FREE SHIPPING. As consumers, we all want it and have come to expect it when shopping online – but as a retailer, you know better than anyone, “free shipping” is certainly not free. Shipping is associated with costs of postage, transportation, warehousing, fulfillment, returns, and so on. Anyone can take a hit to offer free shipping and increase sales, but it’s also possible to implement a free shipping strategy without putting in jeopardy your bottom line.
In our review of small and mid-size online retailers, here is what we found. Most ship from a single location on one of the coasts near a port. Our example customer saw their costs move from an average of $13.50 per order to over $21.00 per order between 2021 and 2022. Their average sale price was $58.78, which means margins dropped from 32% to 12.5% due to higher shipping expenses that were largely unplanned for. This put pressure on their cash flows and threatened some of their long-term plans. If you ship larger or heavier items, it’s even worse. So where do you go from here and how can you better manage these expenses?
The online retailer could choose to downgrade the mode of transportation from two-day to expedited or from expedited to ground, saving some money on shipping costs. But what does that do to the customer experience when 2-day shipping has become expected? It’s a consumer’s market and your competitors are just one Google search away…
The dilemma then becomes not only how to reduce the cost to ship, but how to reduce this cost while still offering exceptional delivery times. This is one of the more difficult challenges, which fortunately offers a few solutions.
The first is getting closer to your consumer — physically. Rather than shipping from one location on the coast, you increase inventory in order to ship from two or three locations across the US. Now if you’re fulfilling in-house, the cost to open a new facility is a barrier — not to mention the risk that comes with it. However, you can take advantage of this strategy with minimal fixed costs by keeping your current facility and partnering with a 3PL in other locations for added 2-day ground coverage. Further, if the cost of added inventory or storage is a challenge, you can choose to apply this strategy to best sellers or fast-moving SKUs.
When option 1 is not feasible, using a wider range of carriers can help offset or otherwise minimize the impact of accessorial costs, fuel, residential delivery fees, dimensional costs and a myriad of other fees. Two carriers we all know have hundreds of add-on fees, which today account for 20-40% of the average invoice customers pay. Implementing a multi-carrier strategy can be challenging, but worth its weight in gold. Not only are you able to lower all-in costs to ship, but you can take advantage of leveraging different carriers for the shipments they service best. This gives you the added benefit of not putting yourself at the mercy of service outages by carrier or unmanageable rate increases. There are tools available to help you implement and automate a multi-carrier shipping strategy, take advantage of a good partner to manage this on your behalf.
So, what happened to our example client? The client was already in more than one warehouse and chose to implement the multiple carrier strategy. They were able to bring their average transportation cost down to an average of $13.67 per order, restoring their projected margins.
In summary, while anything but “free”, there absolutely are ways to make free shipping a sustainable practice for your online business, it’s a matter of distributing your inventory and ship locations or using technology to diversify your shipping carrier partners… Do BOTH and you’re well on your way to a free shipping strategy that retains customers, increases sales, and positively impacts your bottom line.
Scott Riddle is the Chief Operating Officer of ShipNetwork, the network uniquely built to optimize and control your eCommerce shipping experience — delivering orders faster while spending less. ShipNetwork lets you take advantage of 50 million packages in purchasing power, offering the best combination of price and service, all using data-driven technology to deliver a complete, end-to-end service experience. As COO, Scott is in charge of aligning and operationalizing the company's fundamental principles, finding efficiencies for clients, and developing creative solutions for today's eCommerce business challenges.
