December 14, 2020

6 Ways to Reduce Your Business’s Shipping Costs

After all, as a small business owner, you don’t have the economies of scale that make fast, guaranteed delivery profitable. What you do have, though, is creativity, grit, and a willingness to adapt. With those three things in your pocket, you can mitigate big retailers’ competitive advantage and attract—and retain—more, loyal customers. All while keeping your shipping costs from cutting into your profit margins. In this blog post, we’ll review 6 ways to reduce your business’s shipping costs.

How to Reduce Your Business Shipping Expenses:

1. Focus less on delivery speed

Surveys from Convey and Deloitte both indicated that free delivery is more important than fast delivery. Specifically, in the Convey report, cost was cited by 64 percent of respondents as the most important factor related to shipping. Conversely, speed was cited by just 18 percent of respondents. This shows that your shipping doesn’t have to be fast, but it does have to be free. With this in mind, you can save on shipping costs—without upsetting customers—by nixing expensive, fast shipping processes.

2. Track and report your shipping rat

Pearson’s Law says “When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates.” In other words, if you’re not tracking your shipping costs, it’s going to be hard to reduce them. As long as you or your accounting software is tracking your business’s expenses, reporting on them will be simple. Find out how to generate reports in your software, or isolate all your shipping expenses into a simple spreadsheet. Review these reports each month and look for cost-saving opportunities. Then take it a step further and set quantifiable goals for reducing shipping expenses.

3. Reduce or augment your product offerings

In any business, especially small ones, there’s a delicate balance between volume and quality. Shipping is no exception. If you’re looking to reduce your shipping rates, it may make sense to focus on dropping a product line. Or, if you sell on an ecommerce platform or website and in-store, consider only selling certain items online. Either way, this will reduce your shipping costs in a few different ways, depending on how you set it up. For example, if you sell three different products of different sizes, one of which is the most popular, you may be able to exploit volume discounts for the one, more popular product. Plus, by focusing on selling only your most profitable items online, you make more efficient use of your shipping budget.

4. Set minimum order sizes for free delivery options

Only massive retailers can make free delivery of a $10 order profitable. Still, that doesn’t mean you can’t make free delivery make sense with a minimum order threshold. Technically, this doesn’t reduce your ecommerce shipping costs, but it can make for a more profitable sale. In other words, by offering free shipping you'll accumulate a cost, but you’ll be more than reimbursed for it with larger orders. The key is figuring out what minimum order threshold makes sense for your business. Shopify explains that the first step to calculating your ideal threshold is to identify your median order value (MOV). The idea is to set your threshold just above your MOV so it incentivizes customers to add to their order.

5. Shop around for your shipping options

One of the most frustrating aspects of shipping is the vast number of factors that affect your shipping cost. At the simplest level, shipping costs are calculated based on four factors:
  1. Package dimensional weight
  2. Destination
  3. Service and speed
  4. Shipping volume
However, as you research your options, you’ll find that shipping carriers have different restrictions and requirements. Moreover, depending on the size and weight of your parcel, you may qualify for different pricing structures, like cubic pricing or flat rate shipping. Understanding what options are available based on your needs will help you find the most affordable way to ship.

6. Outsource your shipping

This business shipping tip only applies if you have sufficient shipping volume. However, you can save both time and money in the long run by outsourcing shipping and fulfillment. When it comes to outsourcing shipping you have three options:
  1. Warehouse rental: rent warehouse space closer to your customer to make shipping more efficient.
  2. Dropshipping: send your orders to a supplier who then fulfills the order.
  3. Third-party logistics provider: hire another company to optimize your supply chain.
Obviously, each of these options comes with costs and benefits. That said, there will be a point in the growth of your company when it becomes more profitable to outsource fulfillment. The challenge is figuring out when outsourcing will generate a positive return on your investment.

Know Your Business Shipping Needs

As you’re finding ways to reduce your e-commerce shipping costs, don’t lose sight of your customers’ needs. The easiest way to do this is to keep these simple questions about your customers’ expectations and shipping needs in the front of your mind: ●    How soon does the customer need the package? ●    Does the customer require a delivery commitment and/or tracking? ●    Are there any other service add-ons, such as signature confirmation, required? So long as you build your shipping strategy out from these questions, you’ll ensure your shipping costs savings don’t come at the expense of your loyal customers' experience.