Shipping and shipping costs - killing you softly
The good news is: If you need to ship stuff, you made some sales.
The bad news is: It is one of the more annoying parts of the business.

First of all: High shipping costs scare customers. If you charge too much for shipping, your customers will abandon their shopping cart before they check out, or they will have the feeling that they are being overcharged. Both scenarios need to be avoided - almost at any cost, so here are the "golden shipping Rules":

1) If at all possible, charge less than the actual shipping costs.
Pay for the shipping in part with the money you earn from your goods. Yes: it will cut in your profit, but this is a small price to pay for actually making the sale.
Here is a little example:
If you have an item that costs the customer $100 and your profit is $50, I would suggest, that you sacrifice at least 10% of your profit to help pay the shipping costs.
Let's assume, that the actual shipping charges are $10. If you pitch in $5 (10% of your $50 profit) your customer will be happy to pay the remaining $5 shipment. Your customer will have the feeling that that he/she made a good deal, and is less likely to abandon the shopping cart.
My personal "rule of thumb" is 10-20% of the profit is what I'm willing to give up for shipping.
If you don't think this is working, think of you as a customer: When you buy something online, don't you always wonder just how much shipping will be? And are you not shaking your had on a regular base on how much they dare to charge? And have you not more than once said: "Well then keep your stuff!"
Low shipping charges on the other hand will be a pleasant surprise and next to the fact that people are more willing to actually go through with their purchase, they will also have the feeling that you are a honest and trust-worthy seller.
2) Don't mark the price or the shipping costs up with "handling" charges.
See above: The fact that most PSPs or shopping cart providers give you the option to charge "handling costs" does not mean, that you must use this option. Give your customers the feeling that they made a killing buying from you!
3) Proof of shipment / registered shipment is a "must".
Most PSPs will not include you in ANY "Seller protection scheme", if you don't have at least a proof of shipment. Usually the item has to be traceable online in order to get money back if things go wrong. Don't think that your goods are not that valuable, and you can get away with regular mail. You'd be amazed just HOW much extra hassle a customer is, who's order did not arrive. If you have a cheap item, you can always be quick to say "I'll send it again", but if you can tell this customer that his item is on the way and he can trace it, you still might not have a happy customer, but a more content one, who at least has the feeling you are honest and did what you could.
Shipping costs can be high when you go for the traceable option and they will be higher if you want a proof of shipment from the Post Office (this is VERY different from country to country!). But trust me, the investment is worth it.
Go shopping for the best shipping rates. It might be a small difference in the beginning but it will pay in the long run.
4) Delivery times
We are all spoiled. Spoiled, because you can order and pay for an item in minutes these days. No more filling out an order form, and sending it off via snail mail, then waiting, waiting and waiting for the order to be processed and eventually to be shipped. These days it is a matter of minutes to order and a matter of seconds to process. Only trouble is: To get the goods to the customer is still a long process.
Don't send your orders out 2nd class mail. 1st class (or international "airmail") is the ONLY way to go.
A "surface" package from the US to Europe will take about 6-8 weeks to arrive. Just HOW sour do you think the customer will be?
Make it clear in your "Terms of Sale" that you will only ship airmail / 1st class. (On the other hand be VERY careful if a customer requests "next-day-delivery" - see the section "If it sounds too good to be true").
In general:
Ask yourself how long you are willing to wait for an item you order on the net. Then take 50% off and aim for that.
It is crucial to know what your delivery / shipping times are. Make sure you know, and also make sure your customers know what they can expect: Either include delivery times in your FAQs, or send them with your order confirmation via email.
5) Calculate it well
Particularly in the beginning you might be tempted to work on a small margin. This is OK, but you MUST know your costs very well.
Make sure that you calculate everything in before you price your goods. Making a loss on one item and trying to compensate for it with the sale of another is a marketing strategy that might work out for the big guys, however it usually does not for small and medium businesses.
Here are just a few examples of what you need to factor in:
- Your cost per item
- Costs of the PSP or credit card company
- Shipping costs
- Cost for shipping material
- Taxes
- Costs for auctions
- License fees
- Discounts you give to the customer
- Costs for any people you have to pay
- Last but not least, the time that you invest in buying/producing the goods, bookkeeping, packing and posting the items.