Shipping costs are easily one of the biggest running costs for e-commerce businesses – and it’s only getting worse.
It’s no longer enough just to switch your shipping carrier or select ground shipping methods. Fuel surcharges are rising, shipping carriers are applying peak season rates year-round, and ongoing supply chain stress caused by the pandemic is making reliable delivery difficult.
If your brand is struggling to find reliable ways to reduce shipping costs, that’s a lot of money being left on the table. As your business grows, these inefficiencies will soon threaten your profitability. What starts with a few cents being lost can quickly scale to whole dollars on each order. That amounts to hundreds, if not thousands of dollars every year!
But reducing shipping costs doesn’t start at the point of packing orders. It starts way before your inventory is even in your fulfillment center – with the value proposition you present to your customers.
Today, we’re going to cover 8 actionable ways to reduce shipping costs at your e-commerce business:
Let’s face it: Giving away shipping for free with every order is not going to save money. Yet free shipping has become a key expectation from e-commerce shoppers. A whopping 90% of consumers say that free shipping is their biggest incentive to shop online.
If your e-commerce store doesn’t offer free shipping, building brand loyalty is going to be an uphill battle.
So, how can you meet customer expectations for free shipping and still reduce shipping costs? By implementing a free shipping threshold.
A free shipping threshold, also known as an order minimum, refers to the minimum order value that a customer must reach to qualify for free shipping. Order minimums are used to ensure that an e-commerce store doesn’t end up making a loss on orders.
In sum, order minimums allow merchants to have their cake and eat it too; offering free shipping to those customers who have ‘earned’ it, while also protecting yourself against low-value sales that can erode your profit margins.
Free shipping thresholds also have the added advantage of influencing shopping behavior – over time, this can reduce shipping costs even further.
For example, if customers know that a threshold exists, they’ll be tempted to meet it. In fact, 93% of consumers will take action to qualify for free shipping at an online store, such as buying additional items. Multi-item orders are much more cost-effective for brands to fulfill and ship, as the order value is typically higher. In sum, free shipping thresholds help to reduce your shipping costs and increase overall profitability, thus strengthening your bottom line.
To properly set an e-commerce free shipping threshold, e-commerce businesses need to understand both their average shipping cost and their average order value – and have a deep insight into customer behavior.
For an order minimum to work successfully, you need to know what amount will encourage your customers to spend that little bit extra to qualify. Check out our guide on how to set your free shipping threshold to make sure you are reducing shipping costs as much as possible.
Loyalty programs are not a new invention in e-commerce and retail. But a typical free-to-join, earn-and-burn reward program has diminishing rewards for both customers and brands. 54% of respondents to a 2019 survey noted that it takes ‘too long’ to earn loyalty rewards.
In sum, unless a program provides tangible and ongoing benefits, it’s very difficult to maintain consumer engagement over the long term.
Paid loyalty programs, where a brand charges customers a fixed fee upfront for access to a higher tier of perks, are rising in popularity as consumers seek more certainty in their shopping experiences. And what do consumers want? Ways to reduce shipping costs.
Nearly two-thirds of free program members are willing to pay a fee if they receive benefits such as free or expedited shipping, while 64% of consumers listed free shipping as the perk they wanted the most in a paid program, followed by discounts (53%) and faster shipping (51%).
Paid programs offer merchants a way to reduce shipping costs and other associated fees by charging customers a nominal amount for shipping and other benefits that pay for themselves with successive orders. Because this fee is being spread across multiple members, brands can keep this fee competitive. Amazon Prime, for example, started in 2005 offering unlimited two-day delivery for just $79 per year, an amount that members can recoup with just a few orders.
Of course, shipping isn’t really ‘free’ if it’s awarded through a paid program. But because customers are paying upfront for a full year’s worth of shipping, it removes friction from future orders and increases the likelihood of future purchases.
At the end of the day, someone has to handle the burden of shipping costs in e-commerce. It’s either the customer or the brand. But there’s also an alternative option; store-based fulfillment and pick-up, also known as BOPIS (Buy Online, Pick-Up In-Store).
BOPIS has massively grown in popularity since the COVID-19 pandemic. For consumers, it combines the best of both worlds; the convenience of browsing and paying for products online, while also getting to reduce shipping costs at the same time. According to Forbes, 77% of consumers have abandoned an online purchase due to a lack of ‘satisfactory’ shipping options by merchants.
For brands, BOPIS offers a turnaround time that even priority mail orders struggle to compete with. BOPIS orders can be fulfilled and ready for pick-up in as little as an hour.
In essence, BOPIS acts as a kind of surrogate free shipping option. Once customers reach the checkout and see that they have the option to pick up their order for free and receive it faster than home delivery, it’s a much more viable option than paying for expedited shipping.
The more BOPIS orders you receive, the less you need to rely on shipping companies to reach your end customer. In sum, it’s one of the best ways to reduce shipping costs while still allowing merchants to meet customer expectations for instant gratification.
The question of whether or not to offer free return shipping can be a big puzzle for merchants.
On the one hand, paying for e-commerce shipping costs in both directions is a massive financial drain, especially for small business owners.
But as consumers come to expect a seamless return process, not footing the bill risks adding friction to the post-purchase experience. Moreover, 48% of shoppers have cited extra costs such as shipping as forcing them to abandon their cart and not go through with an online purchase.
But there is an alternative. Returns and exchanges represent very different types of customer behavior. So, why treat them the same way?
When goods are returned, return shipping costs represent a loss of current and future sales. For exchanges, it’s an investment in future revenue.
If a customer wants to exchange an item, it’s a clear sign that they want to maintain a relationship with your business. By rewarding this behavior with free shipping, you can both retain revenue and build higher levels of brand loyalty. But if customers pay for shipping when they’re pursuing a refund, this makes them think more carefully about the merits of returning.
So, by only paying for return shipping on exchanges, you can reduce your shipping costs substantially.
Cutting down the dimensional (DIM) weight of your packages is the first place to start if you are striving to reduce shipping costs – but is also frequently overlooked.
Dimensional weight refers to the pricing strategy used by shipping carriers to set different shipping fees for domestic and international delivery. DIM weight takes into account the physical size of the package, in addition to its actual weight. This means that bulky, lightweight packages are typically subject to high shipping rates and potentially additional surcharges.
DIM weight pricing comes into effect when the actual weight of a package is less than its DIM weight. The greater of two will be used to calculate the billable weight. So, if your e-commerce business is using the wrong packing supplies to prepare orders for shipping, your shipping costs can go up drastically.
For example, if you’re using boxes that are too big for the products you’re shipping, this gives packages an artificially inflated DIM weight – resulting in shipping rates that are much higher than necessary. Moreover, bigger packaging means the liberal use of air pillows and bubble wrap to cushion products. As your shipping volume increases, these extra costs add up to thousands of dollars per year.
By practicing cartonization i.e. assessing the size/weight of SKUs to choose the most streamlined packaging option, you can ensure that you’re maximizing cost savings when shipping packages by keeping dimensional and actual weight as low as possible. The less weight that’s being shipped, the lower your shipping costs will be.
Split shipments refer to multi-item orders that are dispatched to customers in multiple deliveries, rather than being shipped as one package. The more items that a customer is ordering at one time, the more likely it is for split shipments to happen.
But if your brand is paying to ship a single order twice or even three times over due to it requiring a split shipment, your packaging and shipping costs are going to spiral rapidly.
Split shipments can occur for a few different reasons. Sometimes, it’s simple as not having a container big enough for an entire order. But the growing complexity of the fulfillment and shipping process is causing split shipments to become more common.
For example, if an e-commerce business is using more than one fulfillment center to pick, pack, and ship orders, a single location might not have all of the items a customer has requested. This makes it necessary for SKUs to be retrieved from other fulfillment centers and dispatched to the customer separately.
The need for speed in e-commerce shipping has also made it more attractive for merchants to use split shipments as a method to deliver items faster. If consolidating an order will result in a later delivery date, then split shipments are often preferable – even though shipping costs are much higher.
While it’s very difficult to avoid using split shipments completely, there are steps you can take to reduce their frequency and achieve more low-cost shipping.
Offering your customers more shipping options, such as being able to consolidate their order and receive it at a later date, is a great way to reduce split shipments. With consumers more eco-conscious than ever before, you might be surprised how many will opt for slower delivery in exchange for greener shipping.
If you do use more than one fulfillment center, think carefully about where different SKUs are being stored. Your sales data provides a great source of information for what items your customers are commonly buying together. Keeping these SKUs in the same warehouse space will help to lessen the frequency of split shipments – and in turn, lower shipping costs.
Flat-rate shipping can be a brilliant way for e-commerce merchants to reduce shipping costs and simplify their shipping strategy – so long as you understand when best to use it.
Put simply, flat-rate shipping refers to shipping fees that are charged according to the size of the packaging being used for shipping, rather than by dimensional weight. So long as the item(s) you are shipping fit into the box or envelope supplied by the carrier, there’s no variation in shipping cost due to their size or weight.
Flat-rate shipping can substantially lower shipping costs because many major carriers, including UPS and USPS priority mail, will charge the same rate regardless of how many shipping zones a package is crossing. This means that if your brand is shipping nationwide, flat-rate will generally work out as the cheapest shipping method while still achieving two-day delivery timeframes.
Another notable advantage of flat-rate shipping is that it’s generally exempt from peak season surcharges, fuel surcharges, and other additional fees that often result in high shipping costs. Because boxes and envelopes are supplied by the carrier, this also lowers your packaging costs substantially.
By standardizing your shipping rates, your team doesn’t have to spend valuable time trying to shop around to find the best rate for every order, or desperately trying to reduce package weight; so long as an order fits inside the box, you are good to go!
Flat-rate shipping is a great way to save on shipping costs in the following circumstances:
However, there are some scenarios where flat-rate shipping is going to cost you – and not just financially:
The above tips and tricks will go a long toward reducing e-commerce shipping costs for your business. But the biggest game-changers for your shipping strategy come from partnering with an e-commerce fulfillment provider. Ryder E-commerce by Whiplash can offer you the robust infrastructure and technology required to give you unparalleled control over how orders are shipped:
Multiple fulfillment centers. Multi-node fulfillment massive reduces your overall shipping cost by putting your products in multiple locations close to key customer hubs. By lowering shipping distance and speeding up last-mile delivery, Whiplash gets orders into your customers’ hands faster and cheaper – including same-day delivery capabilities.
Discounted shipping rates. Access steep shipping discounts from major carriers including UPS, FedEx, and USPS via our high shipping volume for a more cost-effective shipping strategy.
Real-time rate shopping. Our SmartRate Selection tool enables brands to compare rates between shipping companies in real-time to find the very best balance between speed and your budget. Analyze your order history to understand sales trends and develop a tailor-made strategy for your needs.
Whiplash Order Rules. Use the power of the Whiplash platform to apply granular rules to your orders for shipping and routing. Set automated rules for which SKUs are in what packaging to minimize DIM weight, or what order values receive free and expedited shipping – all with the touch of a button.
Shipping costs are one of the trickiest areas to manage as an e-commerce seller. Keeping shipping costs as low as possible is vital not just to protect your bottom line, but to fulfill customer expectations for a seamless online shopping experience.
Strategies such as BOPIS, order minimums, and premium loyalty programs allow merchants to offer credible alternatives to blanket free shipping policies that lower profit margins. Small tweaks, such as cartonization and using flat-rate shipping, can shave off dollars and cents from your shipping rates. When multiplied over time, this adds up to some serious cost savings that are ready to be invested in other areas of your business. What’s not to love?
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