Shipping isn't as simple as just getting products from point A to point B.
It's a strategic operation that can significantly influence a company's profitability. Effective management of shipping costs helps to maintain a healthy bottom line and stay competitive in a market that relies on delivery more than ever.
However, reducing shipping costs at scale is far from straightforward. It involves navigating a labyrinth of factors, from fluctuating fuel prices to varying regional regulations and package dimensions to delivery speed expectations.
Shipping costs are often the deciding factor for consumers, with 47% of those who abandon their carts doing so because of high shipping and taxes. It’s in everyone’s interest to keep these costs as low as possible.
This article will highlight the importance of managing shipping costs and the unique challenges enterprise-level businesses encounter.
How shipping costs impact profitability
Shipping costs, both direct and indirect, play a pivotal role in determining a company's profitability.
While the direct costs associated with shipping are often the most visible, indirect costs can also have a significant impact on a company's bottom line. Understanding both types of costs is crucial for businesses aiming to optimize their operations and remain competitive.
Direct cost implications
- Labor: The shipping process involves various stages, each requiring human intervention. Production staff ensure the product is ready for dispatch, while warehouse personnel handle the packing and shipping.
- Material: The materials used for shipping, such as boxes, packing peanuts, bubble wrap, and labels, contribute to the overall cost.
- Shipping Fees: Shipping carriers charge fees based on various factors, including package weight, dimensions, and destination. According to the IMF, shipping costs significantly influence prices. For instance, when freight rates double, inflation is boosted by approximately 0.7 percent.
- Insurance and Customs: Protecting goods from potential damage or theft during transit often requires insurance. Additionally, international orders may incur customs duties.
Indirect cost implications
- Brand Reputation: Slow or unreliable shipping can lead to customer dissatisfaction, resulting in negative reviews. A tarnished reputation can deter potential customers, leading to lost sales and reduced profitability. This is especially concerning in an era where shipping delays are common and can adversely affect customer satisfaction.
- Pricing Strategy: High shipping costs may force businesses to increase product prices to maintain their profit margins. However, this can affect their competitiveness, especially if competitors offer similar products at lower prices.
- Customer Satisfaction: Modern consumers prioritize both convenience and sustainability. The National Retail Federation suggests avoiding rush deliveries and consolidating items to achieve this balance. 85% of individuals aged 18-24 and 75% of those aged 25-34 consider the environment when ordering, emphasizing the importance of sustainable shipping practices.
While direct shipping costs are often the primary focus for businesses, don’t underestimate indirect costs and broader implications.
Top strategies for reducing shipping costs
Battling against rising shipping costs is in everyone’s interest. Customers don’t like to see spiraling fees when they’re checking out online, and businesses don’t want to pass on higher fees where it can be avoided.
With that in mind, we’ve put together seven strategies to reduce the shipping fees you charge. Here’s how:
Negotiate with multiple carriers
Different courier companies offer varying rates, services, and discounts, making it essential for businesses to explore multiple options before settling on a shipping partner.
One of the most effective strategies to reduce shipping costs is negotiating with several carriers. Here's why:
- Discover Hidden Discounts: Listed rates are not set in stone. Shipping companies are often willing to offer discounts to secure long-term contracts or to cater to businesses with substantial shipping needs.
- Leverage Competitive Rates: When you engage with multiple carriers, you're not just comparing prices; you're leveraging the competitive landscape. Carriers are aware of the competition, and they might be more inclined to offer you a better deal.
- Prioritize Reliability: Recent surveys indicate that delivery failures affect nearly 75% of consumers. 12% reported issues with drivers not being able to locate their property, 26% experienced late deliveries, and 16% did not receive their delivery at all.
By negotiating with multiple carriers, businesses can not only secure competitive rates but also ensure that their products reach their customers on time and in perfect condition.
Packaging plays a dual role in the shipping process. While it's essential for protecting products during transit, it can also be a significant contributor to escalating shipping costs.
Product packaging is an unavoidable cost for shipping anything but provides excellent benefits. First and foremost, it protects your goods in transit. Beyond that it presents an opportunity for some after the sale marketing.
However, packaging needs to be paid for and can make up a large portion of the product price. Costs involved with packaging look like this:
Designer + material + size + quantity = cost.
How much this would be depends on a variety of factors, including the designer fees and materials used. But you can expect packaging to make up around 10-40% of the total product price.
Here are some ways to save on product packaging:
- Lightweight Materials: By opting for lightweight packaging materials, businesses can significantly reduce the overall weight, lowering shipping fees. Materials such as thin plastic, lightweight cardboard, or air pillows can offer adequate protection without adding unnecessary weight.
- Carrier-Provided Packaging: Many carriers offer branded shipping supplies at discounted rates or even for free. Utilizing these options can lead to direct savings on packaging materials.
- Packaging Dimensions: Carriers often charge based on dimensional weight (or dim weight), which considers both the weight and dimensions of a package. This involves choosing the right-sized box or envelope for the product, ensuring minimal wasted space.
- Bulk Purchasing: Buying packaging materials in bulk can lead to significant cost savings. Suppliers often offer discounts for large orders, allowing businesses to reduce their per-item packaging costs.
Take your time to figure out the right packaging solution for your business. Luxury consumers may expect higher-quality materials as part of the overall experience, so this will need to be priced in.
Businesses targeting more savvy consumers may be able to make the most out of carrier-provided packaging, as their customer base may not appreciate excessive or branded packaging but instead value efficiency and eco-friendliness.
Leverage flat-rate shipping
Offered by carriers like FedEx and many other major carriers, flat-rate shipping provides a consistent price, irrespective of the package's weight or size, up to a certain limit.
For businesses operating from a centralized fulfillment center, flat-rate shipping can be a boon. The consistency in rates simplifies the shipping process, allowing for more predictable budgeting and financial planning.
Similarly, businesses that take the reins of their fulfillment processes can find solace in the predictability of flat-rate shipping. It eradicates the need for intricate calculations based on varying weights and dimensions, making the shipping procedure more streamlined.
One of the standout advantages of flat-rate shipping is its indifference to the package's weight, as long as it's within the carrier's specified limit. Making flat-rate shipping a good option for businesses dealing with small but heavy items.
With the predictability of flat-rate shipping, businesses can set their free shipping promotional thresholds with precision, ensuring they remain both enticing for the customer and profitable for the company.
Use regional carriers
The "last mile" in shipping refers to the final stretch of a product's journey from a local distribution center to the customer's doorstep.
This short segment can be the most expensive part of the entire shipping process. The last mile can account for up to 53% of total shipping costs.
According to a report by McKinsey, five of the top nine reasons behind customer value in omnichannel retail are directly linked to delivery. Both 'delivery cost and speed' and 'control over delivery' were selected by 15% of those surveyed. Being able to return in-store was also valued by respondents.
Last mile delivery is also the most personal part of the journey. If the customer is going to meet anyone involved in the delivery, it will be the driver responsible for the last mile.
Regional carriers often have a deep understanding of their specific locales. They're familiar with the region's nuances, from traffic patterns to local regulations, and can usually navigate challenges more efficiently than their national or global counterparts. This expertise can lead to faster delivery times and cost savings.
These carriers might offer more competitive rates for local deliveries than national carriers. They might also provide more personalized service levels, flexible delivery windows, and better customer service due to their localized focus.
Consolidate carrier options
Offering multiple courier partners might seem like a customer-centric approach, giving them the autonomy to choose based on their preferences. However, this model, while appealing, comes with inherent challenges. Managing multiple shipping options can become intricate, demanding more administrative oversight.
Dealing with multiple carriers can also lock you out of their best rates. When orders are spread thinly across multiple carriers, the leverage to negotiate volume-based discounts diminishes. This fragmentation can lead to increased costs, negating the potential benefits of bulk shipping.
Your reputation is also linked to your carriers, and since they all have distinct service standards, this can lead to varied delivery experiences for customers. Given these complexities, businesses might find value in consolidating carriers. This approach not only streamlines operations but also paves the way for better rate negotiations and a more uniform customer experience.
By narrowing down to a select few or even a single carrier, businesses can streamline operations, potentially secure better rates, and, most importantly, offer a consistent and reliable experience to their customers.
Invest in third-party insurance
While carriers often present their own insurance products as the go-to solution, businesses should pause and consider the broader landscape of options available. One such option that often stands out in terms of cost-effectiveness and flexibility is third-party insurance.
Carrier-provided insurance, though convenient, can come with a heftier price tag compared to third-party alternatives. But cost isn't the only factor to consider.
Third-party insurance providers often offer coverage that is both more flexible and comprehensive. This means that in the unfortunate event of lost or damaged products, businesses can recoup a larger portion of their costs, ensuring that their bottom line remains protected.
Another advantage of opting for third-party insurance is the freedom it provides.
When businesses are not tied down to a carrier's insurance product, they retain the flexibility to switch carriers if service standards are not met. This freedom ensures that businesses can continuously seek the best shipping solutions without being constrained by insurance commitments.
While carrier-provided insurance might seem like the most straightforward option, businesses stand to gain by exploring third-party insurance. Not only can they benefit from potentially lower costs and better coverage, but they also retain the agility to adapt and evolve their shipping strategies based on performance and needs.
Switch to an omnichannel strategy with DeliverySolutions
Businesses and consumers alike are on a quest to make delivery as free of frustration as possible. People's work schedules mean they can't always be in for a delivery, and taking a day off can be a waste when there is a delay. Options mean more successful deliveries and a lot more flexibility for customers.
An omnichannel strategy, which integrates various shopping channels into a cohesive and seamless experience, is emerging as a pivotal solution in this dynamic environment.
At the heart of this strategy lies the understanding that today's consumers are not confined to a single channel. They browse online, compare prices on mobile apps, and still value the tactile experience of in-store shopping. Merging these channels into a unified shopping journey is the essence of an omnichannel approach.
One of the primary advantages of this strategy is the potential for cost savings, especially in the realm of shipping. Here's how an omnichannel approach can lead to reduced shipping costs:
- In-store pickup: A feature that empowers customers to place orders online and collect their items directly from the store, sidestepping shipping costs.
- Same-day delivery: This swift delivery option not only boosts customer contentment but can also be cost-effective when orchestrated adeptly.
- Curbside pickup: A fusion of the digital convenience of online shopping with the tangible immediacy of in-store collection, making curbside pickup for both businesses and their clientele.
- Lockers: DeliverySolutions offers secure lockers as a flexible option for customers to collect their orders, adding an extra layer of convenience and security.
- Pickup anywhere: Beyond traditional delivery, this service allows customers to designate specific pickup points, be they local stores or other convenient locations, to retrieve their orders.
- Post-purchase notifications: A feature that ensures customers remain updated about their order's progress, fostering transparency and minimizing the need for customer service interactions.
With such a diverse array of features, DeliverySolutions provides businesses with the tools they need to craft an omnichannel experience resonating with the expectations of today's discerning consumers.
Managing shipping costs requires a strategic touch, especially when high costs can deter customers at checkout. However, with a partner like DeliverySolutions, businesses can seamlessly reduce expenses while elevating the customer experience.
Our fluid fulfillment approach is a game-changer, turning potential shopping cart abandonments into confirmed sales. In short, for a cost-effective and customer-friendly shipping strategy, DeliverySolutions is the way forward. Book a demo with us today and see how we can help reduce shipping costs for you and your customers.
Drawing from over 15 years of invaluable experience, Courtney Catron is a distinguished Sr. Enterprise Account Executive. A proud alumna of Arizona State University, Courtney's remarkable journey includes roles at esteemed companies such as DHL, FedEx, Cheetah, and MecuryGate. Hailing from Scottsdale, AZ, she finds solace in activities like travel, hiking, kayaking, and horseback riding, showcasing her love for adventure and nature. While Courtney's travel experiences are vast, she holds a special place in her heart for her annual retreat to Eaton's Ranch. With a simple yet profound business approach, her philosophy centers on listening and learning. Courtney's personal life is as enriching as her professional one, as she relishes moments spent with her cherished family—her husband and two kids. Courtney's wealth of experience and her attentive and learning-oriented style contribute significantly to our B2B SaaS sales and marketing endeavors.