How to Calculate Shipping Costs for Online Business?
eCommerce is a market function of buying and selling of products in a strategized manner and on a well-engineered portal along with an involvement of a secured, popular and trusted payment gateway for credit transfer related operations. eCommerce in India is a huge success. With the revolutionary Digital India mission by the GoI, the campaign to bring pan-India internet coverage has started. India is a tech-savvy country with more than a billion smartphones but only around 30% population within the reach of Internet. eCommerce marketplace is ever-booming in Indian domain and domestic as well as international players are having a good time doing businesses here.
Shipping and Cash on Delivery (CoD) or sometimes called Collect on Delivery (CoD) features of the eCommerce make up an important as well as an essential aspect of the Supply Chain Management of any eCommerce business. Shipping is an expense incurred primarily by the E-retailer and then subjected to be paid by the end-consumer or customer. Since shipping of such ordered entities is done in bulk units so shipment related costs are kept such so as to economize the overall expense and still gain some profit, doesn’t matter however marginal, profit is after all profit.
However, to lure in more and more customers to their portal, eCommerce retailers put up such offers, discounts, etc. from time to time which cause them to expand their earned profits, but, since all this is properly planned and the shipping cost is calculated well in advance, chances of loss to be incurred by the business are minimum or none.
Although, the trend followed by most of the major eCommerce retailers is to provide the online customers with maximum possible payment options for a hassle-free online shopping experience, yet there is still a large chunk of the population that still opts for the CoD method of payment. There may be many reasons to this choice and mostly it’s that Indians are very cautious of their money and generally don’t trust online transaction methods for payments.
Shipping is a vulnerable logistics function that encapsulates many sub-steps till final delivery. Shipping a product requires cautionary and smart packaging, shipping cost calculation, transportation of that packaged order through reliable and experienced courier services and along with these, if the product is to be returned by the customer citing any damage or irregularity, the return transportation is at same level of risk to either damage a product or worsen the existing damage. Consequently, the overheads of damage including the exchange/return charges of courier service provider have to be borne by the E-retailer. Order cancellation midway of the delivery process also incurs a loss to the supplier. Thus, shipping isn’t just a vulnerable process, it’s risky and loss-prone on the credit value as well.
Coming to the COD feature, this also involves some unwanted demerits on account of both the E-retailer as well as the customer. For starters, an involvement of high direct costs which are sometimes as high as 10% of the order value is exclusively borne by E-retailers and make the unit economics of COD transactions negative. On account of order rejection/cancellation or exchange, the costs borne by the E-retailer are even higher as they are indirect. The working capital requirement for dealing with the COD payment cycles, in a case of delay in payment of receipts, is an additional burden for eCommerce websites to bear. These are some drawbacks from the seller’s point; there are few from customer’s point as well like payment hassles, separate COD charges, limitations on the number of COD transactions, etc.
Hence, eCommerce shipping and COD features are such that they are though quite advantageous yet incur losses on many aspects when not dealt with a proper strategy and planning. It is highly recommended to make use of online calculators that automatically calculates shipping costs of your products to be delivered.