One thing online retailers find challenging when operating an online store is deciding how, and how much to charge for shipping. Obviously covering the cost of shipping and handling is a must, but the latest trend for many retailers is to offer reduced or free shipping. It has gotten to the point that many consumers are starting to expect free shipping, even at the expense of paying more for the product (the cost has to go somewhere!). Being smart and efficient in how a company pays for the costs of order fulfillment and shipping is paramount as these costs often make up the largest % of a company’s operating budget.
I recently came across this article that nicely summarize the shipping costs and policies of many of the top retailers out there. It’s a good read if you are looking to create your own shipping rates for the products you sell.
A question we get a lot from clients is “How can so many online retailers offer free shipping?“, which is then followed up with “What can we do to compete with free shipping offers?”
There are a couple of reasons online retailers are able to offer free or cheap shipping, unfortunately the reality is that there are no free shipping service options with Fed Ex or UPS or the Post Office or anyone else. So whether you are a large shipper, ecommerce startup, or growing online retailer there is no such thing as free shipping.
What large companies do get, that startups and small companies typically do not, are substantial discounts on small package company’s published rates. In addition, if a company is shipping a very large amount of the same size packages there is often the chance to get preferential rates in those circumstances.
Clearly if you are a startup or small online retailer you are at a significant disadvantage because you are without the leverage to negotiate better rates with FedEx or UPS. But in the end, just like your business, the big online retailers are covering the cost of shipping with the margins in their products.
What to do about it as a startup or small online retailer? Obviously it is paramount to figure out ways to minimize shipping expenses because these are costs that are not going away no matter how big you get.
Consider alternatives to FedEx or UPS by looking at the options offered by the USPS. Many companies find that Flat Rate Priority Mail boxes are a good way to reduce costs. FedEx and UPS charge hefty residential, extended delivery area and fuel surcharges that hurt the economics of shipping Business to Consumer (B2C) with them.
More distance equals more cost so your shipping location is directly correlated to your shipping costs. Most of the people in the US are located in the mid-atlantic and northeast part of the country. If you are shipping from San Francisco to customers in New York, the cost could be double or more than the cost to ship to New York from a location in Pennsylvania. Another advantage the big guys have is the ability (as in volume) to ship from multiple points within the US. They can service most of the country with cheaper ZONE 2 or 3 shipments, as opposed to expensive ZONE 8 shipments going coast to coast by having multiple warehouse locations to ship from. Similar story, but it does take volume to make it worthwhile to set up multiple shipping points around the country.
Many 3rd party order fulfillment warehouses will pass on their volume discounts with FedEx and UPS, so look into a partnership to outsource your product shipping. Your operation will potentially benefit from the collective volume of all the customers shipping from that fulfillment center.
Ken Kowal is the Director of New Business Development for 3rd party fulfillment warehouse Landis Logistics and ecommerce order fulfillment service FillShip.com. Follow Landis on Twitter @landislogistics. If you would like to talk about way we can help save your online retail business on shipping costs get in touch at firstname.lastname@example.org.
So you have a successful store and maybe a website, and now you want to sell some products from your ecommerce store. Taking a brick and mortar retail presence and building a scalable ecommerce delivery solution can involve a few different resources to accomplish some success.
Here is a breakdown of the different functions that make up a complete ecommerce order fulfillment solution beyond just hosting your company’s website (and of course assuming you aren’t interested in creating all of this on your own).
From a process standpoint the website continues to act as the electronic billboard and hopefully it is capturing potential buyers and telling the world about what your company has to offer.
In a complete solution, your website will connect to an Ecommerce Software package. This logistics software will house product information, the shopping cart functionality, provide reporting, etc. It will then connect to a merchant account provider and your order fulfillment operation.
All your products available for purchase will be uploaded and maintained as part of the ecommerce software by you or your company’s designate, although appear to be on the your main site from the customer’s perspective.
At this point the process for communicating orders from the ecommerce software provider to your ecommerce order fulfillment provider would be established. This will be set up to be transparent to you and is straightforward to accomplish. Depending on the provider there may be some minor programming costs to automate the process.
Customers will look for and choose products, place them in a shopping cart similar to any other website. The work flows are standard and you should assume the integration for this part of the process will work seamlessly for the customer and be transparent to you.
Handling the payment transaction will possibly bring another party (the Merchant Account Provider) in to the process. To handle payment at the point of check out, you will either need to designate a separate Merchant Account Provider that will connect to the ecommerce software to handle the payment, or many software providers will provide the service.
Most systems also provide CRM (Customer Relationship Management) Tools that will provide you with information on its site users, which may be of value from a marketing perspective.