Unless you are using Amazon FBA, the reality of multichannel ecommerce is that you are competing with Amazon. Because, due to Amazon’s market dominance, your customers will expect fast, accurate shipping. Yet providing this can be costly to ecommerce retailers and eat into their profit margins. The good news is that there are ways that you can keep your shipping costs down, and we are going to examine each of them.
Understanding the basics
If you are not used to dealing with shipping, it can seem a little intimidating. But once you break it down into smaller chunks, it becomes much easier to deal with. The products sold by you are valuable, and they must get to your customers in good condition. For this reason, selecting a reputable carrier is important. Customers will soon go elsewhere if packages arrive damaged or get lost.
You cannot afford for your reputation to be tarnished in this way, which is why finding the best shipping provider and building a good relationship pays dividends.
If we look at the basics, shipping costs are made up of the expenses incurred in getting the goods to your customer. They usually comprise the following:
- Packaging, including boxes, labels, tape, polybags, internal protection (bubble wrap or polystyrene)
- The labour involved in physically packing the item
- Courier costs for the collection and delivery
- Import/export fees if shipping worldwide
Most e-commerce websites have a section devoted to shipping costs and a variety of FAQs as customers usually have many questions related to this area. Your website should also show your shipping policy; this details what customers can expect and helps to avoid ambiguity if queries or complaints arise.
Overall, your shipping costs can make or break a sale and can often be the difference between a shopping cart being abandoned or the sale completed. Research has shown that nearly 50% of customers will leave their cart and not progress to payment if shipping fees are too high.
Now that we are clear on the importance of shipping costs, let’s look at ways of reducing them:
1. Reduce the packaging you use
The volume and weight of your package dictate the cost so it makes sense to try to minimise the amount used. Even if you only save a few pennies, this all adds up when you are dispatching hundreds or even thousands of items.
Don’t use oversized boxes with loads of wadding when you could use a smaller box. If the products are not breakable, maybe use a polybag instead of a box, or even a padded envelope.
Measure your products and work out the size of your most frequent package and then shop around for suitable materials, buying in bulk to obtain the best prices.
2. Build shipping into the price of your product
Many e-commerce sites offer free shipping by absorbing the cost into the price of the final product. Look into USPS flat rate shipping for the US article. Or are we avoiding calling out specific carriers? In which it’s fine to leave this in.
It’s worth investigating offering this option as customers like this. They feel they are getting a bargain and it simplifies the checkout process. Keep an eye on your competitor’s prices and don’t inflate yours too much or this could work against you. When building shipping costs into the price of your product, you should:
- Keep the prices competitive
- Maintain a good profit margin
- Check out how your competitors handle shipping
- Research how much customers are willing to pay
3. Look around for discounted suppliers
You don’t have to stay with the same shipper. On an annual basis, look around for discounted suppliers. Even if you don’t decide to use them, you can talk to your current carrier, using these rates as powerful bartering tools. What you are doing is negotiating good rates in exchange for your loyalty.
4. Negotiate discounted shipping rates
All shipping companies can offer discounts for volume shipping. Even if you are not a huge multi-channel e-commerce seller, you should ask for volume discounts. Be watchful during negotiations and don’t let your shipper exchange lower prices for an inferior service that compromises your shipping times or quality of delivery.
5. Consider third-party shipping insurance
Did you know that shipping insurance provided by your supplier is usually higher than that provided by a third party? If you insure your orders, research the rates available from specialist insurance brokers. If they are lower, by going with them, you can remove the insurance aspect from your shipper’s offering.
6. Look into prepaid shipping
If you regularly use shippers such as Royal Mail, FedEx, DHL or UPS, by prepaying and purchasing their shipping labels in bulk upfront, you can save up to 20%.
However, do note that this only works well if you frequently ship packages of the same size and weight and you know exactly what your shipping costs are going to be in advance. As soon as a package is ready to ship, you will have the label ready and waiting.
Ship customer orders from any sales channel with 21+ direct shipping integrations
7. Poly mailers may be more effective than boxes
If your goods are not fragile and don’t need the protection of a box or polystyrene blocks, how about switching to a polybag mailer? You can buy them in bulk and many are self-seal so you don’t need tape. If your products are different sizes, consider purchasing several sizes of the polybag. Because they are so much lighter and smaller dimensionally than a box, you will automatically save money because costs are calculated according to weight and size.
8. Make sure the packaging you are using is optimal?
Are your packaging materials optimal? It’s easy to forget to ask yourself this question and end up using boxes that are too big, too thick or too heavy. Boxes come in a plethora of sizes and qualities, including 1ply and 2ply.
Take time out to examine your product and how best to package it. Scan the market for boxes that are more suitable and less expensive. Of course, you may want to consider the impact of your packaging on your brand. It may be that it is worth spending more to get more elaborate packaging to add a bit of ‘wow’ to the unboxing. Or you may want to spend more to fit in with your green credentials. In either case, it’s important you get the balance right.
Most carriers work with standard box sizes so if your boxes are outside of these dimensions, you will pay more. Finally, if your supplier can deliver the goods to you in ship-ready condition, all you will need to do is apply a label to it – no more packaging costs!
9. Reuse packaging from orders you receive
You can boost your company’s environmental policy and save money by re-using packaging received from others. Where packaging is too large, cut it down to size. If you do this neatly, it will still look good and customers will be impressed by your efforts to go ‘Green’ and save paper (thus protecting trees).
10. Keep on top of shipping rate changes
You may love the shipper that you work with, and may have built up a great relationship with them over time, but it still makes sense to keep on top of shipping rate changes. Every year, shipping carriers review their prices. If you receive price increases from your current supplier, don’t just accept them. Look at what others are charging and negotiate.
11. Consolidate multiple shipping boxes
When shipping is consolidated, smaller packages are placed inside one large box. But how can consolidating multiple shipping boxes save money? Imagine you are despatching several items to one customer, all in separate boxes.
If the boxes are a little large, each one will need bubble wrap, foam or even crumpled paper to protect the item and stop it from moving around. All of this adds to the weight of your shipment, plus you are sending several packages instead of just one. By discarding the extra packaging and boxes and placing everything into one larger box, you will save money. This is because the price you pay is based upon the final size and weight.
12. Avoid having to pay expedited shipping costs
Are you in the habit of always paying the top prices to rush goods to customers? Maybe you don’t think twice about paying expedited shipping costs. But do you need to do this? What if your customer is quite happy to receive their package a little later but at a more affordable price?
In the case where a shipment will arrive late unless you expedite it, what is more important – preserving your reputation or absorbing the additional cost? Maybe it doesn’t need to be one or the other. Not all expedited shipping costs are the same. For example, why send an item by air if a dedicated van will get there on time. The difference of just a few hours can come with a hefty price tag, so you need to be careful.
In addition, you need to be ready and accurate with your package; if you tell the shipper it is a certain size and weight and then they find these variables are inaccurate, you can be hit with additional charges.
Are you charging the right amount for shipping?
Even when you have done your best to keep shipping costs down, you need to be sure that you are charging the right amount for shipping. This is done by adding together the packaging, handling and shipping costs:
- Packaging costs – accurately determine the price of the packaging for the particular item by looking at your purchasing costs.
- Handling fee – take your employee’s hourly rate, divide by 60, work out how long it takes them to package the item in minutes. You can then calculate the sum.
- Shipping charges – assess the weight and dimensions of your package, look at the destination and then work out the price by using a shipping rate calculator.
Whatever final price you arrive at, always back-check it to what your competitors are charging. To be competitive, try to match or beat their price. For urgent items, provide your customers with the option of paying a higher price. Although it will cost more to send this way, you can charge more and your customers will be happy. In the same way, if some of your products are exceptionally heavy, show a higher shipping fee.
By itemising and correctly calculating your shipping costs along with using best practices to assess and compare them, you can be one up on your competitors whilst simultaneously boosting profits.
How your shipping strategy impacts your costs
How and what you charge customers for shipping forms a key part of your shipping strategy. This then influences your conversion rates/sales and profit margin. Let’s check out some shipping strategies and how they affect pricing for your e-commerce store:
In this scenario, you charge exact shipping costs based upon what it will cost you to send the order. By allowing customers to choose how much they will pay, they feel more in control. Should they need an order to arrive urgently, they may be happy to pay the additional £10 it will cost you to do this.
Others might not be in a rush and prefer to pay the £2.95 shipping option that you usually pay. By using a real-time shipping calculator, provided by your supplier, you build trust in your relationship with your customers. This calculator can become a part of your site, available at checkout and proving to customers that you are not making a profit on shipping fees.
Flat rate shipping
Some e-commerce sites prefer to offer a flat rate for shipping, irrespective of the size or weight of the item. Alternatively, this can be a flat rate according to weight ranges or order values. Whilst it may sound simple enough, this method of shipping does require more work upfront which is best practice to be sure you are not under or overcharging customers.
Once you have completed your calculations and reached a suitable price, it is likely to be a little under or over when compared to the actual shipping cost. However, this should not be an issue as, over time, it will balance out. Don’t rush the process and take the time to identify the flat rate that works best for you. Whilst this may be a process of trial and error, over time you can finely hone it, deciding whether to base it upon weight, order totals or something else.
Check out competitor sites and you may find many offering free shipping. In other words, the shipping costs have become the responsibility of the e-commerce store, not the customer. Look at your margins and see if you can afford to absorb them. Which option you go for will depend upon whether your products fall into the high-margin category or not.
A good option is to offer free shipping based on a minimum purchase price. It is possible to offer free shipping and stay profitable but only if you know your margins. You should calculate how much it costs you to ship and the profit you will make.
It might be difficult to work this out for every order so if this is the case, use your average order value and what it costs for you to ship the majority of your orders. Although this will be an estimate, it will give you some idea of the feasibility of offering free shipping.
The calculation works like this:
Your last batch of orders was for the values of £86, £112, £71, £65 and £105. Add this up and you get the figure of £439. Divide this by the number of transactions, which is five, and you get your average order value (AOV). In this case, it is £87.80. It would therefore be logical for you to provide free shipping on orders over £100.
This will help to push up your average order size as customers may top up to hit this figure. This in turn will provide you with more profit, which you can use to offset the cost of the free shipping.
Take note of our advice on how to keep shipping costs down and you will find your profits improve. By being in control, understanding your costs and the minds of your customers, you can put in place the pricing strategies that best suit your e-commerce site.
You may not be as big as Amazon but that doesn’t mean that you can’t make use of some of the valuable strategies that they implement. By taking time out to research competitor sites, keep on top of the rates you are paying and build strong relationships with your shipping suppliers, managing your shipping costs will become second nature.
We hope this guide has given you a good idea of how to reduce shipping costs for your business. Another way you can optimise your shipping and fulfillment is by using an advanced order fulfilment platform.
About the author
Rithu Rajan is a Product Manager at Veeqo. She’s helped design and launch B2B products in four countries. She’s now focused on simplifying ecommerce shipping for growing businesses. No longer does she take the prompt arrival of her online purchases for granted.