How Much to Charge for Delivery

When you run an online store, one of the most important roles is customer satisfaction which can even make or break a sale. A 2019 survey by the National Retail Federation found that 75% of consumers expect free shipping for orders over $50, and 58% say they’d abandon a cart if the shipping costs were too high.

However, offering too much free shipping or charging too little can hurt your bottom line. So, how do you strike the right balance between covering your costs and keeping customers happy? 

In this guide, we’ll discuss the key factors to consider when setting delivery charges, including product pricing, customer expectations, and regional variations.

What is a Delivery Fee?

A delivery fee is the charge added to the total cost of a customer's order to cover the expense of shipping the product from the seller (or supplier) to the customer. In the case of dropshipping, where the retailer doesn’t keep products in stock but instead relies on a third-party supplier for fulfillment, the delivery fee typically reflects the cost of shipping the item directly from the supplier to the customer. This fee can vary based on shipping method, product weight, size, destination, and whether the delivery is domestic or international. 

For customers, delivery fees are often a key consideration when purchasing, as high shipping costs can lead to cart abandonment. In contrast, free or low-cost shipping can be a major incentive to complete a purchase.

What do Delivery Fees Cover?

Delivery fees typically cover the costs of transporting a product from the seller or supplier to the customer. In the context of dropshipping, where the retailer doesn't hold inventory, the delivery fee generally includes the following:

1. Shipping Costs: The actual charge by the shipping carrier (e.g., UPS, FedEx, DHL) for delivering the product to the customer's location, which varies based on factors like the distance, delivery speed, and the shipping method (e.g., standard, express, or same-day delivery).
2. Packaging Costs include the expense of securely packaging the product for safe delivery, as well as the cost of boxes, tape, labels, and any necessary padding materials.
3. Handling Fees: These charges might cover the time and effort involved in processing and fulfilling the order, including picking and packing the product at the supplier’s warehouse.
4. Tracking & Insurance: Some delivery fees include the cost of providing shipment tracking information or insurance in case the package is lost, damaged, or delayed.
5. Import Duties & Taxes (for international shipments): When shipping products internationally, delivery fees may also cover import taxes, customs duties, and clearance fees, which vary depending on the destination country.

For dropshippers, accurately calculating these costs and choosing the right shipping strategy is crucial to maintaining profit margins and ensuring a smooth customer experience.

How To Calculate Charge for Delivery Business

Calculating the charge for delivery in your business, especially in dropshipping, involves several key factors to ensure you cover shipping costs while remaining competitive. Here’s a step-by-step approach to help you calculate the delivery charge:

1. Understand Your Supplier’s Shipping Fees

Since you're using dropshipping, you don't handle the products directly. Instead, the supplier ships the items to your customer. Start by understanding the shipping costs from your supplier, which depend on:

• The weight and size of the product.
• The destination (domestic vs. international).
• The shipping method (standard, expedited, express, etc.).

Make sure you factor in any additional handling fees the supplier charges, as well as any optional services like tracking or insurance.

2. Decide on Your Pricing Strategy

There are several ways to set delivery fees, depending on your business model and customer expectations:

• Flat Rate Shipping: A fixed delivery charge for all orders, regardless of size or location. This is simple but can lead to overcharging some customers and undercharging others.
• Free Shipping: A popular tactic, but requires you to either absorb the cost or build it into the product price. Free shipping works best with higher-value products or when you offer it for orders above a certain amount (e.g., "Free shipping on orders over $50").
• Calculated Shipping: Charges the customer based on the specific weight, size, and destination of the order. This is a more precise method and can be done using shipping calculators provided by carriers like USPS, FedEx, or DHL.

3. Include Packaging Costs

Even though your supplier handles fulfillment, you still need to account for packaging. This includes boxes, labels, tape, and any materials needed to protect the product. Depending on your supplier, you might need to pay for premium packaging if it’s not part of the service.

4. Account for Taxes and Duties (if applicable)

For international orders, you may need to include import duties, taxes, and customs fees. These costs vary by country and can sometimes be included in the shipping fees or charged separately to the customer. Researching international shipping rules or using a service that calculates these fees upfront is essential.

5. Consider the Delivery Speed

The faster the delivery, the higher the cost. Expedited or same-day shipping options usually come with a higher price tag. Decide whether you want to offer these premium options or stick to standard shipping, which is more cost-effective.

6. Factor in Your Profit Margin

After considering all the above costs, ensure that the delivery fee is balanced with your desired profit margin. While you want to offer competitive prices, you also need to ensure that your delivery charges cover the shipping expenses and don’t erode your profits.

Example Calculation

Suppose you sell a product that costs you $20, and your supplier charges $5 for shipping. Your packaging costs $1, and you want to offer free shipping for orders over $50. If a customer orders one product:

• Product cost = $20
• Supplier shipping cost = $5
• Packaging cost = $1
• Total delivery charge = $6 (which you could absorb in the product price or pass on to the customer, depending on your strategy).

If you sell multiple items or have larger orders, the delivery charge per item can be reduced, making it more attractive for customers to purchase more.

7. Test and Adjust Pricing

Finally, after launching your delivery fee strategy, monitor customer response. Are sales increasing or decreasing based on your shipping charges? You may need to tweak your strategy to stay competitive and profitable.

By accurately calculating your delivery fees, you ensure that both you and your customers are happy with the cost, and you avoid any hidden expenses that could hurt your bottom line.

On-Demand Delivery Options

On-demand delivery options refer to flexible, real-time delivery services that allow customers to receive products as soon as possible, often within hours or a day. In the context of dropshipping or e-commerce, offering on-demand delivery can help meet consumer expectations for fast shipping, especially as more customers expect quicker delivery times. 

Breakdown of popular on-demand delivery options:

In-House Delivery

In-house delivery refers to a shipping model where the business manages its delivery process rather than relying on third-party services. This gives the business full control over delivery timing, packaging, and customer service, allowing faster, more reliable service. 

However, it can be more expensive, requiring investment in delivery staff, vehicles, and logistics management. In-house delivery is ideal for local or regional businesses that want personalized service and potentially faster shipping options, but it requires careful planning to ensure efficiency and cost-effectiveness.

In-House Plus On-Demand Delivery

In-house plus on-demand delivery combines the control of in-house logistics with the speed and flexibility of on-demand services, offering faster and more personalized delivery options. According to a 2023 study by McKinsey, 58% of consumers are willing to pay more for faster delivery, especially same-day or next-day options. By managing your delivery team, you can offer customers real-time choices like same-day delivery or scheduled delivery slots, which enhances satisfaction and loyalty.

For local businesses, this model is especially effective 48% of consumers expect to receive orders within two days of purchase, as noted by the National Retail Federation. In-house plus on-demand delivery allows businesses to fulfill this demand while avoiding the higher costs of third-party services, potentially boosting conversion rates by as much as 20-30% for businesses offering fast delivery options.

Third-Party Delivery

Third-party delivery involves outsourcing shipping to external courier services like UPS, FedEx, or gig platforms such as Postmates and Uber Eats. This model offers scalability, cost-effectiveness, and global reach without investing in in-house logistics. It’s ideal for businesses looking to expand quickly, offering flexible delivery options such as standard, expedited, or same-day shipping.

• The global third-party logistics market is expected to reach $1.1 trillion by 2025 (Statista).
• 56% of consumers are willing to pay extra for faster delivery (Deloitte, 2019).

Third-party delivery helps businesses provide fast, reliable service, but choosing the right partners is essential for maintaining customer satisfaction.

Is Free Delivery Sensible for Business?

Free delivery can be a great strategy for businesses, but it depends on several factors.

Pros of Free Delivery

1. Increased Conversions: According to a 2019 study by Deloitte, 56% of consumers abandon their carts due to high delivery costs. Offering free shipping can reduce cart abandonment and increase conversions.
2. Competitive Advantage: Free delivery can differentiate your business from competitors, especially if they charge for shipping.
3. Customer Loyalty: Free shipping improves customer satisfaction and may encourage repeat purchases, especially if the business builds it into its pricing structure.

Cons  of Free Delivery

1. Reduced Profit Margins: If not factored into the product price, free shipping can eat into profit margins. It’s essential to calculate whether the increase in sales will offset the shipping cost.
2. Higher Costs: For international shipping or bulky items, covering shipping costs might be impractical without increasing product prices or finding ways to streamline logistics.

Factors to Consider When Choosing a Delivery Strategy

When choosing a delivery strategy for your business, several factors must be considered to ensure efficiency, cost-effectiveness, and customer satisfaction. Here are the key factors to keep in mind:

1. Cost and Profit Margins

The cost of delivery directly impacts your profit margins. Consider the shipping fees from your suppliers or third-party carriers, and decide whether you will absorb these costs or pass them on to the customer. Free shipping can be attractive but may reduce profit unless incorporated into the product price.

2. Delivery Speed

Customer expectations for delivery speed are higher than ever. A 2023 survey by Deloitte found that 56% of consumers are willing to pay extra for faster delivery. Decide whether you’ll offer same-day, next-day, or standard shipping based on your customer base and product type.

3. Geographic Reach

Consider the locations you plan to serve whether local, national, or international. Local deliveries can often be handled in-house or with regional couriers, while global reach may require third-party international carriers. Statista reports that 45% of e-commerce shoppers expect international shipping options.

4. Customer Preferences

Understanding your customers’ preferences is critical. Some may prioritize free shipping, while others may want fast, time-sensitive delivery. Offering flexibility in delivery options like express delivery or the ability to select delivery windows can boost customer satisfaction.

5. Scalability

As your business grows, your delivery strategy must be able to scale. Third-party delivery services are ideal for businesses looking to scale quickly without needing significant infrastructure, while in-house delivery may work for small or local businesses with consistent order volumes.

6. Reliability and Tracking

Reliable delivery is crucial for customer trust. Choose a delivery strategy that includes order tracking, ensuring customers can monitor their purchases in real-time. This can reduce anxiety and increase the likelihood of repeat business.

7. Packaging and Handling

The type of product you're shipping will determine the packaging required. Fragile or high-value items may need special handling, which can affect both shipping costs and the delivery process. Ensure your delivery strategy can accommodate these needs efficiently.

Conclusion

Determining the right delivery charges is essential to maintaining customer satisfaction while ensuring profitability. With tools like Spocket, managing delivery costs becomes simpler and more efficient. Spocket streamlines your order fulfillment process by connecting you with reliable suppliers offering competitive shipping rates. Additionally, features like automated tracking and global delivery options empower you to offer transparent pricing and meet customer expectations seamlessly. By leveraging Spocket for your delivery needs, you can strike the perfect balance between affordability and profitability, ultimately boosting customer loyalty and sales.