Shipping & Fulfillment

Q&A: ‘Can We Reduce Shipping Costs?’

If you’ve ever wondered whether your ecommerce store could afford free shipping, or if you have been frustrated by poor shipping estimates at checkout, this post is for you. I’ll address four common ecommerce shipping questions.

Certainly every ecommerce business is unique — different products, locations, values, cultures, and goals. But most every ecommerce company ships products, and many companies have the same questions.

1. ‘Can We Afford Free Shipping?’

Can your ecommerce business afford pay-per-click advertising? Can it afford to invest in search engine optimization? What about email marketing?

Free shipping is no different than any other marketing vehicle. A free shipping offer is a tool. It can encourage someone to buy from your online store.

Like any good marketing tool, a free shipping offer should provide a return on investment. The ratio of the cost of shipping to the profit it generates should be positive.

For example, if you are selling boots online, adding a free shipping offer should help you sell more boots or defend against a competitor.

Dr-martens free-shipping example

A free shipping offer should generate a positive return on investment.

Imagine you have an online store that sells Dr. Martens 1490 vegan leather boots for $159.99. Your store buys the boots wholesale for $96. So if your company had no other costs associated with the sale, it would earn $63.99 per pair sold.

$159.99 - $96.00 = $63.99

Sell 10 pairs, and your store would earn $639.90 in profit.

Now imagine you decide to offer free shipping. The boots cost $15 on average to ship, reducing your profit per pair to $48.99.

Sell 10 pairs, and your store would profit $489.90.

If, however, offering free shipping helped your store sell five more pairs of boots (15 total), your store would profit $735.85.

If the free shipping offer doubled sales (20 pairs total), your business would earn $979.80.

Can you afford free shipping? Estimate how much it will help your sales.

2. ‘Can We Reduce Shipping Costs?’

There are at least three ways to reduce ecommerce shipping costs.

Ship shorter distances. It costs more to send a package across the country than it does to send it across town. Thus you can significantly reduce shipping costs by warehousing products closer to your customers.

This is why Amazon had more than 180 fulfillment centers in 2019. For most orders, Amazon can fulfill from a warehouse that is only one or two zones away.

To ship regionally and save money, open additional shipping centers, or partner with a third-party fulfillment service.

Use effective packaging. Think about your own online shopping experiences. Have you received an item in a massive box with hundreds of packing peanuts to keep it secure?

Boxes, tape, bags, labels, and packing materials are not free. Pack your products in the right-sized box or bag with the proper amount of packing materials.

You will save money on the packaging. You could reduce the weight of the box or bag, saving money. And, finally, you might avoid dimensional weight pricing.

Streamline fulfillment. Picking, packing, and shipping an order requires labor.

If, for example, you pay your warehouse folks $20 per hour and a typical worker can pack and ship 20 orders per hour, your company is spending about $1 per shipment in employee expense.

I’m aware of an online retailer in Seattle that shipped many small parts and accessories. The company considered using a third-party fulfillment service but balked at paying $1.80 per order for picking and packing. But then it realized it was spending roughly $5 per order in labor. The third-party packing fee seemed like a bargain.

3. ‘Are We Paying Too Much for Shipping?’

Your ecommerce business could be paying more than necessary for shipping.

UPS, FedEx, and other carriers will often negotiate rates and extend significant discounts, typically based on volume. The more you ship, the better the discount.

To increase volume, ask your suppliers to use your UPS or FedEx shipping number. When 20 boxes of jeans arrive from your distributor, those packages contribute to your volume and lower the rate you pay to ship to your customers.

There are also significant price differences among carriers. For example, shipping from a warehouse in Oregon to a customer in Washington state could be less expensive with OnTrac rather than FedEx, UPS, or even the United States Postal Service.

OnTrac is an alternative package carrier. There are dozens of similar regional companies.

4. ‘Why Are My Site’s Shipping Estimates Wrong?’

There are few things more frustrating to a merchant than when its ecommerce website charges a shopper $15 for two-day shipping and the actual cost is $27.95.

How could your shipping estimate be so wrong? The answer is likely in either data or settings.

To provide “real-time” shipping quotes, your site must send the package weight and dimensions and destination address to an application programming interface. The API will use that info to create a shipping quote. If, however, your site is providing inaccurate or insufficient data, the resulting shipping quote could be wrong.

For example, if your site provided only the estimated weight and shipping address and not the package dimensions, the API cannot consider dimensional weight pricing.

Moreover, errors in your own settings could produce poor estimates. You might not have the correct shipping weight associated with a product. Or you might have shipping rules that override or modify the quote.

Armando Roggio
Armando Roggio
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