PrintIf you ship products to your customers, shipping and handling costs are a necessary element of your pricing equation. But shipping and handling charges can be a powerful tool: Freight charges can generate profit; inexpensive or free shipping might win over comparison shoppers.
There are several ways to handle shipping charges, and different tactics will suit different businesses. Before you decide how much to charge your customers for shipping and handling, consider the pros and cons of each of these tactics:
Tactic 1: Pay for shipping and handling costs yourself.
- Advantage: Free shipping screams "customer service."
- Disadvantage: If you ship often and in large quantities, you may lose a lot of money.
When to do it: If you don't need to ship often, it may make sense to offer free shipping. For example, if you deliver to customers only when they order an out-of-stock item, you won't have to pay for shipping very often, but customers will know the service is available if they ever need it. You also might want to offer free shipping when you introduce a new product or if you are trying to move old inventory.
Tactic 2: Offer "free shipping" — but tack some shipping costs onto the price of the product.
- Advantage: You can cover some shipping costs and offer free shipping to your customers.
- Disadvantage: The cost of your products will rise.
When not to do it: If you sell on the Internet, it's very easy for potential customers to comparison shop.
Tactic 3: Offer a competitive price, and ask your customers to pay the carrier charge.
- Advantage: Your customers get the fairest possible price. And, if you sell on the Internet, comparison shoppers will know your firm is offering the best deal on the product itself.
- Disadvantage: Some customers may not want to pay directly for shipping.
When to do it: This is the best route to take if you are trying to offer the lowest price. Once your customers recognize that your product is superior to that of your competitors, you may be able to start charging more for your product.
Tactic 4: Standardize your shipping rates, then round up. If a FedEx two-day delivery service will run you anywhere from $3 to $4.50 (depending on where you ship) you can probably charge your customers a standard $5 for that service.
- Advantage: If your customers want your product and they want it delivered to them, they will often be willing to pay a flat shipping rate — even if they know you're charging a little more than it will actually cost. Most of your customers know that express service is expensive, and if they want their products delivered quickly, they will usually be willing to pay for it.
- Disadvantage: If your customer can find a comparable product with a smaller shipping charge, you may lose that customer.
When to do it: If you know your customers are typically in a hurry for their product and willing to pay a premium because of it, or if you've established yourself as the superior supplier of the particular products you sell.
The bottom line is that you should find out how much your competitors charge for freight. If you stay within that range, you should be able to profit from shipping.
