Shop Talk: "Shipping Costs Are Eating Me Alive"
Q:"Shipping costs are eating me alive. Customers want free or very low shipping, but they have no idea what that means for small online retail stores. Do you have any strategies to deal with shipping costs and remain competitive?"— Carla Rose, owner, Green and Chic
A: Consumers don't care that you're small. They expect that if you're online, you should be competing with companies like Amazon that routinely offer free shipping. Consumers also don't care that you offer great customer service — they expect that. They just want a deal.
How do you compete and stay profitable? Here are five simple rules:
- Sixty percent of the success of your business comes from your product. Is it truly unique? Does it offer benefits you can't find elsewhere?
- If your product is unique, focus on charging more for it and getting your margins up. Increasing your margins on proprietary products is the most important thing you can do to ensure long-term profitability.
- Now that you've removed the products from your assortment that everyone else has and increased margins on the products that are unique and proprietary, do you even need to offer free shipping? If you've been honest with yourself on rules 1 and 2, then you probably don't.
If you still think you must offer free shipping to compete, offer it only a few key items at a time. Call those items out on your website and give a deadline date when the free shipping expires. Will some consumers try to get free shipping on other items? Sure. But if you're consistent with your promotional strategy, tell those customers that free shipping applies to only certain items for certain times.
- If you must offer free shipping across your entire site, link the offer to a minimum purchase. That minimum purchase should be at least 25 percent to 30 percent higher than your average order.
- Finally, test everything you do. If you have a catalog, implement tests to measure the incremental gain from offering free shipping. If you only have a website, send some consumers free shipping offers and others not to test the lift. Measuring the incremental gain will reveal how much you're losing or gaining by offering free shipping.
— Bill LaPierre, senior vice president of business intelligence and brokerage at Direct Media Millard, an Infogroup company (firstname.lastname@example.org).