This post is the second in a series of articles in which I detail the key questions you need to consider when planning a new ecommerce website.
In this article, I'll cover Shipping and the considerations that go with figuring out how/what to charge your customers for shipping. These are the questions your ecommerce consultant or ecommerce developer will need you to answer in order to scope and build your online store. The answers to these questions can have a significant impact on the complexity and cost of your project.
I've worked on a lot of ecommerce website projects, and the question of shipping is one that usually causes significant debate during the scoping phase of the project. It boils down to the fact that shipping adds to the cost of fulfilling each order, and most online retailers want to recover some or all of that cost by charging it on to their customers. However, implementing a shipping calculator can introduce great complexity to the development of your site, which comes with increased cost. Therefore it's important to approach this subject with an open mind.
Are you going to charge for shipping?
This is the first shipping question an ecommerce consultant should ask when scoping a customer's ecommerce project. If you aren't going to charge for shipping, then we don't have to worry about implementing a shipping calculator, many of the questions that follow become irrelevant or less important, and the cost of developing your online store is less expensive than it would have been.
There are three basic answers to this question:
- You won't won't charge anything for shipping, ever.
- You plan to keep things simple and charge an average amount for shipping.
- You want to charge each customer the actual amount it costs to ship their order.
Free shipping is good for your customers, and great for sales. Most abandoned shopping carts are the result of high or unexpected shipping costs. Free shipping might also be table stakes in your chosen market - something you have to do in order just to be competitive. But shipping costs money, so free shipping probably means you will want to increase your prices to cover the cost of shipping unless you already have enough margin in your prices to cover it.
Charging an average amount for shipping is generally a simple way to recover shipping costs. This might take the form of a flat rate per order, a flat rate per product, or a banded flat rate (e.g. $10 shipping for orders up to $25 in value, $5 shipping for orders between $25 and $50, and free shipping after that). You'll probably lose money on some orders and make money on orders. But as long as you can tweak your rates to avoid consistently losing money, the cost of implementing an average shipping calculator is likely to be less than an actual cost shipping calculator.
Charging the actual cost of shipping is the best way to cover your costs, but it's also the most complex. You'll need a detailed rate sheet from your shipping or courier company. Even if your shopping cart has a module for your shipping company which does all the calculations on the fly (e.g. UPS or FedEx), you'll still need to load weights and/or volumes for your products. And if your shopping cart doesn't have such a module, your ecommerce developer will probably have to develop the rules to calculate each of your possible different shipping scenarios. This can get expensive!
If you have to charge for shipping, I generally recommend that you you implement an average cost shipping calculator to start with, and then monitor how well it covers your costs before deciding to spend the extra money to implement an actual cost shipping calculator.
Do you need to add sales tax such as GST or VAT to the shipping cost?
This is really a question for your accountant, but it's important to tell your ecommerce developer if you need to add sales tax to the cost of shipping so they can set the shipping calculator up accordingly.
Will you offer part shipping of orders?
What happens if a customer places an order for five items, but you only have four of them in stock? Will you hold those four items back until the fifth item comes back into stock, or will you ship them now and ship the fifth item when it arrives?
What about where you have more than one dispatch warehouse, and you need to fulfill an order with stock from one of those warehouses?
These are particularly important questions for an ecommerce developer, particularly if you expect to be able to manage part shipping and backorders from within the ecommerce platform. Here's a clue - this is an advanced feature that you should be prepared to pay extra for. In many cases it will be necessary to build this as a custom extension of the existing ecommerce software.
In most scenarios, part shipping means you'll incur more cost than you allowed for in your shipping calculations at checkout. It doesn't look good if you start phoning customers to ask for their credit card details to cover that extra cost incurred by part shipping their orders. The exception to that might be where you ask customers at checkout whether they are willing to pay more to have in-stock items shipped ahead of items that are out of stock, but this can become an administrative headache.
Another consideration is how you'll track the orders that have been part shipped so they don't get forgotten when the remaining items come back into stock. You'll need to make sure you have systems in place to handle this, and also to provide customers with information about when they can expect their order (as well as updates if that delivery date changes).
On the other hand, part shipping can be good for your revenue recognition, especially near the end of the month or quarter. Some online stores will absorb the extra shipping cost simply so they can ship enough to meet their sales targets before the period ends (since the sales revenue can only be recognised once the order has been shipped).
Will you ship overseas?
This is a big question which has a lot of ramifications for the cost and complexity of your online store. In fact, shipping is only one consideration when deciding to sell to foreign markets.
Suffice to say that all of the shipping considerations covered in this article (and therefore the complexity and the cost) are multiplied by the number of countries (or regions) that you decide to sell into. I'll cover the question of selling overseas in more detail in a later article.
Can customers collect their orders?
This is often a thorny question. The answer usually comes down to whether you have a physical location that customers can visit to collect their orders, and also whether you have the staff to manage the trickle (or stream) of customers coming through the doors not only to collect their orders but to return faulty or incorrect orders.
From our point of view, we need know if you will allow customers to collect their orders so we can allow for it in the shipping calculator by having it as an option at checkout, especially if you still intend to charge customers a shipping/handling fee. For example, your product might be too big to ship, so the only option is for your customers to collect it themselves - but it costs money for you to get it to the location they will collect it from, so you still need to recover that cost.
We also need to know if you have more than one location from which customers can collect their order. This adds complexity to the shipping calculator, and therefore also adds cost as well. I worked on one ecommerce project which required customers to choose the location from which they would collect their order. The complicated part was ensuring the customer only saw those locations that were close to the customer based on their address. Not only that, but each location could have a different shipping cost associated with it, so the calculation of shipping costs was dependent on the location the customer selected.
Will you provide customers with tracking information?
It is customary for ecommerce websites to send customers an email notification when their order has been dispatched. It's becoming common to include tracking information in that email as well.
If you want to provide customers with tracking information for their orders, there are several ways to do it. The method you choose will have different impacts on the time and cost of including this feature.
- You can manually insert the tracking code into each order email or, if your ecommerce platform supports it, by entering the tracking code against the order itself so it is automatically inserted in any subsequent emails relating to that order. This is relatively inexpensive since you do most of the work.
- If your ecommerce platform has an integration module with your shipping supplier, it should be able to retrieve and insert the tracking code for you. This is useful in larger online stores that handle a lot of orders each day. If there is no integration module for your shipping supplier, you can have your ecommerce developer create one for you, which will add cost to your project.
- At the next level of complexity, some shipping integration modules will even update the order by checking the delivery status with the courier company on a regular basis. These updates can be used to trigger update emails to your customers as their order gets closer to delivery. Not only that, but once you know the order has been delivered, you can use that to trigger one or more post-order follow-up activities, such as emailing customers a link to a "How did we do" survey form. You also know which orders haven't been delivered within the promised time.
Do you want to offer free shipping as an incentive?
This is more of a marketing question than a shipping question. However, it does have implications for how you set up your shipping calculator.
Free shipping promotions are often used to generate a short-term boost in sales. It's best if you use them sparingly to avoid customers deliberately waiting until your next free shipping promotion rolls around. It's also a good idea to design the free shopping campaign to create a sense of urgency (e.g. Free shipping until midnight on Sunday).
If you want to be able to offer free shipping in this way, you need to ensure that your shopping cart includes a module or feature that supports coupons or discounts. Coupons tend to be linked to individual orders and are only triggered if a coupon code is entered at checkout (e.g. "buy this product and get free shipping with this coupon") whereas discounts tend to be applied automatically (e.g. "get 10% off your first order if you buy before midnight on Sunday").
I'll cover coupons and discounts in more detail in a later article. For now, remember that you'll need this feature if you want to offer free shipping as a promotion feature of your online store.
As you'll see from this list of questions, shipping considerations can have a big impact on the complexity and cost of setting up an ecommerce store. The answers often to right to the heart of your operational model for your online store, since you can't answer a lot of the questions posed in this article without considering how you'll actually manage the process of shipping orders once your ecommerce website is launched.