Shipping strategies for dropshipping

Even though dropshipping businesses don't ship products themselves, they are usually still charged shipping fees from their suppliers. Dropshipping businesses can choose from a variety of strategies to address these shipping fees:

  • offer free shipping and have the shipping costs come out of their profits
  • offer free shipping and increase the price of their products
  • charge a low flat shipping rate and slightly increase the cost of the products
  • charge the customer a flat shipping rate
  • pass on the exact cost of shipping to the customer

Businesses can also choose to have different strategies for different products, such as per-item shipping rates.

Free shipping

Offering free shipping to your customers can provide the following benefits:

  • marketing opportunities
  • a simpler shipping setup
  • an increased likelihood that a customer will place an order

If your supplier offers free shipping to you, then it can be a good idea to pass on the free shipping to your customers. If your supplier doesn't offer free shipping, then you can choose to either include the cost of shipping in your product pricing or have the shipping cost come out of your profits.

Including shipping in the cost of your products can help you provide an up-front cost to your customers. Many businesses who do this advertise that shipping is included. Knowing the full price up front helps customers feel confident that there won't be any hidden fees in your checkout.

Single flat shipping rate

Offering a single flat shipping rate to your customers can provide the following benefits:

  • marketing opportunities
  • help offset your own shipping costs
  • an increased likelihood that a customer will place an order

Advertising that any order comes with a flat shipping fee shows customers that there are no hidden fees in your checkout.

You can determine what you should charge for shipping by forecasting the orders that you will receive in any given week. If you add up all the shipping fees from your supplier and divide that shipping amount by the number of orders, then you'll see what flat rate you need to charge on each order to cover your shipping costs.

Example

Example shipping costs
Product Shipping cost per item Number of orders forecast Total shipping cost forecast
Plate $5 4 $20
Bowl $4 4 $16
Mug $4 10 $40
Totals 18 $66

The store is expecting to receive 18 orders, with a total shipping cost of $66. The store needs to charge a flat shipping fee of $3.67 ($66 / 18) on each order to cover all shipping costs.

Tiered flat rates

Offering tiered flat shipping rates to your customers can provide the following benefits:

  • help offset your own shipping costs
  • more accurate shipping rates based on what is ordered
  • an opportunity to provide discounted shipping on larger orders

You can set each shipping rate to apply to a range of values based on price or weight. For example, you might create three shipping rates for carts whose price falls between $0-$9.99, $10-$29.99, and over $30.

For example, suppose that you sell unique sticky note papers. Your supplier charges you $1 to ship one pack and $0.25 for each additional pack in the order. If you set each pack to weigh the same weight, 1 lb for example, then you can set different shipping costs based on the weight of the order. For orders of 1 pack, or 1 lb, you could charge $1. For orders of 2-5 packs, or 2-5 lb, you could charge $2. For orders of 6-10 packs, you could charge $4. This helps pass on the shipping savings you receive from the supplier to your customers.

Per-item shipping rates

Offering per-item shipping rates to your customers can provide the following benefits:

  • can offset your own shipping costs completely
  • very accurate shipping rates based on what is ordered
  • an opportunity to provide discounted shipping on larger orders

If your suppliers charge a flat fee for each product and don't provide a high-volume discount, then per-item shipping rates help to keep shipping costs accurate and prevent profit loss from larger orders. You can add each product to a shipping profile that has appropriate shipping rates. At checkout, the shipping rates of all products in the cart are combined to give a total shipping cost.

For example, suppose that you sell AA and AAA batteries. Each pack of AA batteries costs $3 to ship and each pack of AAA batteries costs $2 to ship. You can create a shipping profile for each size of battery and the appropriate shipping rates. If you made a $3 rate for AA batteries in one shipping profile and a $2 rate for AAA batteries in another, then an order of one pack of each would result in the customer seeing a $5 shipping rate at checkout.

Per-item shipping can get complicated if your store receives orders that contain products from many different profiles. For more information, refer to Combined rates at checkout.

Advanced shipping rate example

Depending on how your supplier determines shipping costs, there might be a few more factors to consider when setting up your shipping rates:

  • Some suppliers charge different rates to different countries.
  • An order might contain multiple items for which suppliers charge different shipping rates.
  • Some suppliers might offer an express shipping option.

Suppose that your supplier provides you with the following shipping fees:

Example shipping costs from a dropshipping supplier
Products in order Base shipping cost to Canada* Cost of each additional item to Canada Base shipping price to the United States* Cost of each additional item to the United States
Plates

Standard: $5

Express: $11

Standard: $2

Express: $2

Standard: $3

Express: $8

Standard: $1

Express: $2

Bowls

Standard: $4

Express: $9

Standard: $1

Express: $2

Standard: $2

Express: $6

Standard: $1

Express: $2

Mugs

Standard: $3

Express: $8

Standard: $1

Express: $2

Standard: $1.50

Express: $5

Standard: $1

Express: $2

Plates and bowls

Standard: $7

Express: $13

Standard: $2

Express: $3

Standard: $6

Express: $11

Standard: $1.50

Express: $2

Plates and mugs

Standard: $6

Express: $11

Standard: $2

Express: $2.50

Standard: $5

Express: $9

Standard: $1.50

Express: $2

Bowls and mugs

Standard: $6

Express: $11

Standard: $2

Express: $2.50

Standard: $5

Express: $9

Standard: $1.50

Express: $2

Plates, bowls, and mugs

Standard: $8

Express: $15

Standard: $2

Express: $2.50

Standard: $6

Express: $13

Standard: $1.50

Express: $2

*The base cost includes shipping one of each item in the "Products in order" column.

Based on your market research, you estimate that you'll receive the following orders and have to pay the following shipping fees:

  • 5 orders of 1 mug to Canada using standard shipping: 5 x $3 = $15
  • 1 order of 1 mug to Canada using express shipping: 1 x $8 = $8
  • 7 orders of 1 mug to the United States using standard shipping: 7 x $1.50 = $10.50
  • 2 orders of 2 bowls to Canada using standard shipping: 2 x $5 = $10
  • 1 order of 2 bowls and 2 mugs to the United States using express shipping: 1 x $13 = $13
  • 4 orders of 4 plates and 4 mugs to Canada using standard shipping: 4 x $18 = $72
  • 4 orders of 2 plates, 2 bowls, and 2 mugs to United States using standard shipping: 4 x $10.50 = $42

The results predict 24 orders that will cost $170.50 in shipping fees. To cover your shipping costs, you would need to charge $7.11 for shipping on each order.

Offering free shipping

If you want to offer free shipping and advertise that your price includes shipping, then you could distribute the $170.50 shipping cost across the price of your products. Based on the estimates, you'll sell 77 products. This would require you to add $2.22 to the price of each your products to cover the cost of your shipping.

However, because you estimate that two orders will want express shipping, you need to decide whether to offer express shipping for a fee to customers, or keep everything standard shipping.

If you offer express shipping at a cost, then you first need to determine the cost to cover only your standard shipping, because that determines how much to increase the cost of your products. There are 72 products in orders with standard shipping, with a combined shipping cost of $149.50. This means you need to increase your product prices by $2.08 to cover your shipping costs.

There are two orders with express shipping that cost a total of $21 in shipping fees. These orders contain a total of 5 products. Because the product prices have already been increased by $2.08 to offset standard shipping, $10.40 of the $21 total express shipping fees is already accounted for. This leaves $10.60 to be collected from the two express orders, meaning you could charge $5.30 for express shipping to cover your predicted costs.

If you decide not to offer express shipping, then you need to recalculate all the express shipping orders to use standard shipping instead. Your shipping cost would now total $160.50, meaning you'd need to add $2.09 to each product to cover those costs.

Offering a single shipping rate

Because your supplier offers standard and express shipping, it makes sense to offer a single flat rate for each option. Based on the estimates, you expect to have 2 orders with express shipping, which will cost you a total of $21. You also expect 22 orders with standard shipping, costing $149.50. To cover your shipping fees, you should charge a $10.50 flat shipping fee for express orders and a $6.80 flat fee for standard shipping orders.

These shipping rates will likely need to be adjusted frequently as your business grows to account for your actual order numbers and shipping costs, instead of those you estimate at the start.

To be even more accurate, you could create different flat shipping rates based on which country an order was placed from.

Offering tiered shipping rates

You can also offer tiered flat rates to keep your shipping costs more accurate in case your predictions are incorrect. Remember that you can offer tiered flat rates based on weight or price. If you set each product to weigh 1 lb and created flat shipping rates based on weight, then you can calculate what the average shipping cost is for each weight.

Costs for orders of 1 lb

The costs for orders of 1 lb
Products in the order Shipping cost to Canada Shipping cost to the United States
1 plate $5 $3
1 bowl $4 $2
1 mug $3 $1.50

The average cost to ship 1 lb to Canada is $4 and to the United States is $2.17.

Costs for orders of 2 lb

The costs for orders of 2 lb
Products in the order Shipping cost to Canada Shipping cost to the United States
2 plates $7 $4
2 bowls $5 $3
2 mugs $4 $2.50
1 plate and 1 bowl $7 $6
1 plate and 1 mug $6 $5
1 bowl and 1 mug $6 $5

The average cost to ship 2 lb to Canada is $5.84 and to the United States is $4.25.

If you continued the calculations for 3 lb, 4 lb, and heavier orders, then you can set more accurate shipping rates, which helps reduce any loss of profits from unexpected shipping costs.

Offering per-item shipping costs

For each product, you can set up a shipping profile and set shipping rates based on the products that are ordered.

When an order contains products from different profiles, their shipping rates are combined at checkout, which can lead to higher shipping costs for your customers. For example, if you set up a shipping profile for plates with a rate of $5 and a shipping profile for bowls with a rate of $4, then a checkout with a plate and and bowl would result in a $9 shipping rate.

A basic method to set your shipping rates for each shipping profile is to find the average cost for the products in the profile, regardless of what else is part of the cart.

The cost of shipping plates to Canada using standard shipping:

  • 1 plate = $5
  • 2 plates = $7 ($5 + $2)
  • 3 plates = $9 ($5 + $2 + $2)
  • 1 plate and 1 bowl = $3.5 ($7 x 0.5)
  • 2 plates and 1 bowl = $6 ($9 x 0.66)
  • 3 plates and 1 bowl = $8.25 ($11 x 0.75)
  • 1 plate and 1 mug = $3 ($6 x 0.5)
  • 2 plates and 1 mug = $5.33 ($8 x 0.66)
  • 3 plates and 1 mug = $7.50 ($10 x 0.75)

The average cost of shipping any amount of plates is $6.04.

The cost of shipping bowls to Canada using standard shipping:

  • 1 bowl = $4
  • 2 bowls = $5 ($4 + $1)
  • 3 bowls = $6 ($4 + $1 + $1)
  • 1 bowl and 1 plate = $3.5 ($7 * .5)
  • 2 bowls and 1 plate = $6 ($9 * .66)
  • 3 bowls and 1 plate = $8.25 ($11 * .75)
  • 1 bowl and 1 mug = $3.5 ($7 * .5)
  • 2 bowls and 1 mug = $6 ($9 * .66)
  • 3 bowls and 1 mug = $8.25 ($11 * .75)

The average cost of shipping any amount of bowls is $5.55

The cost of shipping mugs to Canada using standard shipping:

  • 1 mug = $3
  • 2 mugs = $4 ($3 + $1)
  • 3 mugs = $5 ($3 + $1 + $1)
  • 1 mug and 1 plate = $3 ($6 * .5)
  • 2 mugs and 1 plate = $5.33 ($8 * .66)
  • 3 mugs and 1 plate = $7.50 ($10 * .75)
  • 1 mug and 1 bowl = $3.5 ($7 * .5)
  • 2 mugs and 1 bowl = $6 ($9 * .66)
  • 3 mugs and 1 bowl = $8.25 ($11 * .75)

The average cost of shipping any amount of mugs is $5.07

Based on these numbers, you would make the following profits on each expected order for Canada:

  • 5 orders of 1 mug to Canada using standard shipping: $25.35 - $15 = $10.35 profit
  • 2 orders of 2 bowls to Canada using standard shipping: $11.10 - $10 = $1.10 profit
  • 4 orders of 4 plates and 4 mugs to Canada using standard shipping: $44.44 - $72 = $27.56 loss

To use per-item shipping effectively, you'll likely need to add tiered shipping rates that are based on weight or price to each shipping profile.

For more examples of per-item shipping, refer to Combined rates at checkout.

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