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What Your Customers Think About Freight Charges

Whether you offer free shipping or charge freight to your customers there is an emotional impact on them when they place an order. There are many different ways you can overcome the continual rate increases by the carriers and still offer your customers a great deal.

Shipping costs have dramatically increased in recent years and nearly doubled over the last 10 years. Just to show you how much they increased here is an example of a 1 pound package shipped from California to New York:

Shipping Charge Comparisons from 2002 - 2012

Many companies, particularly in the B2C (Business to Consumer) sector, have chosen to offer “Free Shipping” on minimum orders to entice customers to buy more products. These companies have done the math to figure out the profitability margin on their products with the added cost of shipping. Instead of making 100% profit they may make 74% profit, but by selling more products to the customer they are able to make up the difference. Or they simply increase the price of their products to maintain the same profit margins. It is definitely a numbers game and one that needs to be carefully calculated.

To be competitive some companies offer Next Day shipping at Ground rates. By getting the product to the customer in the same amount of time without the high cost of shipping allows them to compete with local businesses or competitors that are within a 1 day footprint of the customer. These companies are able to recoup some of the expense of shipping and keep their product prices attractive.

Is there a magic formula? No. The key is understanding your customers and the value your products bring to the customer. If you have a very unique product that is in demand with little or no competition then the customer will be willing to pay shipping because they can’t get the product anywhere else. If you are selling products that 20 other companies are selling then it is important to evaluate what influences their purchasing decision – is it the cheapest product, the cheapest shipping, or a combination of both. Other factors may include your return policy and customer service. If the customer knows you excel in these areas then they don’t mind paying a little more to buy from you.

How can companies continue to offer “Free Shipping”, discounted shipping charges, and special promotions with the endless rate increases from the carriers?

Negotiate a Better Deal with Carriers – once you lock into a contract with a carrier don’t be afraid to revisit your contract and put the pressure on the carrier to offer more incentives. You can even hire a third party freight negotiator to do the work for you. Do your homework first and look at which zones and weight breaks are your highest volumes so you can negotiate new discounts in these areas. Also look at the add-on costs (i.e. Residential Delivery, Delivery Area Surcharge, Additional Handling, Large Package Surcharge) and negotiate these fees as well. Many companies are not aware these are negotiable with the carriers.

Do Business with Other Carriers – UPS and FedEx are at the forefront and the majority of companies doing any shipping will have an account with either UPS or FedEx or both. Often that is where it stops. However, there are a lot of great alternatives including regional carriers, the U.S. Postal Service and local couriers that are worthwhile using for a portion of your outbound shipping. It is possible to maintain the incentives with the national carriers while giving some business to alternative carriers. The cost savings can be substantial, especially with the accessorial costs (i.e. Residential Delivery, Delivery Area Surcharge) with similar or improved transit times.

Offer a Shipping Membership – Amazon.com is the pioneer in offering a membership program called “Amazon Prime” which allows the customer to order products online and receive free shipping on many products Amazon and Amazon merchants offer. Many companies are following in their footsteps because of its huge success. You know if a customer is willing to pay an upfront fee for a membership or subscription to get free shipping, in their mind they plan on doing more business with you to make it worth their investment. This is a very powerful connection to have with your customers and at least you can recoup some of the freight expenses.