase
Retailers often produce a threshold to determine a customer’s price to receive free shipping. Phrases such as “free shipping with a purchase over $50.” are common marketing tactics to offer consumers a discount while encouraging more sales. Many retailers are increasing this threshold amount due to the growing cost of transportation.
Free shipping without a minimum purchase can get expensive for a business. It encourages customers to buy cheap, convenient items online one at a time. A pack of toilet paper, for instance, could cost more to ship than to purchase. One way to help tame high costs is to offer customers slow but cheap shipping options.
Many retailers have found creative ways to offer free shipping. Because most retailers want to drive sales without losing margin, some executives note that they found tactics like premium shipping clubs, flat-rate shipping, and incorporating shipping into the cost of the product are particularly effective in balancing free shipping service.
Should my business offer free shipping?
You may notice that some businesses, such as clothing outlets, constantly offer free shipping, whereas others charge expensive fees. Whether or not you offer discounted shipping to your customers depends on your business and what products you are moving.
Because shipping costs are driven by mode of transit, distance traveled, size, and value, retailers with heavier or denser items (e.g., home furniture, equipment, raw materials) are reluctant to offer free shipping. They typically make explicit exceptions around the heaviest or largest products if they offer free shipping.
As consumer shipping expectations continue to increase, retailers must pay attention to demand and service. Gauge what is most important to your customers: quick delivery or low costs? Be sure to communicate shipping fees or discounts with your audience. Understand that free shipping is enticing to consumers but may not make sense for your business.
Reasonable Cost of Shipping with PLS
Shippers are always looking for new ways to lower transportation and delivery expenses. Partnering with a leading third-party logistics (3PL) provider like PLS Logistics can reduce shipping costs while improving productivity. Get a free quote on your freight today with PLS!