The cost of shipping is a major competitive differentiator in ecommerce. Shoppers will quickly abandon a cart or buy from a competitor if it means they will save money on shipping. To reduce shipping charges for your customers, you'll need to go beyond investing in cheaper dunnage or renegotiating with carriers for better rates. In addition to those strategies, here are some more holistic considerations for improving the cost efficiency and customer-friendliness of your packing and shipping operations.
Evaluate current packing materials and processes
From material and labor costs, to DIM weight optimization and customer experience – you may find there's a lot to "unpack" by doing a comprehensive review of your current approach to packing and shipping. Some useful questions to ask during this process include:
- How do factors such as total weight, dimensional weight, oversize charges, special handling, and the number of packages shipped per order affect your total average shipping expenses?
- What do your customer service and operations reports show about damages from improper packing or packing materials?
- What is the average labor cost on oversized items requiring special labor and materials to pack?
Consider the potential benefits of branding
Stylized packaging helps to create a memorable, positive experience for customers. When done well, customized packaging can improve your brand perception and boost your marketing reach through word-of-mouth and social media. Besides adding your brand messaging to packaging materials, interactive packaging inserts with social media instructions (“follow us at…”), post recommendations (“take a picture and tell us how excited you are to start using this product”), and hashtag suggestions are an inexpensive way to get more ROI from stylized packaging.
Right-sized packaging & kitting
Customizing your packaging to an optimal size and level of protection can save you money on shipping costs over the long-term. Right-sizing the cartons for each order will help get you the best DIM shipping rate every time. Customized dunnage that is lighter and less voluminous dunnage also contributes to getting better shipping rates. Depending on the level of variation in your typical order sizes, the best solution could range from onsite box-making equipment, to custom packaging and kitting services.
Free shipping is the most effective promotion you can offer ecommerce customers, hands down. However, not every ecommerce site has the ability to shoulder the shipping costs for 100% of their orders. Fortunately, there are many different ways you can have free shipping, and some cost less than others. Below, we go over some ideas you can use to offer free shipping at a reasonable cost.
Set a minimum order condition
Look at your product margins and calculate how much a customer would have to spend on an order to make free shipping easier for you to offer. You can help customers reach that minimum requirement by showing them either products based on their browsing history, or low-margin "add-on" products that cost just enough to make the order qualify for free shipping.
Reserve free shipping as a reward for repeat customers
In ecommerce, returning customers are your bread and butter. In fact, returning customers generate about three times more revenue than new customers. Invest in these customers by offering free shipping as a reward for actions like:
• Placing an order for the first time
• Signing up for your email list
• Participating in a survey or submitting other useful data
• Placing a certain number of orders over time
• Referring new customers
Try free returns instead
It may not be free shipping, but it can relieve customer anxiety about paying for shipping. As the next best thing to free shipping, a free and easy to understand returns process can be a great selling point that increases trust in your brand.
Negotiate with your shipping provider
Review your current shipping expenses to find the major cost factors, and research the prices from competitors to get a better understanding of average shipping costs. If your carrier can give you a better deal, free shipping may become a more viable option for you. At Fulfillment Works, we are always negotiating with carriers for the lowest price so we can pass those discounts on to our clients, which allows them to give better shipping rates to their customers.
Expanding your ecommerce business by opening more distribution centers (DCs) can be a beneficial strategy for reducing shipping costs and delivery times. However, more isn't always better. The expenses associated with opening, operating, and integrating additional DCs can easily negate the cost savings and logistical advantages they provide. To figure out if the numbers will work in your favor, you should consider the following variables.
Number of SKUs vs. Order Volume
In general, the more SKUs you have, the more it will cost to coordinate with your suppliers to maintain inventory levels across multiple DCs. However, those costs can be offset if your order volume is high enough. As we previously mentioned, a new DC can reduce shipping costs (assuming it's closer to your customers, of course). The greater your order volume, the greater your savings on shipping. When determining the cost-effectiveness of acquiring a new DC, you'll want those shipping savings to exceed the added inventory and warehousing expenses.
Average Shipping Weight
The average dim weight of your orders should also be included in your cost/benefit analysis. Heavy orders will generate bigger cost savings when shipping from multiple DCs. Conversely, you may see minimal or no cost savings on lightweight orders.
Multiple systems may need to interface in order to properly count and route orders to the right distribution center. Can your order management system incorporate a new distribution center?
Improving your distribution network's size and efficiency by opening new centers can be a solid strategy for maintaining a competitive edge - but only if the pros, cons, and costs have been thoroughly vetted. Alternatively, a third-party fulfillment provider may be a better solution. You can reduce transit times, cut shipping costs, and increase order volume without taking on the risk of opening and operating a whole other distribution center. At Fulfillment Works, we utilize customized solutions to provide clients with full-service fulfillment including logistics management, data solutions, warehouse services (with facilities strategically located in Nevada and Connecticut), and much more. Contact us to learn how we can help with your distribution goals.
UPS and FedEx have both announced pricing changes for holiday season 2017. Typically, these two shipping providers adjust their pricing in tandem - when one announces a change to their shipping & handling rates, the other announces a similar strategy soon after. But this year, that's not the case.
Effective 11/20 through 12/24, FedEx's holiday season rates are pretty straightforward. Essentially, there will be no increased residential holiday season surcharges, except in the case of packages that are oversized (increased to $97.50 per package), unauthorized (increased to $415 per package), or that require additional handling (increased to $14 per package).
UPS on the other hand, is taking a very different approach by implementing peak season surge pricing for all packages. This pricing (+$0.27) goes into effect for Ground Residential packages from 11/19 to 12/2, stops for 2 weeks, then resumes from 12/17 to 12/23. Peak season pricing for Next-Day Air residential (+$0.81), 2nd Day Air residential (+$0.97), and 3-Day Select residential (+$0.97) will only be in effect from 12/17 to 12/23. On top of that, UPS plans to add peak surcharges to packages that exceed maximum size and weight limits.
The goal behind UPS' peak season pricing is to offset the costs of increasing their fleet's cargo capacity, opening temporary facilities, and hiring additional sorting and delivery staff. However, this strategy is not only different from FedEx - it's different from UPS' past tactics. Traditionally, UPS has handled seasonal cost overruns by negotiating the level of volume discounts with a limited number of major retail shippers. For 2017, UPS is basically passing these costs on to their clients by spreading general surge pricing across all shippers. We’ll be looking forward to hearing about the effectiveness of UPS’ pricing strategy once the holiday season ends.
Since order fulfillment is a "behind the scenes" process, newcomers to ecommerce don't usually have a strong strategy in place for efficient fulfillment processes. In this post, we'll cover some fulfillment fundamentals to help beginners avoid the costly mistakes of over-stretching or over-complicating their fulfillment operations.
Free shipping vs. fast shipping
Yes, offering free shipping is a surefire way to increase sales. However, it's not free for the seller – and the costs can add up. Fortunately, there are many strategies you can use to reduce or recoup the costs of free shipping. For example, increasing the transit time decreases the cost while still appealing to most customers. In their 2016 "Pulse of the Online Shopper" study, UPS reported that 85% of shoppers are willing to wait 5-7 days for delivery if shipping is free.
Larger orders give you better margins on shipping
Packaging and fulfillment expenses aside, it's cheaper to ship two units instead of one. The profit margin from selling an additional unit will offset the increased shipping costs that result from sending a bigger, heavier package. This is important to remember when adding new SKUs or running promotions. For example, it may be more cost effective to kit products together, rather than offering them for sale individually. When it comes to promotions, the above UPS survey also found that 52% of consumers added items to their cart to qualify for free shipping.
Too many SKUs can negatively impact fulfillment
It can be a great idea to provide flexibility for your customers by offering multiple SKUs containing variations of the same product. However, it’s important to strike a balance. While larger orders return higher margins, too much variety and volume can increase the costs and reduce the efficiency of your inventory management and order fulfillment processes. Before running a promotion, adding SKUs, or entering peak season, don't forget to account for the impact on your fulfillment operations.