Free or low-cost shipping is a mainstay in the online retail business. It motivates shoppers to buy more. But carriers like UPS, FedEx, and even the United States Postal Service still want to get paid for the packages they carry, meaning that shipping promotions often pinch sellers’ margins.
Fortunately, there are at least a five things that nearly any merchant can do to reduce the expenses associated with shipping products directly to customers: (a) negotiating with carriers, (b) rate shopping on select orders, (c) using “free” money, (d) paying attention to product cube values, and even (e) selectively using fulfillment services.
Free or Low Cost Shipping Has Changed
The ecommerce industry — like nearly every industry — evolves. So too has free shipping or its close relation, low-cost shipping. Just a few years ago, it was possible to make a good argument that it did not always make business or financial sense to offer free shipping, even with a minimum purchase. But the marketplace has changed, and now many — if not most — online shoppers expect to receive a free shipping offer when they shop online. What was a marketing tactic in 2009 has become an ecommerce requirement in 2013.
Free shipping and low-cost shipping offers have been shown to increase the amount each shopper spends on a given visit to an online store. The most recent data comes from a September 2013 survey that UPS and trend-tracking firm comScore conducted in Canada. The survey found that more than three-out-of-four Canadian shoppers had added items to an ecommerce shopping cart in order to reach a minimum purchase threshold and earn free shipping.
Negotiate for Better Rates
Negotiating better shipping rates is the most obvious way to save money on shipping generally. The leading carriers in the U.S. — UPS and FedEx — are willing to cut rates if they believe they will get more overall shipping volume.
What’s more, UPS and FedEx may also let you take up to three months to grow your volume; you may be able to enjoy lower shipping rates immediately even as your shipments ramps up. Be careful that your projections are accurate, however, because you will need to hit the shipping volume you promise in order to keep your lower rates long term.
If you need to boost your shipping volume to have a better negotiating position with UPS or FedEx, try to include inbound shipments too. Many online retailers pay for bulk products to ship from a manufacturer or distributor to that retailer’s own warehouse. Rather than reimbursing the manufacturer or distributor for the shipping costs, a retailer may use its own UPS or FedEx account number, significantly boosting the retailer’s volume.
Shop Around for Shipping
When a seller offers free shipping or, perhaps, 99-cent shipping, it may make sense to shop around for rates. Not every carrier’s rate schedule will make sense for every shipment.
As an example, for physically small but heavy items, flat rate shipping from the U.S. Postal Service can produce significant cost savings over UPS and FedEx. But for many mid-sized packages — relatively speaking — UPS and FedEx offer better rates than the USPS. So taking just a moment to compare rates before sending a package can make a difference to your business’s bottom line.
Use Free Money
In business, there is no such thing as “free,” whether one is talking about shipping or money. But there is an accountant at one retail chain that likes to refer to payment card rewards as “free money.”
Some business credit and debit cards offer reward programs wherein companies receive “cash back” — often in the form of Visa or MasterCard gift cards — on nearly every purchase made.
From an accounting perspective, these cash back rewards may be viewed as a discount on the original product or service purchased or as “free money” that may be applied to other business purchases or expenses.
Merchants can “reduce” shipping expenses either by paying with cards that earn cash back and treating the reward as a discount to the shipping rates or by paying for the shipping with reward cards earned with other business purchases.
Know Cube Values
If your store offers shoppers estimated shipping costs through an application programming interface, it is possible that you are losing money on shipping even when the shopper pays for it.
Many ecommerce platforms that have built-in integrations for UPS or FedEx use only three factors to estimate how much it will cost to ship an order: the origin address, the destination address, and the weight of the package.
For most orders, these three data points are enough to provide an accurate rate quote, but any box that is both light and large will cost a lot more than expected.
UPS, FedEx, and the USPS all consider a shipment’s “dimensional weight” in addition to its actual weight when charging your company for shipping.
Essentially, dimensional weight is a billing calculation. Carriers can lose a lot of money on large, lightweight, and low-density packages. Imagine, as an example, shipping a box of pillows. The boxes might be extremely light, but still take up a lot of space on a UPS truck. ( See “Shipping: Dimensional Weight Errors Can Cost Big Bucks,” where we explain the topic further.)
To compensate, the carriers — with some variation in formulas — calculate the average value of the space the large, lightweight box takes up and bill that amount rather than the actual weight of the item.
Merchants can provide shoppers with better estimates and thereby save on shipping, if they understand that product’s “cube value,” which in the shipping context is the length, height, and width of the packaged product. If you know an item’s cube value before a shipper buys it, you can adjust your ecommerce platform to offer better price quotes and ultimate save money.
Use a Fulfillment Service
A final cost saver may be as simple as using one or more fulfillment services that warehouse, package, and ship orders on your behalf. Fulfillment services can take advantage of economies of scale to get better rates on shipping, shipping supplies — like boxes and tape — and even warehouse space. What’s more, some fulfillment firms have multiple warehouses, so you can place inventory in more places thus reducing shipping rates by proximity.
Fulfillment providers charge a processing fee — after all, they want to make money too — but frequently online retailers will find that using a fulfillment service can reduce the overall cost of shipping packages.