What is the Proportional Rate?
The proportional rate is a way of calculating the cost of shipping goods or services based on the shipment’s weight, size, and distance. The rate is determined by taking the total cost of the shipment and dividing it by the number of items or the total weight. This rate is then applied to the price or weight of each item to determine the cost of shipping them.
Significance of Proportional Rate in Logistics and E-commerce
A proportional rate simplifies the billing process, making it easier and faster for logistics companies to process invoices. Here are the benefits of employing a proportional rate:
1. Proportional rate eliminates the need for complex rate tables, which can be time-consuming.
2. By using a proportional rate, logistics companies can have predictable and consistent costs, allowing them to manage their budget.
3. It reduces shipping costs, making it more cost-effective for companies to ship their products.
4. It streamlines the e-commerce process and makes it easier for customers to purchase goods online.
5. It increases customer satisfaction by providing a faster, cheaper, and more efficient shipping experience.
Prerequisites of Proportional Rate and How It Works
To understand the fulfilling requirements of a proportional rate, go through the following points:
1. The rate must be constant over a while.
2. The rate must be applied to all production units based on the same production unit.
3. The rate is determined by dividing the total cost of production by the amount of produced units.
4. The rate is applied to all units of the product/service, regardless of the quantity purchased by the customer.
5. This pricing method helps businesses cover costs and remain profitable.
Use Cases of Proportional Rate
A proportional rate would be a pricing structure in which the cost of shipping or delivering goods is based on the size or weight of the item. For example, a shipping company may charge a flat fee for the first 10 Kg of weight and an additional cost for every 10 Kg after that.