To include or exclude shipping and insurance on quotes

March 13, 2006 5:57 AM

Problems/ethics of excluding shipping and insurance charges on quotes to customers.

I've just started a small business shipping goods from country A to country B, directly to the customer (I'm in country A, customer is in country B and the goods are unaccessable for people living in country B, hense my business). We don't keep any of the goods in stock, we just buy them when the customer tells us to and pays a deposit. Also, the type and size of the goods always vary.

Before buying, we give the customer a quote that EXCLUDES shipping and insurance charges. We can't include the shipping or insurance charges because we won't know how much they are until after we've purchased the item for the customer and are able to weigh it ourselves.

We make it well known to the customer that shipping and insurance charges are not included in the quote, and will not be known until the item arrives with us. We even give a table outlining the different costs of different weights so they can guess themselves.

My business partner, however, wants us to guess the weight of the items and include shipping and insurance on the quotes. We actually tried this for a little while but ended up grossly overestimating the weight of the item many times, and scaring customers away (even though we said the price will be adjusted if we have overestimated the weight). My business partner also thinks it's a bit unprofessional and even sketchy that we're not including the shipping and insurance prices.

So I'm at a loss for what to do, that's why I've come here. Do we -
(a) include the shipping and insurance prices on the quotes, risking overestimating the weight and scaring away customers despite promising an adjustment if we overestimated, as well as risking underestimating the weight and thus having to pay the extra ourselves because we've already quoted the customer; or

(b) not include the shipping/insurance costs, but give ample information on what the charges might be depending on the weight?

posted by Jase_B to work & money (7 comments total)

I suppose you could charge a flat fee for shipping and handling, based on price and/or estimated weight. Sometimes you'd overcharge, sometimes you'd undercharge, but it would probably all average out in the end.
posted by Faint of Butt at 6:11 AM on March 13, 2006

USPS and UPS both have services that will give you an exact price based on an item's weight. Can't you guess the weight? Can't you track things you've already shipped at least once? ("Alan ordered an XPX9000 in January. It weighed 1.2 pounds and cost $11.23 for us to ship. Bob is ordering an XPX9000 today. If only we had some way of figuring out how much an XPX9000 weighs...")

Your business partner is right; if your whole business is shipping and you tell customers "Your final price will be $X plus an unknown amount for shipping", I know I wouldn't buy from you. What if you charged me $8,000 for shipping?
posted by jellicle at 7:05 AM on March 13, 2006

My business is not quite the same as yours — yours sounds more retail-oriented, even if it is mail-orderish — but I think some of the same principles apply.

My company manufacturers corrugated packaging. When we quote, we also indicate whether or not the quoted price includes delivery. There is a space marked "F.O.B." that we must fill out on the estimate sheet. F.O.B. stands for "freight on board", and basically means "this quote is for the boxes manufactured and shipped to this point". For local customers, we ship F.O.B. "delivered", meaning the delivery charge is included in the price of the boxes. For customers in other cities or states, however, we indicate F.O.B. "our dock", which means that the price does not include delivery.

When a customer wants us to ship via common carrier (i.e. a truck line) or UPS or something else, the best we can do is provide an estimated shipping charge. We always make it clear that these charges are just approximate, since it's impossible to know what the actual charges are until we (or the customer) are billed. In this case, we call the freight company, tell them how many pallets we're shipping, and give them an approximate weight. They give us a quote and a quote number, which we then pass on to our customer. Many customers who need us to ship via common carrier actually have us use their shipping account, and we never see an estimate or a price or anything.

All of our suppliers use this same system. I'm under the impression that it (or something like it) is fairly standard in most manufacturing industries.

Now, yours is obviously not a manufacturing industry, but I'm willing to bet that the same principles apply. So, to answer your question, if I were in the same situation, I would implement your second option: I wouldn't quote shipping/insurance costs, but give ample information about what the charges are likely to be. If you're honest and up-front, nobody's going to get bent out of shape. (And, from my experience, those that do get bent out of shape aren't worth keeping as customers; they'll be problematic in other areas, as well.)
posted by jdroth at 7:36 AM on March 13, 2006

For the reasons jdroth outlined I wouldn't sweat it at all, continue quoting without shipping. Almost all B2B distance business is conducted FOB, it is the only way to be fair and to best serve your customer. Some people might wnat stuff overnighted and others are OK with slow boating it.
posted by Mitheral at 8:09 AM on March 13, 2006

You don't make it clear how broad a range of products you're handling for your overseas customers. If that range is "pretty much anything," then this will always be a problem. If it's likely that after being in business for a few months you will have shipped most of your popular items, you'll already know what you need to know--just keep records on your shipping charges.

I concur with jdroth. Pick option 2, but provide customers with as much useful information as possible.

A few other comments:

1. You might want to pick up a copy of the International Mail Manual from the USPS.

2. Another factor in postage is the size of a package. Large/long/flat packages will have higher postage than a compact package of similar weight.
posted by adamrice at 8:09 AM on March 13, 2006

If your business is not B2B, you should quote with shipping included. If I were ordering from you, I would prefer it every time. How sure are you that your shipping overestimates caused customers to be scared away? (I'm assuming they weren't that grossly overestimated.) Aren't there always a few customers who say "Sorry - too expensive"?

It's not an ethics question. By making the customer's life simpler with a single price, you are providing a better service.

(Be warned, when you succeed and your company grows, some bean-counter will focus on the 50% of the time you underestimated by a few pennies: they will push policies to "prevent the losses" and slowly, surely, destroy your business. Does that chip on my shoulder show?)
posted by mediaddict at 9:43 AM on March 13, 2006

If you have competitors, the flat-rate-shipping option can be dangerous.

Back in the dotcom boom, buy.com was offering free shipping on anything. So I ordered a couple of 80-lb UPSes from them... they had a good price, and the shipping would normally have cost me $75+. And I wasn't particularly loyal to them, either, I just used their free shipping because it was cheaper... I'm almost sure they lost money on the transactions.

So, if you have competitors, and you're doing flat-rate shipping, your customers will be more likely to order heavy/large things from you, and small items from your competitors. Over time, you'll tend to want to raise that flat rate shipping, driving away ALL customers.

If nobody else is doing what you're doing, it could work out, but that's usually a rare state of affairs.
posted by Malor at 10:26 AM on March 13, 2006