For many businesses, surcharges are a good way to keep base prices down and recover specific, customer-driven costs to your business. Surcharges are a common part of the online buying experience in many industries.
We developed Fooman Surcharge (available on Magento 1 and now Magento 2) because we think that surcharges can be an effective way to recover some extra costs and fees of doing business online.
But having the right surcharge strategy in place for your business is really important. When surcharges are used the wrong way, you could risk alienating potential customers and increasing cart abandonment.
Read on for our five essential tips for using surcharges the right way on your Magento store.
1. Keep surcharges fair and reasonable
The golden rule for retaining customers' trust is to keep surcharges fair and reasonable. The purpose of a surcharge is to recover specific (and often avoidable) costs, not to increase revenue or claw back the cost of expenses that should really be included in your base product or service charge. Think about what belongs in the product base price and what is legitimately a surchargeable cost. (If you’re on a flight, the taxes you paid were a fair surcharge, but you sure wouldn’t be too happy having to pay a surcharge to use the bathroom!).
How do you judge what’s fair? Imagine you’re shopping for a similar product and ask yourself if you would be happy to pay the surcharge. Be honest - does it seem fair?
Reasonable surcharge fees can include: shipping, express shipping, shipping breakable items, credit card processing fees, international shipping fees, taxes, even an optional gift-wrapping option.
2. Offer options
It's good practice to offer options so that a customer is not forced into selecting a surcharge option (it’s not really optional at this point, is it?).
For example, you might include credit card payment methods as a standard payment option, but impose a surcharge if a customer wants to pay by Paypal, because the fees are higher. Some customers will be happy to pay for the convenience that Paypal offers - while others will simply choose the standard payment route for no extra fee.
3. Check your national and local regulations
Always do your homework and check with your payment providers before implementing a surcharge. Some countries prohibit the use of surcharges on credit card payments. In the USA, for instance, rules differ by state. The good news is that most states have trended towards relaxing the rules in recent years.
The best way to find out what's applicable to you is to contact your payment providers and ask them directly if you are permitted to charge a payment surcharge. (We haven't included any specific details here because regulations are ever changing and depend on which part of the world you operate from).
4. Consider your market… and your competitors
If your product is highly price-competitive, surcharges can be a good way to still deliver the product at a low base cost while offering customers the flexibility to “upgrade” their product with extras. On the other hand, if your products or services are aimed at the premium end of the market, customers might expect to have everything included in the price.
Research whether your closest competitors use surcharges.If your competitors don’t use surcharges, consider your options carefully. Will surcharges allow you to offer a lower base price and potentially attract more customers over your competitors? Or is it more likely to put people off? The answer will depend on knowing your customers.
5. Pay attention to how customers react to surcharges
Not sure whether a certain surcharge is helping or hindering your bottom line? Test, test, test to optimise your surcharge effectiveness.
Keep an eye on your analytics and customer comments to make sure you’re on the right track. Visualise your sales funnel in Google Analytics (you can do it with our free Google Analytics + extension available on Magento 1 and Magento 2). It's easy to set up and lets you assess where potential customers are dropping off at various stages of the checkout process.
You can also use A/B testing such as Optimizely or Google Analytics to run detailed experiments to find the optimum surcharge balance for your website and customer base.
Ready to give surcharges a try? Fooman Surcharge (Magento 1 and Magento 2) lets you create payment surcharges and extra fees in Magento in minutes. It's a flexible tool that lets you to change your surcharge strategy as you go.