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How to Manage Shipping Rate Increases

Balance rising business costs with profit margins—and customer expectations

Just as we cannot escape death and taxes, so it is that online sellers cannot avoid shipping rate increases. The difficult truth is that the cost of shipping goods is on the rise, while consumer tolerance for higher shipping rates is at an all-time low.

How can these two opposing facts become reconciled and how can online sellers absorb delivery rate increases without drying up their bottom line?

Here are several methods to consider that might help you take the sting out of shipping costs without having your profits stung in the process.

Define then refine your costs

Before you run headlong into a method to absorb all shipping costs yourself, or, alternately, dig your heels in and categorically refuse to ever grant free shipping. Start by clarifying your situation. Review the sorts of goods you sell and the shipping costs they incur. Determine how significantly a rate increase affects your per-transaction cost. If it’s minimal, you might be able to absorb the increase on some goods you sell (though not necessarily on all goods).

When it seems that costs of doing business are on the rise, your first step should be to review your cost efficiency

Suppose you already sell goods for which you don’t include extra costs, passed along to the buyer, to cover shipping. If this is your case, you need to determine if your profit margin for the goods will withstand a shipping-rate increase. If it will—and that’s good cost-to-profit-margin management on your part—then you need do nothing. Continue to present your goods as you have.

If, however, shipping rate increases are significant in relation to the goods you regularly sell, then you need to take action. Consider these steps:

  • How efficient is your packaging? Is it too much (that is, too heavy) for the job? If so, look for lighter, yet properly protective shipping materials.

  • How do your items normally sell on a per-customer basis? Are your customers prone to purchasing several items in a single order or purchase? If so, consider a way to offer bundles of items that allow you to combine several items’ profit margins to absorb shipping rate increases.

  • When was the last time you compared carrier costs? You might switch to a lower-cost carrier that might also offer additional services or incentives such as free packaging materials.

  • How closely do the shipping costs you’ve been charging match what you’ve been paying? If you’ve been overcharging a bit without complaint from your customers (yes, some sellers do this as a way to incorporate “handling” or other such “processing” efforts), then perhaps you can avoid a cost hike.

When it seems that costs of doing business are on the rise, your first step should be to review your cost efficiency within your process. When external costs challenge your pricing and profits, that’s your cue to zero in on cutting and controlling costs wherever possible, rather than try to pass them along to your customers.

What if you have to increase your customers’ cost?

Here’s the real challenge for every business owner: managing price increases. While every businessperson seeks to set a sales price that enables the highest per-sale profit, they’re also acutely sensitive to determine when a sales price has become too high for buyers’ likes.

If you have to increase your rates, try to truthfully and faithfully apply a benefit to the customer

Goods that are in high demand usually command higher prices. Conversely, goods that are in lower demand—sometimes due to higher supply—must be offered at lower prices to assure sustained sales. When it comes to shipping rate increases, you must determine where your goods land on the price pressure spectrum.

If your items are typically in high demand—either because you offer truly rare items or your sales service is desirable, in and of itself—you can likely increase your shipping rates if need be. Provide a temporary explanation for your customers to explain the cost increase. They’ll typically understand, though they may not like it. After about a month, remove the explanation since those rates are now your standard revised shipping costs.

If your items are in lesser demand or will suffer in sell-through rates, should you attempt a rate increase, you need to consider another method to retain your profits. Consider these:

  • Apply the rate increase, but improve your delivery turnaround time. Indicate something along the order of, “improved shipping service and expedited delivery.” If you have to increase your rates, try to truthfully and faithfully apply a benefit to the customer.

  • Restructure your item pricing to fold the shipping costs into the item cost. By this, you would increase your item price yet offer the customer benefit of “price includes delivery” or “no additional shipping costs.” You can elect to ship using a slightly cheaper shipping rate, but be sure to communicate if that will lengthen the buyers’ wait time for the item to arrive.

  • Apply the increased shipping rate to your established item selling price, but announce seasonal “free shipping” promotions. In this method, you would ensure that your profit margins would sustain absorbing the cost to ship the goods (usually at less-expensive delivery methods) for a limited period of time. After the promotion, resume your normal price and shipping rate adder.

  • And, consider waiving additional shipping costs for orders that tally to a certain value, for example, $100 or more. In this way, you can offer relief to your buyers while helping sell more goods for yourself.

There’s really no single right or wrong answer to this matter. Experiment with each of these methods to determine the price sensitivity of your goods.

The reality is that no buyer likes having to pay for shipping as an additional cost to their purchases. Even so, all buyers realize those costs do exist, and are a burden they often must bear—sort of like death and taxes. As a seller, try different methods to adjust to shipping rate increases to see if you can take some of the grimness out of the situation.

About the author

Dennis L. Prince
Dennis L. Prince has been analyzing and advocating the e-commerce sector since 1996. He has published more than 12 books on the subject, including How to Sell Anything on eBay...and Make a Fortune, second edition (McGraw-Hill, 2006) and How to Make Money with MySpace (McGraw-Hill, 2008). His insight is actively sought within online, magazine, television and radio venues. Opinions expressed here may not be shared by The Online Seller and/or its principals.

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