Getting your shipping costs right can have an enormous impact on conversions, as well as your overall margins – it’s also key in turning browsing customers into paying ones. In this blog, we’ll explore the factors that can affect shipping costs, as well as steps you can take to bring those costs down not just for you, but your customers too.
When asked what they thought was the best way to entice new customers, 30% of people surveyed for Retail Week’s 2021 Ecommerce Report unsurprisingly said free delivery or returns.
But the bottom line is, offering free shipping isn’t practical for every retailer, especially small businesses – at least not without serious cost-cutting strategies. So how can businesses reduce their shipping costs as much as possible and transfer that savings to customers in order to keep them coming back? Let’s take a closer look.
How important are shipping costs to consumers?
When consumers shop online they should, in theory, anticipate shipping costs.
So why then did the Baynard Institute’s research find that hidden costs (such as shipping) was the second highest reason for cart abandonment in online shopping behind “just browsing”?
As online shopping grows in popularity—Retail Week’s same report predicts online shopping will make up an incredible 57% of global sales growth by 2025—consumers increasingly expect, at the bare minimum, quick shipping that is, much of the time, free. But we’re all aware that shipping packages costs money, so why are so many consumers so put off by shipping costs?
In one word – Amazon.
Amazon Prime changed the eCommerce game with their promise of free two-day shipping, to the point where consumers have grown so used to this, they’re often deterred from shopping with other businesses that don’t offer something similar.
In fact, Retail Week’s report found that when asked which company offers the best online shopping experience, 50% of responders said Amazon with no prompting. The eCommerce giant has no doubt achieved this as a result of the wildly-popular Amazon Prime, and Prime Now’s steady expansion across the world.
These findings are particularly important for avoiding abandoned carts. According to a case study performed by American 3PL (third-party logistics) partner ShipBob, free shipping can help increase conversion rates three times over.
But as we mentioned before, shipping costs money. And if it’s not your customers paying for it, the burden is on you. So how can you lower shipping costs for your customer without putting yourself out of business?
It starts with reducing shipping costs on your end.
What goes into shipping costs?
First, let’s break down what exactly impacts shipping costs. There are a number of factors that will vary depending on both the country your business is in, and the country to which you’re shipping.
Package dimensions – The bigger the package, the bigger the cost to ship. This is usually determined by the height, width and length of the package. All major postal carriers will factor package dimensions into the cost of shipping.
Package dimensions are perhaps the biggest factor in shipping costs. Let’s say for example you’re sending out 5K packages at £0.40 a box to ship. With your current packaging, you’re able to fit 50 products per pallet, which takes 100 shipments and results in costs of £6,000.
But by optimising your packaging so that you scale it to specifically fit your product, you’re now able to fit 75 products per pallet, which results in only 67 shipments, all for a total of £4,000 in costs. That’s a massive savings.
Package weight – This refers to how heavy your package is. Again, it’s almost always a factor in shipping costs. The heavier the package, the higher the shipping cost.
Package value – The more valuable the contents, the more precious you’ll need to be with a package. For packages with high-priced items inside, you might want to insist on signed-for shipping, which costs extra. Similarly, this could influence whether or not you’ll want to take out insurance on the package should it get lost.
Shipping destination – How far is your package going? Each country will have its own system for national shipping. For instance, the United States is broken into eight zones. Ship to a destination in a different zone, and you’ll pay a higher cost.
Delivery time – How quickly does your package need to get where it’s going? Leaving your package at the mercy of national couriers like Royal Mail or USPS will likely take the longest but be the cheapest option, while two-day shipping or even overnight shipping cost a premium.
How can you reduce shipping costs?
We’ve established that shipping costs are a huge factor in driving sales and avoiding cart abandonment. Low-cost—or ideally free—shipping is key. But how can you make that viable, much less profitable, for your business?
Here are our top suggestions:
Employ a 3PL company
A 3PL company is an outside organisation you employ to do package fulfilment on your behalf. They can cover all the logistical aspects of getting your product to your customers, with everything from storing your product within their warehouses to packaging it up and delivering it.
A 3PL company’s biggest plus-point is cost-saving. They tend to have better connections with freight companies so can negotiate better prices, plus they’ll usually have multiple warehouses spread throughout a country or across the world, which can reduce shipping costs by shortening how far a package needs to travel. This can be a big factor for retailers frequently shipping products internationally, as customs and import fees come into play.
Where completely outsourcing to a 3PL company isn’t possible, there’s still the option to outsource just your top sellers. That way, you’re at the very least saving money on the products that most occupy your time and costs so that you can focus your attention and spending elsewhere.
The good thing is, 3PL companies come in all shapes and sizes (and services), so you’ve got the option to find one that can be tailored to your business’s unique needs. Here are a few that are on our radar:
Vdepot are a Norwich, UK-based fulfilment partner that cater to businesses of all sizes but are particularly great for eCommerce retailers on the smaller scale. Their “pay-as-you-use” storage option means retailers only pay for the space they occupy, which can grow or shrink as needed.
- Specialise in storage and packaging
- Integrate with wide range of eCommerce platforms
- Designated Account Manager
- Real-time inventory management
- Extensive courier partnerships
- Can provide food, alcohol and Amazon fulfilment
- Offers access to eCommerce development network
- Worldwide delivery
ShipBob are one of the big names in fulfilment, and have facilities around the world including within the US, Canada, the EU and UK. That way, if your products are most in-demand in Ireland, but you’re located in Canada, you’ll have the option to store your goods in ShipBob’s Irish warehouses to cut down on shipping miles (and costs).
They’re great for brands with a global presence, and can offer what they call end-to-end fulfilment, in that they take care of pretty much everything.
- Extensive global network
- Handle storage, packaging and shipping
- Online dashboard for storage and shipping information
- Automatically searches for cheapest shipping options
- Vast network of shipping carriers
- International freight shipping specialists available
- Integrates with all major eCommerce platforms
Core Fulfilment is available for DTC brands of all sizes, though we’d recommend them for brands on the small to medium size. They’re one of the few fulfilment partners with transparent pricing. They offer a basic fulfilment package that includes 250 orders per month, and can scale up from there.
Core also features a handy price calculator on their site to give you an idea of how much you can expect to pay with them and how each service influences overall costs.
- 10pm order cut-off time for next-day delivery
- Integrates with all major eCommerce platforms
- Allows customers to choose from courier options
- Multi-channel fulfilment including marketplaces like Amazon
- Worldwide delivery available
- Cloud-based inventory management system
Get your processes right
It’s not just fixed shipping costs like packaging and posting that you need to account for when it comes to shipping. There’s also labour involved, so efficiency is important.
In particular, automation is key. When you’re managing a growing eCommerce business, you don’t have time to make shipping decisions for each individual package. You need a process that will look at the product needing to be shipped, take into account its weight, packaging requirements and the distance it needs to cover, and automatically generate a solution that’ll take little to no thought on your part.
This is where shipping platforms come into play. By automating shipping processes, they make it easier for online retailers to ship products and save money at the same time.
But how do they work? Let’s look at ShipStation. We’ve used it on a number of projects and can say with certainty that it’s been massively useful in smoothing out shipping processes for our clients.
ShipStation syncs every stage of the fulfilment process into one platform and allows users to set criteria that auto-generates actions for specific orders. Through the platform, users can also print out customised courier labels, look at up-to-date inventory and even relay real-time shipping information to customers all in one place.
And when you think about it, it makes sense as an eCommerce retailer to manage as much of your business online as possible to save you time.
Set up more than one storage facility
This goes back to what we said about employing 3PL companies that have multiple warehouses. If you’re determined to keep fulfilment in-house, opening up a second (or third) warehouse at strategic places around the country can reduce how far packages need to travel.
Think first about where a large percentage of your packages are going – are there any particular hotspots in the country? Consider opening a warehouse there or between two hotspots.
How many times have you received in the mail a giant box that, when opened, only consisted of a fist-sized product?
As we mentioned earlier, a package’s weight and size will impact how much it costs to ship. Amazon, who employs their own couriers, can afford to get away with shipping tiny items in huge boxes, but this practice isn’t viable for small eCommerce businesses.
It’s important to assess how you’re packaging your products to ship. Cardboard can be weighty, so is there a way to fit your product into a padded envelope? What about a poly mailer? The smaller you can make your packaging, the better – if you can make it fit through the letterbox, you’re in an even stronger position. This can, for instance, cost up to half the price when shipping with Royal Mail.
Other efficient packaging solutions include:
- Utilising free packaging materials – Couriers such as USPS, DHL and UPS offer free packaging materials. They’ll be for specific mail classes and sizes, but it’s worth doing your research. If you are planning to buy your own packaging supplies, doing so in bulk can help you save money too.
- Weigh packages precisely – Invest in high-quality scales for each of your warehouses. Mere fractions of kilograms can result in large shipping price differences.
- Consider reusable packaging – Implementing reusable packaging like high-quality plastic pallets or foam can have both environmental and cost saving implications, in that you’re reducing unnecessary waste. Whether or not this could work for a specific business will be dependent on the company’s circumstances, but can be cost efficient for those with high-volume shipments, short shipments or frequent deliveries.
- Custom packaging – This goes back to what we said about a product’s dimensions influencing shipping costs. Making use of packaging designed to specifically accommodate your products can help cut down on weighty padding and unnecessary bulk that can make a package more expensive to ship.
Build shipping costs into your prices
Yes, this potentially involves raising your prices, but building shipping costs into a product’s overall total has its benefits.
For one, it can give the illusion that you’re still offering free shipping – customers don’t necessarily know you’re bundling the cost with the price. But if you don’t want to up your prices for the full amount of shipping, you could also add on a smaller amount and opt instead for a flat shipping cost.
UK retailer Hobbycraft offers standard, flat-rate shipping of £4.50 for orders under £25. Go over £25 and your order ships free.
One benefit of choosing this route is that Hobbycraft eliminates any hidden costs at check-out time. If customers know from the get-go—i.e., through banners or badges placed around their site—that shipping will always be £4.50 for orders of a certain value, Hobbycraft lessens the risk of abandoned shopping carts.
On the other hand, this shipping model also encourages customers to make an order over that £25 threshold. In fact, according to a Shippo State of Shipping Survey, 93% of shoppers will take action to meet a free shipping threshold, namely adding more items to their cart in order to qualify.
Do your research
It pays to do your research when considering couriers with which to ship your products.
Start by considering your product itself – what packaging specifications do you require? Is your product small enough for a letterbox, or is it a fragile piece of equipment that’ll need extra padding? Will it benefit from special tracking? All of this will factor into your decision, as various couriers charge for different services.
Next, look at your customer and their typical orders. What’s most important to them? Is it free shipping? Precise tracking? Once you’ve got this nailed down, you’ll be in a better position to narrow your selection pool.
From there, make calls to your top courier choices and outline exactly what you need. Mention that you’re speaking to other courier services so they know you’re looking for a deal, and prepare to negotiate.
Knowing your shipping volume and trends will be key in negotiations, as this is the best indication of the services you’ll need in the future. Research a range of couriers and their prices so you can use this data as leverage and secure a better deal.
If you’re in the position to do so, trialling different shipping prices on your site can also help give you a better idea of what your customers are after, and allow you to adjust accordingly. Remember, free shipping isn’t the be all and end all, so find out what’s most important to the people buying from you and go from there.
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