How to Prepare Your Online Store for a Shipping Rate Increase
Every year in January, postal and courier companies increase their shipping rates to make up for inflation and rising operation costs. This annual shipping rate change, commonly referred to as the general rate increase (GRI), affects e-commerce businesses and requires them to update and optimize their shipping strategy. How can you prepare your online store for the annual shipping rate increase?
Let’s start with taking a closer look at the most popular shipping strategies employed by e-commerce businesses. There are three of them: free shipping, flat rate shipping, and calculated shipping rates.
Online stores that offer free shipping (on all orders or on orders over a certain threshold) do it to improve their conversion rate. However, not all online stores can afford to offer free shipping because it eats into their profit margin. Calculated shipping rates involve charging the exact shipping cost based on the carrier’s rates, the size and weight of the package, and other factors. Finally, flat rate shipping means charging the same shipping cost for every order regardless of its size; note that it doesn’t have to be the same as the carrier’s flat rate.
Each of these strategies has its pros and cons, and every online store chooses an optimal strategy based on the business’s size, needs, profit margin, and other relevant factors. However, all e-commerce businesses have to deal with the general rate increase regardless of their shipping strategy. What are the main ways to deal with a shipping cost increase?
Do Nothing
It might seem strange to you, but doing nothing is actually a valid choice in some situations; if you don’t raise your shipping rates while everyone around you is doing it, it might be good for your conversion rate. Of course, doing nothing will affect your profit margin, so you need to make sure that a) you can afford to do nothing and b) it will be good for your business in the long run.
Keep in mind that this strategy only works for online stores that offer free or flat rate shipping. If your shipping strategy of choice is calculated shipping rates, the shipping rates displayed to your customers at the checkout will increase automatically as the general rate increase comes into force.
Increase Product Prices
This is a solution for online stores that offer free shipping or flat rate shipping. It allows e-commerce businesses to make up for the increased cost of shipping while keeping their profit margin roughly the same. However, you shouldn’t increase your prices too much if you want to stay competitive. In addition, repeat customers may notice that your prices have increased, and some of them might not like it at all.
Decrease Product Prices
Just like doing nothing, this strategy may seem strange, but it might work for online stores that use calculated shipping rates. Decreasing your product prices after a shipping rate increase will keep the total order cost roughly the same for your customers. If your competitors are increasing their shipping rates or product prices, this strategy might draw new customers to your store and increase your conversion rate. Of course, you need to make sure that your profit margin can take it.
Switch to Free Shipping / Order Minimums
Adding a free shipping threshold or a minimum order amount is a compromise between increasing product prices/shipping rates and doing nothing. By establishing a free shipping minimum, you will pass on the increased cost of shipping to customers whose orders are below the threshold. By establishing a minimum order amount, you will increase your average order value and, therefore, profit margin.
Increase Your Flat Rate Shipping Prices
Sometimes this is the best strategy for online stores that offer flat rate shipping. You may lose a few customers, but it still will be more beneficial for your profit margin than absorbing the increased shipping cost. If your flat rate is the same for every order, think about diversifying your shipping rates depending on the order value.
Look for Shipping Discounts
If you don’t want to increase your shipping rates or product prices because you’re afraid to lose customers, but you can’t afford to absorb the increased shipping cost, you can look for shipping discounts. They will allow you to keep things the same for your customers without affecting your profit margin too much.
You can negotiate a shipping discount with your preferred carrier, but it will take you time and effort, and the result isn’t guaranteed. Printing your shipping labels yourself is a much easier way to save on shipping. With PostageMaker, for example, you will be able to save up to 25 % from retail shipping rates.
Generating shipping labels with PostageMaker is very easy. All you need to do is sign up for the service, add funds to your account, fill out and submit a shipping label form, and enjoy our discounted shipping rates.
Finally, there’s one more thing we want you to keep in mind. If you change anything in your online store, be it product prices, shipping rates, free shipping threshold or minimum order amount, you shouldn’t spring it on your customers without any warning. Make sure to announce any changes in advance, preferably in more than one way (a banner on the store’s home page, emails to regular customers, posts on your social media, etc.). You customers will surely appreciate it.