This post is a guest post by Topher Lee
Without a physical storefront, the only way online retailers can bring their goods to the hands of buyers is through shipping. Setting shipping rates is a fairly straightforward process, but it can be difficult without first performing preliminary research on the other aspects of product pricing and selection. Calculating for shipping costs is one of the final steps in the process of pricing goods and may be manipulated to enhance a product’s chances of getting sold.
Before deciding on how much to charge customers for shipping, online retailers must first know which goods are profitable to sell. It is very important to have this information beforehand because shipping rates are highly dependent on the retail cost of a particular product.
To determine the profitability of certain commodities, merchants must first look at their competition and ask the question: “How much is the average price of this particular product in the market?” Calculating the average price of goods is easy. Simply add the retail price and the shipping costs of a few top competitors and then divide the results by the number of competitors.
After researching the average market price, the next step is to find suppliers that can offer the best wholesale prices. This is the part where it gets tricky.
Some suppliers may sell products at rates that can be a bit expensive for an online business to charge a profitable and competitive price. In this case, shipping rates can be used to lower the retail price of the product. Instead of charging high retail costs, an online merchant may instead transfer some of that cost onto shipping. That way, the product can appear cheaper without having to sacrifice profit margins.
In some cases, there are suppliers that may charge relatively low wholesale prices. This gives online retailers a lot of leverage when it comes to setting rates for shipping. Clever retailers may choose to offer “free shipping” by tacking the actual shipping costs to the retail price. They can afford to do this because the retail price is low enough to accommodate a little more added costs.
But how can businesses determine how much of the retail price can be padded onto shipping and vice versa? According to former World Wide Brands Marketing Manager Matthew Hedges, the first step is to find out the price of shipping a specific product “to the extreme ends of the U.S.,” meaning New York and California. Simply total these two costs and divide them by two to get the average shipping cost of the product in question. It is very handy to have this information because it can provide online merchants a good idea on how to adjust their prices accordingly.
Setting competitive prices is a central aspect for having a successful online business, and part of it involves planning shipping costs carefully. Doing this requires effort, but web-based retailers have the great advantage of having a wide array of cheap and accessible online tools that can be used to this end.
Topher Lee is a freelance writer, specializing in ecommerce software and customer service relations.