Postage – Why it is one of the most important things to consider before starting an online retail business

12th Nov 2015

Why is postage so expensive in Australia? I don’t know, but I do know that it’s going to be one of your biggest costs, it’s certainly one of mine. If you are thinking of starting an online retail business then you need to really think about how much this is going to impact your business model. In fact, depending on what you are selling, it may actually cost you more than the product itself! The standard cost to send a 500 gram satchel anywhere in Australia is $8.25 with Australia Post. But even if you bulk purchase to get the price as low as possible, that still makes it $7.22 to post up to 500 grams within Australia and $11.72 for items up to 3kg. This can represent a fairly large proportion of the cost of your product, so the big question then is, who’s going to pay for it?

There are other postage options aside from Australia Post, like courier companies which can be competitive or better if you have large items or need a higher level of service, but the truth if you’re just a small business posting regular sized items within Australia, then Auspost is hard to beat.

So if these are the kinds of costs you are up for, then postage is really something you need to factor in at the earliest stages of your business setup. If you don’t consider it in your pricing structure it can really eat in to your profit margin, or alternatively put a lot of people off buying if you charge for it. I think this is particularly the case for lower value items. When I was setting up O2wear and determining my pricing, I knew straight away that I was going to offer free shipping. I love free shipping when I buy online and I think it is something more and more people have come to expect. In my industry is seems to be particularly common, the large retailers like The Iconic and Bonds all offer free shipping so it makes sense to factor this cost in to my pricing strategy from the get go.

Here are some things to consider:

  • Have a clear idea of the weight and dimensions of your finished product so you can determine shipping costs
  • Is your product viable online – can it be shipped at a reasonable cost to you or the customer
  • What are your competitors/industry doing – free shipping, charging at cost, free over a certain value
  • Consider the cost of shipping when you price your product – are you going to increase your retail price to cover it, absorb it or pass it on to customers
  • If you are going to charge for postage, will customers be willing to pay?
  • Are there strategies you could employ that could reduce your per unit cost of shipping – perhaps one items has to be shipped in a 500g satchel but maybe you could post 2 or even 3 items in the same 500g bag – so encourage customers to purchase more than one item.

Another (sneaky!) way I am able to reduce my shipping costs on single items is by ‘flat packing’. The packaging I use means I can essentially compress single items and get them under 2cm in thickness. This then puts my products in the ‘large letter’ category rather than parcel category, making it much cheaper at only $2.10 to post a single item. This way it’s affordable for me to offer free shipping on all products, even single $30 items. In fact when a customer purchases 2 or 3 items it would actually make more sense cost-wise for me to send these separately at $2.10 each rather than in a parcel post bag at $8.72 or more. But I don’t do this because it’s not just about price. I don’t think this would be a good look (what if one item goes missing, no one else is doing this) and it would be incredibly wasteful in terms of packaging.

Regardless of what postage options you go with, my last piece of advice is this - ship it as soon as possible. It doesn’t matter if it was free or not, if you have to wait a week or two for it your customers won’t be impressed. It costs nothing to process your orders immediately and generates so much goodwill with customers, why wait!

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