In ecommerce, there are a few things that you learn very quickly when you start examining your shipping costs. First, shipping is expensive, far more expensive than your customers think it is, and far more expensive than you probably think it is. And second, trying to reduce shipping costs (or even just keep them stable) is like trying to keep water in a pot full of leaks. It feels sort of hopeless at times. There are lots of forces that just seem to be working against you.
Over the past few weeks, we have been doing an overhaul of our shipping process, looking carefully to reduce our shipping costs. We already run pretty lean but have been worried lately about a metric we call subsidized shipping which simply is our shipping cost minus the shipping revenue we collect. We want this number as close to zero as possible, but it has been climbing for a while.
This particular round of fine-tuning was actually very effective. I will tell you the key areas on which we focused and give you some thoughts about things we learned.
Evaluate the shipping fees you charge your customer
In a particular case we looked at, we had not really modified shipping fees on an ecommerce website in four years even though I can promise you that our costs went up dramatically over those four years. Inflation actually is a thing and it applies to shipping costs too. It is not necessarily a bad idea to raise shipping fees on an annual basis just like USPS and UPS do to you.
I get that most ecommerce businesses are scared to raise shipping fees, but you simply cannot survive long term unless you adjust with the rising costs you are paying. I am not saying you have to show those shipping fees to your customers. Many companies just work the fees into the prices they charge to give the customer the illusion of inexpensive or free shipping, but that does not change the way you do your analysis.
I could write for a long time about negotiating with carriers; shipping is complicated and the carriers are complicated. They are skilled negotiators and they do not throw money at you. Very often, they show you discounts but find lots of ways to get the money back from you in a different way with surcharges, shipping minimums, and other fees.
We ship most packages with USPS and UPS and in the past month have finished negotiations with both. In both cases, we won big concessions that lowered our rates 10-20% on the bulk of our shipments. The negotiated rates are out there but you have to work for them. If you want to reduce your cost of shipping, the negotiating process is well worth it.
If you ship a lot with USPS, you need to take a very close look at their cubic rate pricing and see if you can ship based on volume rather than weight. If you can, you will save a small fortune. Don’t assume that you are getting the best cubic pricing either, especially if you are buying through a reseller like Stamps.com. Putting a bigger focus on cubic pricing was the single biggest factor in our latest shipping cost reductions.
We have for a long time done business with ULINE, the largest shipping supply company in the US and unapologetically not the cheapest. They deliver in one day and we like that. They also throw freebies into packages that our buyers seem to like too. It was a little thing but in our case, we learned that it was making a difference.
The truth is that we can save a lot of money on shipping boxes and other supplies, reducing our shipping costs ov by going elsewhere. As part of this recent process, we identified other suppliers and started using them. They are just as good and also deliver in one day. To be honest, we are kicking ourselves for not using them sooner.
We also reevaluated our shipping boxes in light of what I just wrote about cubic pricing. We used formulas to determine the boxes that we should be using that maximize our cubic pricing with USPS.
One metric we always measure is the cost of manpower to fill an order. This is simply the warehouse payroll divided by the number of orders it ships. If you start paying attention to that number, you can probably find creative ways to drive it down. We just reworked our picking process to reduce steps and just implemented a new QA system to help streamline the process of picking the right shipping box and shipping carrier.
Hopefully, these tips help reduce your shipping costs. I feel like I just barely skimmed the surface of these issues and will dive more into each individual one in the future. Until then, stay safe and healthy. On another note, if you want to learn about improving your business by decreasing your bounce rate read this article.