Mistakes to avoid with your shipping fees

Are your shipping fees sending customers to the competition? Maybe. A 2006 survey by Practical eCommerce, which publishes articles and research about online business, found that more than seven in 10 online shoppers abandoned their electronic shopping carts because of shipping charges.

If you’ve ever shopped online, you’ve probably done it as well. I have. You see something you like, click the "buy" button and then—surprise—shipping and handling is extra. So you bail.

It is possible to think you, as an online retailer, are doing everything by the book. But you still may be driving your customers away. Why? Because no two businesses are exactly alike, rules that apply to another company may not apply to you.

For example, say you sell digital cameras, and you happen to be one of only a few online stores that carry a difficult-to-find model. Charging for shipping is unlikely to deter customers. (It didn't stop me from buying my last digital camera: a Canon EOS 1D that only one other store had in stock.)

But now, let’s say you are offering a camera or lens on your site that everyone has on the shelf or in their online store. A shipping fee—particularly one that’s poorly disclosed—is likely to send customers running.

Here are five common mistakes that small businesses make with their shipping fees.

1. Charging customers for shipping when no one else is.   There’s no question that you’re putting your business at a disadvantage with this practice. I’ve seen fee dramas play themselves out time and again in various industries, and customers almost always gravitate toward the business with the fewest surcharges.

   University of Pennsylvania professor David Bell makes a compelling argument for offering free shipping in a 2006 article in which he suggests the rules for online commerce are different from the offline world.

2. Being elusive about shipping charges.   No one likes surprises, and customers often think the price you’re quoting on your Web site is the price they'll pay. That may be an incorrect assumption. It's better to allow them to calculate a total price at any time during the transaction. Don't hit them up for shipping only at the end.

   "Shipping fees should be disclosed throughout the buying experience," says George Stolpe, vice president of business development at Ty’s Toy Box, an electronic retailer in Erlanger, Ky. "When consumers add an item to their shopping cart, they should have the ability to calculate shipping before they check out."

3. Thinking of shipping fees as a profit center.   The conventional wisdom is that shipping fees should cover your costs, but not more. "It's a strategic decision for the business owner," says Ridgely Evers, chief executive of NetBooks, a business software developer in Rohnert Park, Calif. Evers also runs a small producer of olive oil, wine, and artisan foods, and he does charge shipping fees. "If you charge the UPS rate, customers perceive that as fair," he says.
4. Overlooking handling.   If your warehouse is filled with boxes and Styrofoam, you know that shipping is often the least of your worries. It's the handling charge—getting the merchandise into boxes, safely packed away and taped up. That takes time and materials.

   Should you factor the cost of that material into the cost of your product, or break it out as a separate charge? I think it depends on the competitive environment. I've been on the payroll of a retailer that charged a modest fee for shipping and handling, which seemed to work well.

   Nancy Baughman, CEO of Raleigh, N.C.-based Ebiz Auctions, uses a sliding scale to determine how much to charge for handling. Items that don't need packing cost less, but china or glass, which require more packing material, get a small surcharge. "You want to be careful not to charge outrageous fees," she warns. "Your customers will feel cheated if you gouge them for shipping."

5. Charging a premium to expedite shipping.   I order a lot of products from sites that carry products for professional photographers and sound engineers. The companies usually charge a reasonable fee for standard shipping, but if you need the items sent overnight (and professionals out in the field often do), they really sock it to you. Why? Because they can, mostly. Only a handful of stores carry the products, and their fee for hurrying up is pretty high.

   My experience as both a consumer and a customer advocate tells me that is the wrong approach. Just because you can charge these higher fees doesn’t mean you should. Your customers will bolt at the first opportunity.

Avoiding shipping fee mistakes, and keeping your customers, needn’t be difficult. If you determine a fair price for shipping, and know when to drop the charges altogether, you’re off to a good start. Don’t forget your other costs either: Be up-front about them and customers will understand.

For more tips on setting shipping fees, see this related article. And if you don't yet have an online store, check out Store Manager, a feature of Office Live Small Business.

About the author   Christopher Elliott is an Orlando, Fla., writer and independent producer who specializes in technology, travel, and mobile computing. His work has appeared in numerous newspapers, magazines, and online. You can find out more about him on his Web site or sign up for his free weekly newsletter.