What is eCommerce Shipping?
Fulfillment starts as soon as your customer hits the checkout button on the eCommerce platforms and purchases the products in their shopping cart. Once the site confirms the order, the chain moves forward. Small-scale eCommerce stores often store their inventory in their garages. At the same time, as you go up the scale, vendors usually employ the services of inventory storage facilities and warehouses. Upon confirming the purchase, service providers package, label, and ship the products to the destination address.
Shipping can be pretty challenging to handle on your own, especially if you have a growing business. This is the point where third-party logistics (3PL) companies can be a big help. They optimize the fulfillment process and cater to your needs, and even help you minimize logistics costs. Various companies have different shipping policies and shipping rates, such as Amazon Prime, which offers overnight shipping.
But not every business can pull this off. This is why your company’s shipping policy should be based on a combination of your budget and your customers’ needs.
What to Keep in Mind when Shipping
There are many factors that eCommerce merchants have to account for when it comes to shipping. All the seemingly small details contribute to your overall shipping costs and total transit times. These factors ultimately determine customer satisfaction and directly impact your business’s reputation and future growth. Since your company’s eCommerce shipping strategy is so important, it’s worth investing time and resources to conduct proper research. Here are some of the best practices that online stores employ for shipping, to help you decide which one may suit your business best.
Offer Free Shipping
An effective way to reduce shopping cart abandonment is to provide some incentive to your customers. Companies usually use discounts and coupons to their customers for this purpose. Offering free shipping to your customers makes them feel more comfortable about placing an order.
Contrary to what the name might suggest, free shipping isn’t actually free. Either you take the hit and pay for the fees outright, or the fee is absorbed in a way that customers pay for it. You can do this by incorporating shipping costs into the sale price of your products. This way, you can offer free shipping without compromising your own profits.
Charge Real-Time Carrier Rates
Another popular shipping strategy among online vendors is charging real-time carrier rates. This process is transparent and gives your customers a little wiggle room. How? Well, let’s say you partner up with multiple carriers. You can now let customers pick and choose the shipping option that best suits their need.
Shipping labels like FedEx, USPS and DHL have different shipping costs, and no one carrier offers lower rates across the board – the pricing depends on numerous factors. eCommerce platforms such as Shopify integrate real-time shipping rates of these carriers into their dashboard so that they are easy to handle. Customers can then choose what works for them, whether it is overnight shipping, two-day shipping, or flat-rate mail.
Charge a Flat Rate
If you don’t want the hassle of calculating shipping prices for each package, then flat-rate shipping is another reliable option. As the name suggests, this shipping option charges a single rate for each shipping order, regardless of the size or nature of the product.
This option is most suitable for businesses that sell a small variety of products with similar dimensions and weights. However, be sure not to set a very high flat rate for the items – it might scare away the customers. Postal services like USPS usually have several flat-rate shipping options.
Offer Local Delivery
If your customer base is near to your inventory storage facility, then offering local delivery is one way to go. Keep in mind, though, that this only works for local customers. You can set up the local delivery zone through the use of zip codes – customers within this area qualify as local customers.
Suppose you are catering to a large customer base outside your local area. In that case, you can still offer the local customers this option by putting an appropriate button at the checkout. The local delivery option can be set to be free of charge or at a low flat rate, depending on your budget. This option is best for strengthening your local customer base.
How to Calculate Shipping Costs
An essential part of devising your shipping strategy is determining your shipping costs. If you partner up with a shipping label, couriers base their shipping rates on a number of factors. These factors range from the package weight and size to the origin and destination address. The bigger the product is and the farther away you have to send it, the more you’ll typically end up paying for shipping.
Before settling on your company’s shipping rates, be sure to assess the following factors:
Consider your Margins
One thing eCommerce merchants should focus on is their profit margins – they determine the success of your business. Shipping fees are a significant part of the total fulfillment expenses – deal with them improperly, and you could end up losing money. Before you set up the total price of a product, consider all the little expenses like shipping costs, credit card fees, and packaging, in addition to the cost of the product. Your sale price should leave room for profit after taking care of all of these expenses.
Packaging and Marketing
From a historical perspective, packaging and shipping were just ways to get the products to the customer. The up-gradation of technology and the evolution of business strategies have now transformed packaging and shipping into a marketing opportunity. And why not – telling your brands’ story with your product packaging and creating a memorable unboxing experience is a brilliant opportunity.
Packaging inserts and other items could take the whole experience up a notch when the customer unpacks their order – think of unboxing videos online and the publicity they gather! Of course, this type of marketing is another shipping expense and would add to the total costs.
Packaging Options
While you can utilize packaging for marketing purposes, don’t lose sight of its original purpose – the package still has to securely hold all the goods. Of course, the safety level for each product depends on its nature. For example, you can ship sweaters and other clothing items in poly mailers, and they would be secure. But for fragile items with higher value, you might need to invest in sturdy boxes and maybe even packing peanuts.
While the nature and size of the product help determine your packaging needs, your customers’ values and preferences also need to be accounted for. Eco-friendly packaging options are often pricier than the standard options, but they appeal to the growing number of eco-conscious consumers. This is why it pays to at least provide eco-friendly packaging as an option to customers.
Insurance and Tracking
Insurance and tracking help increase customer loyalty among online shoppers. They help secure your products and provide you with a safety net in case of any mishap. Shipping labels often provide relatively inexpensive or even free options for insurance and tracking. Like UPS and USPS Priority Mail, some carriers offer free coverage for mail orders above a specific amount.
Customs Declaration and Forms
International shipping requires proper customs documentation that details the nature and the size of the shipment. More often than not, international shipping also comes with specific regulations and tariffs. Of course, these fees add up to the total shipping cost. Suppose you are catering to a global customer base. In that case, it’s wise to set your shipping policy so that it includes these costs. If you let the customer know of the customs fee beforehand, they won’t be surprised at the unexpected charges once they receive the parcel.
Should you Offer Free Shipping?
Now that you have an idea of what constitutes the shipping expenditures, the next step is to determine whether to offer free shipping or not. Free shipping options are attractive to customers and directly impact conversion rates, but can your business afford to eat the costs and offer them? Well, several factors determine the feasibility of this decision.
The most important factor to consider is your company’s available budget and revenue. If your profit margins are high, offering free shipping probably won’t hurt you. Moreover, package dimensions, and the destination’s zonal distance are also factors to consider. Don’t forget to further account for the shipping rates of the shipping company you have partnered up with.
So far, we have discussed costs on the business owner’s end. Your customers are another critical determinant of your decision to offer free shipping. For example, if your target audience isn’t really interested in free shipping, then you won’t have to offer it in the first place. Of course, you can only determine how important free shipping is to them after doing some A/B testing. To sum things up, every company’s needs are different. As such, their decision to offer free shipping may vary.
How to Offer Free Shipping Without Reducing Profits
Offering free shipping to your customers might not be feasible for every business. Sometimes, you end up losing more money than you make by taking this route. So, how can you realistically offer free shipping without breaking the bank?
Here are some pointers:
Decide if Shipping is a Marketing Expense or COGS
If you want to offer free shipping, first determine how it affects your business. As stated earlier, you can utilize shipping as a marketing opportunity. If so, then free shipping expenses can be considered as marketing expenses. This is a profitable investment if it drives your sales up.
If free shipping isn’t doing much for your sales though, then the shipping costs might be an addition to the Cost of Goods Sold (COGS), and you may need to adjust your sale prices accordingly. Of course, new businesses might need to experiment a bit with free shipping to truly understand its impact. Test it first to determine whether the shipping expenses are a marketing expense or COGS.
Offer Free Shipping to Limited Shipping Zones
One way to realistically offer free shipping is to limit the free shipping to specific zip codes and areas. For example, a US-based business might offer domestic free shipping. Still, since shipping to other countries like Canada and Australia comes with tariffs and customs fees, the free shipping offer might not extend to those countries. Shipping carriers base their rates on the zonal distance of the shipment, so it might be expensive to offer free shipping to far-flung areas. The point is to establish your free shipping policy on your carrier’s shipping rates and limit free shipping to nearby areas.
Surcharge your Expedited Rates
To offset your free shipping expenses, you can increase the rates of expedited shipping. This only works if your expedited shipping option is attractive enough. As an example, between free shipping with 10-day transit time and expedited shipping with 2-day transit time, chances are both options will attract a fair share of customers. So, you’ll be able to offer free shipping to the customers by surcharging the expedited shipping rates.
Offer Free Shipping with a Minimum Purchase Amount
Setting a shopping threshold for free shipping is among the best practices employed by eCommerce platforms that offer free shipping. Amazon Prime is such an example. The logic behind it is simple enough. Customers must have a fair number of products in their carts before they can take advantage of free shipping. The profit margin from the sold goods covers the free shipping expenses.
eCommerce shipping FAQs
How do eCommerce Sites Calculate Shipping?
eCommerce sites like Shopify have integrations or built-in shipping cost calculators that determine the total shipping costs based on several factors. These include the shipping partner, package dimensions and weight, the zonal distance between the point of origin and the destination, and the transit time.
How is Shipping Calculated?
You can calculate the total cost of shipping through several determinants – some companies use shipping software for these calculations. These shipping costs include packaging fees, transit fees, and in the case of international shipment, tariffs and customs fees. The transit fees depend on the carrier rates that differ for normal, flat-rate, and expedited shipping options.
How does eCommerce Delivery Work?
eCommerce stores either go for self-fulfillment or employ the services of a third-party logistics (3PL) company. In the latter case, the fulfillment partner handles shipping by teaming up with different couriers. Once the eCommerce store confirms the order, the fulfillment partner sources the product from an inventory storage facility, packs it, and sends it out for shipping. The courier then ships the product to the destination.
What is the Cheapest Way to Ship for a Small Business?
The cheapest shipping option for a small business is the mail service. USPS is a great shipping carrier with affordable rates. If you want to cut down on the transit time, you could partner up with a third-party logistics company – they also sometimes offer discounts.
eCommerce shipping is a vital part of the supply chain, and one of the most expensive stages too. To avoid hefty transit costs, delayed orders, and unhappy customers, optimizing the shipping process is vital. A powerful eCommerce shipping solution like ShipHero can help you meet your business goals and optimize your shipping process.
