After product cost, the second biggest direct cost that your eCommerce business faces is shipping. As a business your aim has to be to offer the lowest shipping rate possible while still giving your customers the shipping options they want and at the same time covering your own costs.
There are five key costs that you need to consider when it comes to shipping products to you customer:
#1 Operational Cost
These are all the costs that make up the processing of orders. You'll need to consider: Who is going to pick and pack the order? How much time does it take? How many people do you have to employ to do this job?
At Jersey Beauty Company we found great efficiencies in simply rearranging the layout of our warehouse. For example, we grouped products together that are often sold together and placed bestseller items nearer to the picking station. Having most everything in arms length and laid out in a more organised manner made the process much quicker. We also wrote some code to start scanning orders. If after scanning the light was green it meant everything had been packaged correctly, if red it meant that something wasn't quite right in the order. In our first month of implementing this scanner we saved £7K in our operational costs. Suddenly processing orders was easier because we didn't need an extra person to check orders.
Consider ways that you can change your order processing to be more cost effective and efficient.
#2 Environmental Cost
We all have a responsibility when it comes to our environment and even more so as eCommerce businesses who provide a delivery service.
eCommerce can be more environmentally friendly as folks aren’t driving around as much and shopping from the comfort of their homes and offices. Delivery services can be more environmentally friendly too when packages are grouped together and then shipped. Time in transit has a direct relationship to the environmental impact of a given delivery service. The faster it is, the bigger the impact. We need to be more mindful of this even though it may not be a direct cost to our business, it is a direct cost to our environment.
Consider ways how your business can be more carbon neutral. At Jersey Beauty Company we stopped using plastic bubbles and turned to popcorn! Not only is it a great low calorie snack, it is also cheap to produce, lightweight and biodegradable.
Sustainable shipping has a real potential for good.
#3 Packaging Cost
Packaging costs kick in when you've picked the products off the shelf and now need to package them into something to send to your customer.
How do you package your orders? Are your customers happy with their orders when they receive them? Whether you package up your products in envelopes, padded envelopes, jiffy bags, cardboard boxes - you need to think about what you customer expectations are when it comes to receiving their orders. Look around see and what your competitors are doing.
Be aware of all your packaging cost but sure to never compromise your service for cost.
Based on our customer expectations and our priority of delivering orders in good condition, at Jersey Beauty Company we decided to use cardboard boxes from recycled materials. Yes it is a bit more expensive but it gives us peace of mind that our customers are receiving their order in good condition and our customers are happy. It was the same reason that we moved from plastic bubbles to popcorn.
#4 Shipping Cost
Offering your customers the right shipping rates and options is key to your success as a business. You don't want to be the business that charges too much for delivery and loses customers or charge too little and not profit.
Understand your service and choose a shipping strategy to make sure you deliver accordingly. Define what you want to accomplish with your strategy - is it to increase conversions? Increase average order value? Decrease costs? Improve operational efficiency?
Shipping rates are based largely on four factors:
i) Service and speed: Most customers expect a number of shipping options with as short delivery times as possible. Plus, they want it to be for free! Essentially the more expedited the shipping the more costly it will be (to you and the environment). In order to be cost effective as a business you'll need to map out the right shipping service to each shipping option. To do this you'll need to understand elements such as:
- when does the package need to arrive?
- does it need to be tracked?
- does it need to be signed for?
- is it being shipped to a business or a home?
- what kind of products are you shipping - are they liquid, are they hazardous, are they gifts, are they in bulk etc make sure it's covered by your insurance company
ii) Dimensions and weight: The bigger and the heavier the package the pricier it will be to ship. Each courier will have different restrictions and rates and you'll need to go away and research which couriers are best for your business needs. In general though, some couriers charge on dimensional weight - meaning the size of the package as opposed to the weight. Most couriers offer a flat rate - whether its for weight or for destination. it's not the same for each so you'll need to do your research.
iii) Destination: Shipping costs tend to differ depending on how far the package has to be couriered. Using a few different couriers in order to keeping shipping costs for you and your customers down is a very good idea. If you ship internationally you need to keep in mind whether your products are allowed to enter the country you are shipping to; what are they additional taxes and costs. At Jersey Beauty Company we found better rates when we separated what we shipped into countries. For example alot of our orders are shipped to Sweden and we have found a courier service that just ships to Sweden for us. We have one for the UK. One for Australasia.
iv) Shipping Volume: If you ship a large volume of packages then you may be in a better place to negotiate a flat rate with your couriers. The more you ship the more you save. It is also worth looking into a brokerage services because depending on what and where you ship it may be cost-effective. Some businesses are also joining forces to help keep costs low. Jersey Beauty Company does fulfilment for other businesses too.
Shop around. Know your customer and find what will work for them and make sure that it will remain cost effective for you. Even if you have been shipping to customers for years it is worth investing your time in researching what whether it would be cost effective to change couriers. An overhaul of your services could save you a lot of money so it worth spending the time to shop around.
#5 Hidden Costs
This is something that we don't often hear talked about but it is so well worth your while to be aware of the hidden costs when it comes to working with your couriers. Some of the things you need to consider are:
- How many times with the delivery drivers try to residential addresses if no one is home to receive delivery? Will they leave it with someone or in a safe place, redeliver at another time, or return to you? What is the cost of returns? Will the customer know where it is left or whether it will be redelivered? How do you know that your package will get safely and securely into the hands of the customer?
- Does the courier deliver to residential areas? Do they have surcharges for certain areas?
- How are the drivers paid? A lot of drivers can be self employed and are paid by the number of parcels delivered. Such drivers will be looking to deliver as many as possible in a short space as possible and it may not be worth their time to deliver one package 20 minutes away. Your service to your customer would suffer as a result.
- What are the insurance costs of lost deliveries and who pays these charges? You, the courier service or the driver?
Read the fine print and become well acquainted with it so that there are no surprises later in the game.
Shipping is a huge cost to eCommerce businesses so it really needs to be strategic. All five of these key costs need to be thrown into the mix when you're calculating shipping cost for your business.