How to negotiate good shipping rates: A guide for small business owners

Are pricey shipping rates preventing you from launching or expanding your small business? You’re not alone: Supply chain disruptions, global conflicts, and changing fuel prices have all led to increased shipping costs, impacting businesses and shoppers across the world.¹

For many small business owners, high shipping costs can make or break their operations, especially with customers prioritizing free and affordable shipping over fast shipping. In fact, 90% of shoppers are willing to wait up to three days for delivery to avoid shipping costs, and they’ll likely abandon their shopping carts if those shipping costs are too high.²

The good news is that shipping rates aren’t always set in stone. Business owners can learn how to negotiate shipping rates in order to reduce shipping costs, unlock significant savings, and increase profitability. First, however, it’s important to understand just what goes into those shipping costs and how to weigh your different options for pricing, shipping methods, and carrier partners.

That’s where this guide can help. We’ll break down negotiation strategies and small business shipping tips to help you keep your business running smoothly and improve customer satisfaction.

Understanding the importance of shipping rates

Setting affordable shipping costs can be crucial to business success. Lower shipping and handling costs not only boost profitability but also directly increase customer satisfaction and loyalty. According to FedEx, 57% of customers said free shipping was most important to them when shopping, and 54% said finding the best prices was top of mind.³ Roughly 73% of shoppers took advantage of free shipping for e-commerce purchases in the past six months.⁴

The cost of shipping for small businesses also impacts if and how customers complete their checkout process: More than 80% of shoppers said they’d increase their order value to qualify for free shipping.³ And yet 50% of consumers say they won’t stand to pay anything for shipping regardless of delivery speed.²

Understanding how to negotiate shipping rates can help you meet these customer expectations for lower shipping costs and drive sales.

What goes into shipping costs?

Before you learn how to negotiate shipping rates, it’s helpful to understand the various factors that are used to determine shipping and handling costs — from packaging costs and next-day delivery to fuel charges and bulk shipments.

For many businesses, shipping fees fluctuate based on:

• Distance. The further the package travels, the higher the cost may be.

• Weight and size. Heavier and larger packages can cost more to ship.

• Speed of delivery. Expedited shipping typically increases overall costs.

• Packaging. Affordable packaging and eco-friendly shipping options like recycled or compostable packaging can impact shipping costs.

• Fuel surcharges. Fluctuations in fuel prices may affect shipping rates.

• Volume. Shipping in bulk often reduces the per-unit cost.
• Insurance. Businesses might add shipping insurance to cover the cost of lost, damaged, or stolen packages.

Shipping analysis and preparing for negotiation

Before contacting your carrier and negotiating shipping rates, arm yourself with knowledge and a clear strategy. You can prepare by:

• Gathering your data. Conduct a shipping analysis of your history, transaction data, and customer preferences to understand your average shipping volume and frequency. Remember that you can use shipping software for small businesses to automatically track your shipping data and gather valuable insights to improve your processes.

• Setting your goals. Determine what you want to achieve with your negotiation, whether that’s lower rates, better service terms, or added-value services. Pinpoint any specific options you’ll want to offer to meet customer expectations, such as free returns or same-day delivery.

• Identifying your non-negotiables. Is there anything you won’t budge on? For instance, you might need to offer delivery tracking, next-day delivery, or shipping below a certain cost to meet your bottom line or keep loyal customers satisfied. Identify these non-negotiables ahead of time.

• Conducting research and analysis. Benchmark your current shipping rates against market standards and industry trends to identify potential opportunities for savings. Understand the various shipping methods available, such as flat-rate shipping, expedited shipping, ground shipping, and full truckload shipping.

• Comparing shipping carriers. Conduct a shipping carrier comparison to identify alternative partners and find the most affordable rates.

Negotiation strategies

Learning how to negotiate shipping rates requires not only a grasp of shipping best practices but also tact and timing. As with any business deal, negotiation is an art that combines effective preparation with strategic communication. That’s why it’s important to prepare yourself with negotiation techniques for success.

Use these shipping rate negotiation strategies to get started:

• Highlight your value. Don’t just ask for a favor; let shipping carriers know what you bring to the table as a partner. Emphasize your business' consistent or frequent shipping volume and reliability as a client to appeal to carriers.

• Be transparent. Use clear, concise arguments to articulate your needs upfront. Also, be ready to listen and respond to the carrier's counterpoints with data-backed insights from your shipping analysis.

• Leverage benchmarks. If you did your thorough research ahead of time, be prepared to share competitor rates and offers. Carriers may be able to match or beat these shipping costs to bring you on as a customer.

• Consider your timing. Initiate negotiations when you're not pressed for immediate solutions, such as during the competitive holiday shipping season.

• Ask for discounts and incentives. Be ready to ask for what you want to keep your business running and customers happy. Inquire about available cost-saving opportunities, like volume discounts, loyalty perks, or seasonal promotions.

• Have back-up options. If your shipping carrier isn’t budging, don’t be afraid to explore alternatives. Putting the time into negotiations and research now can pay off in reliable and affordable shipping rates going forward.

Reviewing and finalizing agreements

Secured a tentative deal with your shipping carrier? Great! As you approach the finish line of finalizing your shipping rate agreement, make sure to:

• Review contracts carefully. Examine all terms and conditions diligently to ensure they align with your negotiation outcomes.
• Secure written agreements. Always obtain written confirmation of the rates and terms to avoid future discrepancies.
• Monitor your shipping needs. Regularly evaluate the effectiveness of your current agreement, adjusting as necessary to maintain optimal terms.

Keep in mind that even with favorable shipping agreements, “item not received” situations are inevitable. For an extra layer of protection, consider PayPal Seller Protection for Merchants⁵, which can provide protection for the eligible goods you ship out.