How to Solve Shipping Fee Errors on Product-Based Marketplace Sites
Product-based marketplace sites require far more features than other marketplace models like rental or service-based platforms. In this article, we will focus on just one of these essential features. By explaining the general workflow, we will highlight the issues that arise and how they can be solved.
How do shipping processes work in product-based marketplace models?
In product-based marketplace models, unlike other business models, there are processes like delivering the product to the customer via a shipping company and customers returning products for various reasons.
Generally, the site owner in a product-based marketplace makes agreements with shipping companies (such as UPS, DHL, FedEx, etc.) and receives a pricing table as part of that agreement. This table outlines how much the shipping company will charge based on the product’s weight or dimensions.
For example;
- 0-1 Kg: €10
- 1-2 Kg: €20
- 2-3 Kg: €30, etc.
The marketplace owner uploads the agreed-upon shipping rates to the site. If the sellers correctly input their product weights into the product cards, the system calculates the shipping fee, and, for example, displays a shipping charge of €10 to the customer at checkout. The customer pays both the product and shipping costs during the transaction.
What kind of issues arise with shipping fees?
In the previous section, we explained the standard process. However, in reality, many situations can lead to complications:
A seller may either omit the product’s weight or mistakenly input a lower weight than the actual product weight. For instance, if a product weighs 3 Kg but the seller accidentally enters 1 Kg, the system will calculate and display a shipping fee of €10 instead of the correct €30. The customer will be charged €10 for shipping, but the shipping company will invoice the site owner for €30, creating a significant €20 discrepancy.
As the marketplace site owner, you make payments to sellers within 14 days, deducting the commission rate you’ve set. However, there are several potential problems:
Problem 1:
If the shipping company invoices the marketplace owner after the seller has already been paid, how can you recover the €20 shipping fee difference from the seller? As we all know, asking for this amount back from the seller after payment can create tension between the seller and the site owner.
Problem 2:
By the time this issue is identified, hundreds or even thousands of products with incorrect weight entries may have already been sold. The shipping fee discrepancies may far exceed €20 per order. For example, if 1,000 orders are placed over a 14-day period with incorrect product weights, each resulting in a €20 shipping fee difference, the total loss could amount to €20,000.
If the product-based marketplace software doesn’t have the necessary experience or systems in place, the site owner could face a €20,000 loss.
Problem 3:
You identify within a few days that the seller has entered the wrong product weight and that you need to deduct the €20 difference from the seller. However, your marketplace site is integrated with PayPal, and in standard product-based marketplace software, the seller’s payout is calculated and sent to PayPal immediately after the transaction is completed.
How can the marketplace owner adjust the payment to the seller, ensuring that €20 is deducted after the order has been completed?
What’s the Solution?
Since 2013, Sofomi has been providing infrastructure solutions to over 450 product-based marketplace sites. Through our experience, we’ve encountered many issues specific to these kinds of platforms and have developed effective solutions.
Step 1:
Let’s assume the site owner has a contract with UPS, and sellers deliver their orders to UPS for shipment to customers. When a seller hands over an order, UPS calculates the shipping cost and logs it into their system. Sofomi’s marketplace software sends an API request to UPS to check the exact shipping fee for each order. The system then displays the fee in the admin panel.
Step 2:
If the shipping fee calculated at checkout matches UPS’s fee, there’s no issue. The site owner can click “Issue Payment” to instruct PayPal (or another payment processor) on the amount owed to the seller. All calculations are handled by Sofomi Marketplace software.
Step 3:
If there is a discrepancy, say the checkout fee is €10 and UPS calculates €30, the site owner should pay €20 less to the seller. This can be done by entering the “Set New Amount” section in the order, adjusting the payment. For example, if the seller was supposed to receive €823.40, the site owner would deduct the €20 shipping difference and instruct PayPal to pay €820.40 to the seller.
Step 4:
This may result in the seller receiving less than expected, prompting inquiries. To prevent confusion and excessive communication, Sofomi has created a detailed panel for sellers. This allows them to see any deductions made on their orders under the “Reports > Order Difference Transaction” section. The reasons for deductions are fully documented and reflected in all reports.
In addition to shipping discrepancies, the platform can also record deductions for reasons like late shipments, incorrect deliveries, or penalties for non-shipment. These can be documented in the “Other” section before sending payment instructions to PayPal.
Can You Avoid Seller Mistakes?
Is it possible to prevent losses from seller mistakes, such as entering incorrect product weights? Absolutely! We’ll cover this solution in our upcoming posts.
Conclusion
As demonstrated, product-based marketplace software requires specialized features that are far more complex than other marketplace models. These are solutions learned through experience and expertise. With over 450 successful projects, Sofomi has encountered and solved nearly every issue that could arise on a product-based marketplace.
If you’re planning to launch a product-based marketplace site, get in touch with Sofomi’s experienced software consultants for the best solutions!
