This article originally appeared in our July/August issue
In addition, a 2016 McKinsey study found that, despite increasing availability of same-day and instant delivery, only 20-25% of consumers would pay significant premiums to receive their items instantly. More than 50% of e-commerce buyers still choose the lowest priced option, while another 20% prefer the cheapest available home delivery. This means that regular parcel delivery (delivered several days after the order) should continue to play a major role in your e-commerce strategy.
Most small businesses shippers know the basics for saving money, like using the smallest, lightest packaging, using USPS First Class Package for everything up to a pound, negotiating rates with carriers, and using an advanced postage system. However, when profit margins continue to narrow, it is more important than ever to watch your bottom line and make the most of all the shipping options available to meet your customer’s budget and delivery needs.
Seven Tips for Managing Your Shipping Costs
1. Use a Cloud-Based Shipping Solution
An online app gives you a central place to compare shipping rates, print shipping labels, send customer confirmations, and track shipments. Cloud-based shipping services work like you work: from anywhere, any time. Another benefit of a paid third-party application is that more information is handled automatically and most offer discounted carrier rates, if you haven’t negotiated your own.
2. Rate Shop Every Shipment
Shipping rates and surcharges are unpredictable. Save money by comparing rates and delivery times for every shipment. Do this interactively (one order at a time) or in bulk (using automation rules in the shipping system). The key is to actually see all your services and rates for each actual shipment. There are too many variables to simply say “3 lb., zone 4, goes ground.” You need to know the right service to use for each shipment. There has always been proprietary rate shopping for high-end warehouse applications, but rate shopping capabilities with real-time pricing transparency is expanding into the SMB market.
3. Choose the Right Pricing Model
a. Free Shipping: This is often used to avoid abandoned carts but, depending on your margins, free shipping can cut into your profits. Free shipping works best for high-margin items and low-shipping-cost items. A minimum sale to qualify for free shipping helps balance out shipping costs with higher profits.
b. Flat Rate Shipping: This is best option for companies shipping commodity items of a similar size and shape. Base prices on the average cost of a package. Pricing can reflect either order totals or weight ranges. With the right formula, merchants can get close to covering their actual shipping cost, or you can try it for a week. You know what your average actual cost is. Try setting your store to that shipping amount store-wide for a week and then evaluate.
c. Exact Shipping Costs: Shopping carts make it possible to set up real-time shipping quotes. Customers can pay your actual expected cost, sale by sale. This is a good option to use for heavy or oversized shipments.
4. Remember, Most Customers Still Value Cost vs. Speed
As stated above, there are products and industries where up to 25% of customers are willing to pay a premium for speedy delivery using a car delivery service, including groceries, small electronics, and automotive parts. For most shipments, however, customers are not willing to pay enough of a premium to justify instant delivery. Do your research, know your business numbers, find out how your competitors are handling shipping, and offer shipping options in alignment with your industry and margins.
5. Consider Hybrid Last Mile Delivery
If speed is not a factor, hybrid services like SurePost by UPS and SmartPost by FedEx can cost a lot less than standard UPS and FedEx delivery options if you meet size and dimension requirements. These services pick up packages at your business and ship them by UPS or FedEx to the post office closest to the destination. The local mail then makes the final delivery.
6. For Oversized and Bulk Shipments, Less Than Truckload (LTL) Freight Might Be an Option
It is important to use the most cost-effect service to meet your customer’s budget and delivery needs. Again, if speed is not an issue, looking into LTL freight for shipments too big or expensive for parcel shipping could save over 50% as compared to parcel shipping costs.
7. Streamline Your Shipping Operations with Automation Rules
If you ship dozens of packages a week, using a best-in-class shipping service lets you pre-program all your shipment options in automation rules. This saves you time and ensures the smartest (or cheapest!) shipment every time. For example, a company could rate shop three carriers and ship using the cheapest service that gets the package there within three days.
Drones, self-driving cars, or parachute deliveries may be the future of shipping. These innovations could someday help lower shipping costs and become a regular part of your fulfillment tool box. But for now, automate, evaluate all fulfillment options, listen to your customer’s budget and delivery needs, and continue to use parcel to help manage your shipping costs.
Rafael Zimberoff is the founder of ShipRush, recently acquired by Descartes Systems Group, the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance and security of logistics-intensive businesses. ShipRush is a Seattle-based software company that specializes in serving small- and medium-sized businesses with shipping solutions. www.shiprush.com