Setting the right postage strategy can boost your revenue by as much as 10 per cent. Find out how.
Making money from postage in Australia is possible – but not how you might think. Simply inflating your postage rates with steep ‘handling’ surcharges is not necessarily the way to go.
Thanks to the proliferation of low-cost foreign eBay sellers who sell products at or below cost and make up profits on inflated delivery fees, online shoppers are becoming better at spotting poor postage deals – and they don’t like it.
To really make money from postage, you need to think of it as a marketing tool with the potential to boost overall sales, not as a way to fleece a few extra dollars out of your customers on a per-sale basis.
For example, according to data compiled by Stitch Labs, offering free shipping can boost your revenue by 10 per cent. So while it may cost you in the short term, using free shipping as a marketing tool can lift your competitive advantage and put much more money in your pocket in the long run.
“Many online sellers are very happy to offer shoppers 10-, 20-, or even 40-percent discounts on products in the form of sale prices and coupon code offers, only to be reluctant to offer free shipping,” writes Armando Roggio on PracticalEccommerce.
“Ecommerce marketers will spend $5 per click on AdWords to get a shopper to the site, but won’t spend $5 on free shipping to double conversions.”
Here are three ways you can use postage to improve your profits…
Option #1: Postage for profit (flat-fee postage)
This is a highly controversial practice and one that may get you into hot water with frustrated customers. Some online sellers choose to sell their products at or under cost price, and make up their profits with inflated flat-fee shipping and handling costs.
This is usually a strategy only used by very high-volume sellers of low-cost products, however it comes with a significant risk of alienating your customers. If you pursue this strategy, remember that 56 percent of online customers abandon their shopping carts when they encounter unexpected costs. So expect high shopping cart abandonment rates.
A better strategy is to keep your flat-fee postage rates reasonable with a 10 percent overestimation to cover you against fluctuating postage costs. This may lead to a small profit if you use a shipping aggregator to ensure you’re getting the best deal on every item you send.
Priceline, for example, offers a flat-fee postage of $9.95 on orders under $100 within Australia, with an express option for $14.95.
Option #2: Postage as a loss leader (free postage)
Sometimes the best way to make money is to spend money. It may sound counter intuitive, but losing money on postage can actually help you to increase overall profits. For example, offering a free shipping promotion or free shipping on higher value orders that you cover out of your profit margin can attract new customers and lead to an overall sales boost.
For example, Myer offers free shipping for orders of $100 or more as part of their ecommerce growth strategy.
“This is one step towards offering consumers more convenience,” Myer spokesperson Steven Carey told Choice.com.au. “We’ve just seen that when free shipping is offered in the online model, businesses grow by five to 10 times, so we want to see that in our business.”
Option #3: Postage to cover costs (variable-rate postage)
Variable-rate postage allows ecommerce businesses to pass delivery costs onto the customer on a per-sale basis. This is often achieved through using a shipping aggregator that’s integrated into the checkout process to provide instant shipping quotes based on the delivery destination.
Harvey Norman, for example, uses variable-rate postage that’s calculated by postcode entry during the checkout process.
Some shipping aggregators allow you to add a flat handling surcharge to your shipping quote or as a percentage of the total sale, but transparency is the key here. Ensure you can justify these costs to customers who may take exception, and set them out clearly in your shipping and handling policy.
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