5 Ways to Lose Money with Flat Rate Shipping

Mar 14

5 Ways to Lose Money with Flat Rate Shipping

Business owners know that the difference between a good month and a bad month can often be measured in cents. That’s why smart small-business owners cut every possible financial corner they can, while still maximizing the service they provide to their customers. Yet there is one money-saving realm where many owners are still under-informed; it’s their shipping methods.

Any business that wants to grow beyond the city limits will usually offer some kind of shipping, and more than a few small-business websites will tell you that flat rate shipping is the best way to go. However, while there are obvious advantages to flat rate shipping – like getting accurate cost estimates and saving time – there are some serious disadvantages to be considered as well. Before you make a choice regarding how to get your products to your faithful customers, it would be smart to consider the following points:

1. If You Overpay Once, You Overpay Every Time
Many small-business owners forget that their shipping partners aren’t their employees. These businesses are out to make a buck the same way as you are, and they’ll be more than happy to charge you more if you let them. When a business owner chooses flat rate shipping, there is a tendency to go with the first rate that calculates better than their current one, bypassing the tedious mathematical evaluation that comes with a proper cost-benefit analysis. This wouldn’t be so dangerous if it weren’t for the fact that flat rate shipping fees are normally agreed to by contract. Unfortunately, many businesses find out much too late that they’ve been overpaying on every package they’ve sent.

2. You May Ignore Hidden Fees
When negotiating flat rate contracts, many small-business owners get so excited at the prospect of saving valuable operating cash that they make a classic newbie blunder: they forget to read the fine print. While an agreed-upon rate may appear to be perfectly matched to your product:

• What happens in the event of factory relocation?
• What about a product expansion?
• Will you be charged extra fees for going outside the original agreement?
• Will anyone at the company tell you before you’re charged?
t’s a simple fact that companies that ship on an individual basis have more interactions with their shipping company. So these friendly interactions could mean the difference between a heads up and a stiff penalty.

3. Time Isn’t Always Money
One of the main reasons that many small-business owners are so keen on flat rate shipping is that it saves them hours upon hours of time spent in calculating shipping costs. While time is certainly valuable, it may not be valuable enough to cover a few years of overpaid shipping fees. Without a detailed and constantly-updated cost analysis, some owners could end up losing their shirt just to save a few hours a week.

4. Your Growth May Cost You Customers
Once a flat rate shipping price is locked in, it’s normal for the price of a company’s products to be changed in order to incorporate the new rates. While this is usually a minor adjustment, it can be a huge problem for long-term customers that order in bulk. Think of it this way: when a business grows, they usually start in a central location and branch out. This means that by the time a company goes national, the customers closest to them have likely been buying their products for the longest. So what happens when a customer that’s paid $X a month for your products now has to pay more to accommodate your new shipping arrangements?

5. Size, Weight, Bulk and Confusion
As mentioned before, shipping companies – while they may be your partners – are still businesses at heart. They need to make a profit, and they make more when they charge more. One of the most common ways that a flat rate shipping contract ends up costing a small-business owner is by failing to properly define the company’s treatment of size, weight and bulk. Those shipping partners who charge more for packages that aren’t negotiated in the original contract can make it very difficult for business owners to introduce new products, have 2-for-1 promotions or alter the construction materials of one of their items.

All in all, flat rate shipping has benefited a lot of growing businesses, but that doesn’t mean that it is guaranteed to do so. Without taking the proper precautions, doing your research and considering the pros and cons, you may end up losing more than you planned to in both revenue and customers.

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[Image License: Creative Commons. See Image above]

Eva James is Social Media Coordinator at American Van, the leading provider of van and truck equipment and accessories. Their most popular products include van storage, truck tool boxes, and pickup truck accessories.