The advancements in technology and the growing need for personalized customer experience have led to a drastic growth in e-commerce sales.
However, the dilemma that most organizations encounter is trying to strike a balance between remaining profitable by reducing shipping costs and maintaining high standards in shipping services to boost customer satisfaction.
Striking this balance is often a tricky affair for companies because shipping costs have become increasingly expensive. In an attempt to cut shipping costs, you run the risk of providing low-quality services to customers, therefore, compromising their overall experience.
In general, shipping cost entails the total expenses incurred to enable delivering an order to a customer.
If you anticipate a door-to-door delivery to a customer’s location from the manufacturing unit, there is a cost involved. This shipping cost can be categorized into two: the handling cost and the shipping cost.
Companies can increase their profitability by putting into place proper strategies that can aid in minimizing shipping costs.
In this guide, we shall discuss different tactics that can help in minimizing shipping costs. These include; negotiating with multiple suppliers, adopting prepaid shipping plans, optimizing packaging, implementing workable fulfillment strategies, employing hybrid shipping services, and utilizing shipping software or platforms.
Keep reading to understand how you can effectively cut down on shipping costs without compromising the quality of service delivery, efficiency of operation, and overall customer experience. First, let’s help you understand what shipping costs are.
Understanding Shipping Costs
The direct expenses of transporting an order from the manufacturing unit to a customer’s doorstep are what is referred to as the shipping cost.
These costs involve the following:
- The expenses of stickers, tapes, boxes, and packaging
- The expenses of hiring a workforce to aid in picking, packing, and dispatching the ordered item
- The expenses of involving a courier to aid in the collection and delivery of the order
- The expenses of international shipping fees on the importation and exportation of goods
As a manufacturer or a retailer, your goal is to transport an ordered item from your warehouse shelf to the location of your customer at the lowest shipping cost possible, and within the agreed duration. Additionally, you have to make sure that the ordered item received by a customer is not dented.
When calculating the shipping costs involved, you must ensure that you strike a balance between customer satisfaction and company profitability.
If you charge too high shipping fees, then you run the risk of losing your customers to competitors. Alternatively, charging too little may also reduce your company’s profit margins and this may not be sustainable for the long term.
You might be tempted to offer free shipping services just because you have discovered that most of your competitors are offering it. Before they can offer that, they must have done some thorough calculations on their shipping costs and found it to be sustainable. Making the same move without proper planning may wreck your business.
If you understand your shipping expenses, you will be able to give instant shipping estimates during the checking out process for all your customers who will be making their orders online.
This process always demands some backend processes that may involve establishing an automated shipping rate for a particular item(s) for a given shipping zone(s).
Having such systems can help in building trust and loyalty with your customers which eventually converts into more sales. To build a loyal customer base for your brand, you must be transparent with your shipping costs.
To ensure that all customers complete their orders and don’t abandon them, you need to offer them an array of shipping alternatives. This helps your customers personalize their experience and develop a belief in making their own choices.
Having defined what shipping costs are, let’s now help you find out the six ways to help you reduce shipping costs.
Six Ways to Reduce Shipping Costs
1. Negotiate with Multiple Carriers
Minimizing shipping costs is an important facet of controlling your company’s expenses. When you put in place an efficient strategy by considering different factors, your company can negotiate for affordable shipping quotes with carriers. This will eventually minimize their shipping costs.
To minimize shipping expenses, it is important to start by deeply understanding the particular shipping requisites of the industry. These factors include the standard packaging size, the volume of the shipment, and the delivery locations.
When you have this information, it gives your company the power to negotiate appropriately with carriers, therefore, bargaining for the best shipping rates.
Exploiting the shipping quantity can be another critical way to ensure reduced costs. Companies that ship a large number of items can always get reduced shipping rates after negotiation with carriers.
If your company is a high-quantity shipper, carriers will always try to retain you longer by offering discounted rates as a reprieve for large-quantity commitments. By exploiting this opportunity, companies can greatly minimize their shipping expenses.
Additionally, accepting to utilize a particular shipping service given by carriers may contribute to further cost savings. For example, a company may decide to entirely utilize the ground shipping services of a given carrier in exchange for reduced rates.
When a company commits to a specific service, it helps the carriers to keep a harmonious flow of business resulting in reduced shipping costs.
Checking around for affordable rates and then negotiating with different carriers is also a good tactic to help in minimizing your shipping cost. When you prospect different carrier alternatives and compare their shipping rates, you can discover the best terms at hand for your company.
This dynamic strategy ensures that a company gets the most favorable shipping rates possible and prevents paying excess shipping costs.
It is essential to understand that minimizing shipping costs needs endless effort. As a company keeps evolving, reassessing the shipping fees often is essential as this helps in negotiating with carriers accordingly.
By adopting the dynamic approach and always prospecting for favorable shipping costs, companies can keep the prices competitive and enhance their fundamentals.
A negotiated shipping cost can greatly minimize the expenses of operation for e-commerce companies. Let’s now discuss the step-by-step process of how to go about the negotiation stage.
Know Your Shipping Requirements and Practises
Before you begin the negotiations, know your shipping requirements and practices. This involves knowing the dimension, the average weight, and the volume of your shipment. Additionally, you must know the locations where you often ship your goods. By knowing this information, you can then negotiate a deal favorable to your company.
Involve Various Carriers
Never limit your prospecting process to one carrier. Examine and understand the price arrangements from different carriers. This will help you discover a single carrier whose pricing structures match your shipping requirements and practices.
Every carrier may possess certain weaknesses and strengths and understanding this can be a great arsenal during the negotiations.
Request for Discounts on Large Volume
You can get discounts on large-volume shipments from most carriers. You can use this as a bargaining chip if you have a large quantity of goods to be shipped.
Irrespective of the size of your company, always ask for volume-based carrier discounts since your company’s growth can eventually result in increased shipment volume in the future.
Examine Shipping Fees Reduction Offers
There are frequent discounts offered by carriers. Make sure to ask carriers about any discounts you might be eligible for.
Hire a Shipping Expert or Third-Party Logistics Company (3PL)
Consider employing a shipping consultant or collaborating with a Third Party Logistic Company (3PL) provider if you find shipping rate negotiations to be excessively complicated or time-consuming. They can bargain higher rates on your behalf because they are knowledgeable and have connections in the business.
A two-way conversation is what negotiation is. Be open and honest about your needs, and don’t be afraid to move on if a carrier is unable to satisfy them. Finding a solution that meets your business demands and saves you money is the aim.
2. Use a Prepaid Shipping Plan
Shipping that is prepaid can save you up to 20% of the costs involved. This implies that rather than paying for each shipment separately, you purchase a large number of shipping labels and apply them to parcels before they are dispatched.
Note: To ensure correct shipping charges, this strategy only applies when purchases are constantly shipped with the same weight and dimensions, or when this information is known in advance.
3. Optimize Packaging
One of the most important strategies for companies looking to cut shipping expenses is packing optimization. Businesses can significantly cut their shipping costs by concentrating on shrinking package size and weight.
This can be accomplished by employing the proper packing materials, picking the smallest box feasible, and taking into account specialized packaging options.
Utilizing strong and lightweight packaging materials is one efficient technique to lower shipping expenses. Businesses can secure their goods during travel while reducing the package’s overall weight by using materials that are both sturdy and light.
For smaller things, choosing lightweight poly bags or envelopes can drastically reduce the package’s weight and size, which will ultimately result in cost savings.
In addition, employing packaging peanuts or bubble wrap can offer appropriate protection without adding a lot of weight.
Utilizing the smallest box feasible is a crucial component of package optimization. Businesses can avoid wasting space and cut shipping expenses by selecting boxes that closely fit the dimensions of the goods being transported.
As an illustration, shipping a tiny item in a large box results in higher shipping costs as well as a larger risk of damage during transport. Businesses can reduce shipping expenses while assuring the security of the package by choosing the smallest box that fits the item securely.
Further lowering delivery costs is possible by taking into account different bespoke packaging alternatives. Businesses may create package options that closely match the dimensions of their products thanks to custom packaging.
This customized technique reduces both weight and dimensions by doing away with the need for extra packaging material and ensuring a snug and secure fit.
As a result, companies can significantly reduce their costs by tailoring their packaging to the unique needs of their products.
4. Implement a Fulfillment Strategy
The purpose of a fulfillment strategy is to cover the whole procedure beginning with the time a sale is executed to the time when the order is delivered to a customer.
A successful fulfillment strategy relies on the third party to finish the fulfillment stages for the online e-commerce store beginning with the receiving, processing, packaging, picking, and then shipping of an item to a customer.
A well-thought-out fulfillment strategy is essential for an e-commerce company to gain the loyalty of its customers and maintain its competitiveness in the business.
When you play the part of receiving fulfillment procedures, your aim should be to respond fast by ensuring that every process is enhanced. Orders should be handled as fast as possible to ensure that customers feel the joy of quick delivery.
There are many shipping errors you need to avoid when it comes to delivering customer orders. However, there are also other external factors that you have no control over. Items may arrive damaged, increased shipping costs by carriers, extreme weather conditions may jeopardize fast delivery, etc.
Whichever the case, if you have a functional fulfillment backup plan, you can avert the mistakes of delayed delivery. Maintaining a large stock in your warehouse is important to help maintain the pace with the demand.
If you have been in the industry for more than a year, you can begin by evaluating your company’s data: the orders and the stock with reference to the previous year. This helps you to determine the trends in the shipping industry.
There is no common procedure to follow when developing a fulfillment strategy. However, here are the most essential factors you need to consider when implementing a fulfillment strategy for your e-commerce company.
The Volume of Orders and Company Size
The quantity of goods you sell and the volume of orders you get every month contribute heavily to establishing a fulfillment strategy that serves your company’s needs and practices. If you are just getting started in the e-commerce industry, your fulfillment strategy will not look alike to those of established outlets.
Having a low order volume may turn out to be cost-effective since it provides the opportunity to exploit an in-house fulfillment strategy instead of outsourcing.
If your weekly shipment orders and sales volume are still limited then there is no need to set up a huge inventory or establish a management system for your warehouse to keep records of all operations and inventory.
However, if your company is expanding so fast and the average sales volume is gradually rising, you need to quickly discover when your current fulfillment strategy won’t serve your company’s needs anymore. In this case, you need to adjust your fulfillment strategy to go in tandem with your growth.
Technology and Distribution Methods
The fulfillment strategy you adopt has to complement and aid your online distribution methods, mainly from the technological aspect.
A fulfillment strategy that already blends with your company’s e-commerce program and online retailers can assist you in managing your overall fulfillment procedures more effectively without the need of doing some development tasks.
This is essential especially if your distribution cuts across several methods. The technology you adopt has to smoothen your company’s fulfillment strategy and not make it more complex.
What this implies is that whenever a client places an order online through any of your distribution methods, it has to be transferred automatically to a company’s order fulfillment department. It is then received, packed, and then shipped swiftly.
Adopting a fulfillment strategy with the appropriate software for inventory management is essential. You must always gain a full view of the movement of your inventory and quantities under management over different fulfillment destinations, and have a system set to deal with stockout.
Generally, e-commerce companies have to exploit technology that links the initial processes of manufacturing and purchasing to the final processes of product demand and sales to make precise production and purchasing resolutions.
Where your shipment moves from and to are some of the most essential facets that should influence a company’s fulfillment strategy. Clients prefer affordable but fast e-commerce delivery: 72% of online customers choose affordability and fast delivery while 25% of clients abandon their orders because of delayed shipping.
To be able to fulfill a client’s expectations, try to take the shortest shipping route as this can significantly lower the shipping costs and maintain your customers’ happiness too.
Sipping orders from remote/rural locations can be extremely costly. You should therefore plan your order fulfillment from central or urban areas.
Fulfilling customer orders from several areas but closer to where they reside can significantly reduce delivery time and shipping costs. This can aid you in always exploiting the ground shipping strategy and this can greatly save on shipping costs.
However, if it’s a long-distance delivery: from one geographical location to another, then you can employ a more accelerated shipping method rather than ground shipping.
The Requirements for Customization
If the goods you sell are custom-made: wrapped gifts or very fragile, you can adopt a more direct strategy for the whole supply and distribution process.
When you outsource fulfillment, you are surrendering all customer information. However, you have more freedom, flexibility, and certainty that customization will be perfect every time if you can pack orders yourself.
5. Consider Hybrid Shipping Services
A hybrid shipping service is a better alternative for an e-commerce company that does not want to rely on a single fulfillment choice. However, the hybrid shipping service only works better for companies that:
- Manages high order volumes and wants to swiftly increase fulfillment capacity
- Possesses the capacity to successfully coordinate a mixed fulfillment plan
- Want to be able to provide their clients with online-to-offline fulfillment options, like a store-based pick-up
- Your company is growing, and you need countrywide fulfillment coverage
- Continues to prefer in-house fulfillment but would like the option to contract out some e-commerce orders
- Are unable to keep a large inventory on their own
When client expectations grow exponentially, a more coherent delivery of their items, a hybrid shipping service is a better strategy to provide your company with an arsenal of alternatives to transport goods from point A to point B.
More fulfillment options equal increased flexibility and more approaches to reducing shipping costs. This also ensures a better customer experience on delivery promptness.
However, controlling hybrid shipping services is a huge commitment even for companies with huge resources. To have control over many fulfillment options requires the correct dedicated support mechanism.
Therefore, the reason why a third-party trustworthy fulfillment supplier is essential to maintain a hybrid shipping service going smoothly.
What Do Hybrid Shipping Services Entail?
A hybrid shipping service is a fulfillment process where you integrate all or a few fulfillment options intending to reach out to more clients and also minimize shipping costs.
For instance, if you intend to utilize Fulfillment By Amazon (FBA) for online order fulfillment, your company’s third-party logistic company may help you by dispatching orders to Amazon fulfillment warehouses as it also obtains and keeps other Stock Keeping Units (SKUs) in their centers anticipating fulfillment.
Alternatively, if you are presently fulfilling orders on your own and it has been a struggle to control the demand, opting to drop ship some of your orders is a better strategy to try out an outsourced fulfillment.
Having looked at what a hybrid shipping service is, let’s now discuss how it can help you in minimizing shipping costs for your company.
How Can Hybrid Shipping Services Minimize Shipping Costs?
A Swift Ability to Scale
Many brands find themselves constrained by the restrictions of in-house fulfillment as their order quantities increase. It becomes too inefficient or expensive to continue self-fulfilling orders as consumer demand increases, especially if delays or order fulfillment problems are occurring more frequently.
For Direct to Customer (DTC/D2C) brands, choosing to outsource fulfillment can be extremely difficult. Giving up total control over the fulfillment process and all of the opportunities for customer involvement that goes along with it is not an easy thing to do.
There are no value-added or customized services provided by third-party fulfillment companies, which may be of great help to your company.
You can have the best of both worlds for your brand with a hybrid shipping service. For instance, you might choose to handle the fulfillment of loyalty program participants’ orders in-house, which would enable you to provide extra benefits like free samples and unique packaging that third-party fulfillment firms are unable to.
Discovery of Expedient and Affordable Fulfillment Techniques
Whatever way you look at it, fulfillment is without a doubt one of the highest ongoing expenses for e-commerce companies. Even with strict cost controls in place, labor, shipping, and storage charges quickly pile up.
Many times, brands must shop around just like their customers do to realize considerable cost savings.
Because every order is unique, if you limit yourself to a single fulfillment technique, you will only have one strategy to concentrate on and may miss out on other cost-saving opportunities.
For instance, fulfilling local orders yourself rather than sending them to your third-party logistic provider (3PL) is far more affordable and efficient.
On the other hand, your third-party logistic provider (3PL) will undoubtedly obtain a better rate on cross-country shipping thanks to bulk savings with big carriers. You can avoid having to pick between the two by embracing hybrid shipping services.
Providing Customers with a Variety of Fulfillment Choices
Consumers today care about more than simply speed; they also want the freedom to select the fulfillment method that best suits their requirements.
For some people, this won’t be home delivery; for instance, the rise in popularity of BOPIS and curbside pick-up is making it more difficult for brands to match customer expectations for excellent service.
Even if you don’t have storefronts, partnering with outsourced fulfillment providers can provide you access to these capabilities.
A fantastic method to determine whether having a physical location would benefit your company without jumping in headfirst is to provide in-person pick-up choices.
Creating a Reliable Supply Chain
They advise against putting all of your eggs in one basket. To the disappointment of your clients, anything from bad weather to software issues can momentarily halt fulfillment.
By using a variety of methods for order fulfillment, your company may quickly pivot and divert new orders to another logistical operation if one channel experiences issues.
Additionally, keeping connections with a variety of fulfillment partners enables firms to spot areas where their fulfillment strategy is lacking and where it could be wise to reconsider their approach.
6. Use Shipping Software or Platforms
Utilizing shipping platforms can be of great value to companies whose aim is to minimize shipping costs. The platforms empower companies to cluster their shipping quantities and then negotiate for affordable shipping costs with carriers.
Shipping platforms are advantageous since they help companies minimize shipping costs by offering discounted fees.
The platforms integrate different carrier fees, enabling companies to analyze and choose the most affordable option.
By exploiting a negotiated discount provided by these shipping platforms, companies can attain huge savings on shipping costs. Additionally, shipping platforms also help in minimizing shipping costs by smoothening the entire shipping process.
Such platforms merge with other e-commerce platforms hence removing manual data entry, and making the shipping processes much simpler.
Through automated duties such as designing shipping labels, the role of shipping platforms is to reduce errors related to costs by enabling efficient and affordable shipping procedures.
Additionally, shipping platforms usually provide extra attributes which help companies to minimize shipping costs. For example, tracking packages and confirmation of delivery processes aid in alleviating the risks of damaged or lost orders. This also prevents expensive replacements and claims.
Engaging shipping platforms permits companies to integrate their shipping details which leads to enhanced control of shipping costs.
The improved control enables companies to discover zones where they can cut down on shipping costs. For instance, they can discover opportunities for integrating orders or negotiating affordable rates with carriers based on their shipping data.
Using shipping platforms is a functional strategy for a company whose aim is to reduce shipping costs.
By exploiting discounted shipping fees, smoothening shipping procedures, and obtaining control over shipping costs, companies can enhance their shipping performance and attain significant cost reduction.
Prospecting several shipping platforms and then choosing one which suits your company’s requirements and practices is essential in achieving all the cost reduction gains.
Handling and shipping are inevitable logistics expenses if you have an e-commerce company. Adopting the correct strategy can help in minimizing your shipping expenses and eventually contribute to your company’s growth.
Shipping is one of those unappealing yet essential tasks that every e-commerce business must complete. You need to execute it properly for both yourself and your clients regardless of your size
The e-commerce sector is predicted to expand significantly in the future. This could offer enormous prospects and potential for future investors. It might be a new beginning, a motivation to try again, and only success if you keep trying.
There are numerous methods you may use to lower your shipping costs. You might be able to increase your earnings by learning how to lower shipping costs. In the end, the money you save can be better put to use in expanding your company.