If you’re selling products online, shipping and delivery are a crucial part of your customers’ experience. Shipping costs are a key factor considered by consumers when choosing what and where to buy online. Free shipping can be compelling for customers but may not always be the best choice for your bottom line.
With supply chain and other costs increasing, it’s important to calculate shipping charges in a way that suits both your customers and your business. Here, we cover five common methods to calculate shipping charges. From free shipping to other ways to approach shipping costs when your margin needs protecting.
Free shipping can be highly attractive to customers. According to the Telstra Tech State of Play research, 80% of consumers feel free delivery is important when buying from a small business online. eCommerce businesses who offer free shipping may stand out from competitors online.
There are multiple ways to approach free shipping. The right one for your business may vary depending on your sales, margin and customer loyalty goals.
Some online businesses offer free shipping on all orders. Other brands offer free shipping only on orders that meet specific criteria. For example, you can set a threshold of a minimum dollar amount a customer needs to spend in a single transaction before you offer free delivery.
Many retailers have changed their approach to delivery charges in recent years. Australia Post’s Inside Australian Online Shopping report found that 43% of Australian retailers raised their free shipping thresholds in 2023 to tackle rising supply chain costs.
Some retailers offer free shipping as a perk for loyalty program members. This may encourage new customers to share more data with you and help drive sign-ups to your loyalty or reward program. Reward programs can help boost customer loyalty and drive repeat purchases.
Businesses that want to stimulate sales in a competitive environment by offering customers free shipping.
Businesses that may not be in the position to offer free shipping without impacting their profit margin.
Consider this shipping cost method if your online business is in the position to absorb postage costs. Or you can use a threshold approach to pay for postage only when an order reaches a certain dollar amount and it’s more worth your while. Also consider if you can bundle free shipping as a perk or reward for regular customers.
If you offer free shipping, remember to promote it on your website and social media channels to encourage customers to shop with you online.
In eCommerce, flat rate shipping refers to a postage method where online businesses set a standard shipping rate per item, per shipping class, or per order.
Businesses that sell products of the same approximate weight and size to be shipped within Australia.
Businesses who need to ship items overseas, as international shipping can incur taxes and import fees.
Check sales history data to figure out the average size and weight of items sold to help calculate the flat rate you’ll charge customers.
Consider this shipping cost method if you sell items of similar weights and sizes to customers within Australia.
Weight-based shipping rates are determined by the weight of the item to be posted. So, by using the weights of products from your eCommerce store, you can offer different shipping charges for products based on how much they weigh.
Businesses that sell products that are similar in size but that differ in weight. For example, items such as furniture.
Businesses that sell items of similar weights, as manually applying weight-based shipping costs is a time-consuming process.
Plan how you’ll display item weight on product pages and consider adding a cost of shipping calculator to your web store.
Consider this shipping cost method if you sell items of similar sizes but differing weights. And if you’re able to add a cost of shipping calculator to your web store.
A shipping method based on item quantity will be calculated by the total amount of products your customers purchase from your web store. Quantity-based pricing means that the shipping cost is calculated based on a base rate with an additional charge for each subsequent product added to the order.
Businesses that sell products that differ only in a way that is not related to size or weight, such as colour or flavour.
Businesses that sell items that vary in weight and size, such as appliances of differing dimensions.
Consider offering lower or free shipping costs to customers who buy more items. For example, $10 for up to 5 items or $5 for 6 items or more.
Consider this shipping cost method if you sell items that are similar in size and weight, such as candles or confectionery.
With price-based shipping, the shipping cost is based on the total price of the items being purchased. With this delivery method, the shipping costs decrease as a percentage of the total price the customer will pay. This may encourage customers to spend more per order and can help protect margins by reserving discounted shipping costs to larger orders.
Businesses that want to encourage customers to add more to their cart. The more an online shopper spends, the less they’ll pay for postage.
Businesses that don’t want to absorb shipping costs. In these scenarios, flat rate shipping may be a more suitable option.
Consider offering lower or free shipping costs to customers who spend a certain amount or above.
Consider this shipping cost method if you want to encourage customers to spend more during each online shopping session. If you’re happy to contribute to postage charges for larger orders, this approach can help incentivise customers to spend more with you.
Reviewing your shipping costs regularly can help you adapt to changing market conditions, supply chain costs and consumer expectations.
The shipping cost options(s) you offer may help give you a competitive edge. For a great customer experience consider shipping costs as part of end end-to-end experience for your customers. Offer appropriate choices for your customers and be upfront about shipping costs, deliver timeframes and returns policies.
You approach to shipping costs should be an important factor in helping ensure your eCommerce operations are sustainable in the long term. Plan an experience that works for the online shoppers you’re targeting, but also protects your bottom line. Then, most importantly, communicate shipping and delivery information clearly on your business website.
Shipping costs are just one part of the delivery experience you offer your customers. To help you design a great experience, read about how you can leverage FAQ pages on your website and create a returns policy for your eCommerce business.
To learn more about tech trends shaping customer behaviour, download our Evolve with your customers report.
Originally published October 2021, updated July 2024.
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