Shipping orders isn’t cheap.
Carriers raise their shipping rates every year. Demand in the ecommerce sector leaves a shortage of everything from truck drivers to warehouse space. And Amazon only makes small business shipping more challenging by continuously raising the bar for faster free shipping — all of which becomes increasingly more expensive to replicate for small businesses that fulfill orders from home.
So, how do ecommerce businesses reduce shipping costs and improve their margin?
9 ways to reduce shipping costs right now
Shipping costs involve many variables. There are also plenty of hidden costs when handling fulfillment in-house. Here are some ideas that can potentially lower your average shipping cost.
1. Decrease the shipping distance
Many brands pay high shipping fees when they ship to destinations that are far away. Shipping zones are the geographical areas that carriers ship to, spanning from Zone 1 to Zone 8 for domestic shipments in the United States. Zones measure the distance a shipment travels, with the point of origin located in Zone 1.
The farther away the shipping destination is, the higher the zone and more expensive and slow it is to ship. If you can eliminate shipping to higher zones, you can save a lot of money over time — more on partnering with companies that have multiple fulfillment centers shortly!
“From expanding into a second ShipBob fulfillment center, we are excited to be able to offer 65% of our customers with 2-day shipping, up from 32% by only having a single West Coast facility. Soon, this will be 100%. Not only is this better for our customers but we also gain a 13% savings to our bottom line.”
Pablo Gabatto, Business Operations Manager at Ample Foods
2. Weigh your packages and reduce dimensions
Unless you’re using flat-rate shipping, heavier packages cost more to ship. If you’re printing labels and shipping from home, consider investing in a postage scale to better predict costs and purchase the right shipping labels. In addition to weight, carriers consider dimensions of the package when calculating shipping costs.
If you’re using too big of a box for a lightweight item, you will pay more than you should because of the space the package takes up. Larger boxes can lead to larger dimensional weight, which in turn will lead to more expensive shipping costs.
TLDR: Avoid shipping more air than what is necessary.
3. Find discounted supplies
Shipping companies such as USPS, UPS, and FedEx may provide small businesses certain boxes and envelopes for free or at a discount for certain packing supplies. You can also purchase packing supplies like boxes, dunnage, bubble wrap, airfill, and poly mailers in bulk to save money.
Don’t let the higher investment upfront scare you off — you won’t run out right away and you’ll also reduce your average per-shipment cost. You may even find some free shipping supplies.
4. Get discounted shipping rates
All shipping companies have pricing discounts available based on volume, and you don’t have to be shipping hundreds of thousands of orders a month to get these discounts. There’s no harm in attempting to negotiate volume discounts in exchange for loyalty to one shipping carrier. Of course, the more packages you ship, the better rates you can get.
5. Check out what the platform(s) or marketplace(s) you sell on offer
See if the ecommerce platform your store is powered by or the marketplace you sell on offer any bulk discount shipping services or programs. They may have features that provide real-time carrier rates, shipping apps, built-in features, and integrations with fulfillment software that can provide you with better rates and fulfillment services.
6. Insure with third parties
One way to save on shipping costs is to cut extra services, which, depending on the value of the product you’re shipping, could be shipping insurance. If you do need shipping insurance for your orders, third-party package insurers are usually cheaper than going with your shipping carrier — in some cases nearly half the price. Of course, this is most applicable to high value items.
7. Go prepaid
Prepaid shipping can get you up to 20% off shipping costs from UPS and FedEx simply by purchasing a certain number of shipping labels upfront. You don’t need to affix them to a box until the individual order needs to go out. This not only saves costs but time as well.
Note: This really only works when you consistently ship orders containing the same weight and dimensions or know this information ahead of time to ensure accurate shipping costs.
8. Switch from boxes to poly mailers
If you sell small, non-fragile products like clothing, shipping orders in a mailer envelope or poly bag can be far more cost-effective than boxes. The dimensions are smaller, taking up less room on a delivery truck, and using them also requires less packing supplies like tape and bubble wrap to save even more money.
If your orders contain different combinations of products, consider different sized poly mailers.
9. Look into hybrid services
Hybrid shipping services like UPS SurePost and FedEx SmartPost pick up your orders and then work with other carriers like USPS to transport your packages to a sorting facility or post office location, where it is then shipped to a residential area for last-mile delivery. This can cut costs as much as 50% in some cases. However, the tradeoff is often a slower delivery.
Note: There are specific volume, weight, and dimension requirements.
5 questions that can help save money on shipping
Not all of the tips above are going to be applicable to your business or improve your bottom line. Thinking about your current ecommerce shipping process, answer the following questions to get an even better sense of what you can do to cut or recover shipping costs.
1. How are you charging for shipping?
Regardless of how much you’re spending on shipping, the amount you charge customers can also affect your margin.
The psychology of online shopping and consumer preferences is fascinating. You can present shoppers with two scenarios where they would pay the same total price, yet they would abandon their cart for the one that has a higher shipping cost.
As long as they’re getting a perceived deal or the best value, they are more likely to buy.
Customers don’t want to pay for shipping, but it’s a major expense for a small business. Consider the following ideas to implement to make up your shipping costs:
- Adjust the product price to absorb the shipping cost and offer free shipping (only if you sell expensive products).
- Charge customers a reduced shipping cost while only slightly increasing the product price (e.g., charge customers half the price of shipping but bake the other half into the product price).
- Offer a flat rate shipping fee to all customers using a blended average shipping cost across all of your orders.
- Require a minimum amount of money to be spent on your store (that’s greater than the average order value) in exchange for free or fast shipping.
- Put parameters in place for orders that meet different criteria to more accurately reflect the true cost of shipping (e.g., charge different shipping fees for orders going to different countries, one shipping fee for orders that are over a certain cart value, etc.).
- Monitor your return rate and revisit your ecommerce returns policy to see if you should make customers responsible for covering return shipping costs.
2. Have you tried another carrier?
If you have allegiance to one carrier just because they’re closest to you, it might be worth looking into other options. Depending on the areas you ship to, different carriers may offer cheaper rates than what you’re currently paying. Use the following sites to dig deeper into your specific shipping costs:
3. Are you using the right packaging?
Many small businesses make common packing mistakes that increase their costs, like using too big of a box. Others use boxes when they could use a poly mailer or padded envelope to decrease the weight and dimensions.
If you use custom branded boxes, inserts, and other fancy packing supplies like shredded paper filler or custom tissue paper, and you are struggling to keep shipping costs down, you could probably save money by ditching those.
If you insist on using branded boxes, make sure they don’t have dimensions that fall outside of standard box sizes major carriers use, or you may face additional fees.
If your product packaging can be manufactured so it’s ship-ready, you can save on shipping costs by simply slapping a label on it.
4. Where are your orders shipping to?
Understanding patterns in shipping destinations can help to identify where you should be shipping from. If you’re shipping internationally and it’s costing you a lot of money, you may want to reconsider or instead work with an international fulfillment provider.
For domestic orders, you can’t control or always predict shipping destinations, but you can control where you fulfill orders from. Working with a third-party logistics (3PL) company, you can utilize their warehouses to store your inventory and ship from locations that are closer to your customers.
This can significantly reduce your average shipping cost when you multiply out those cost savings across all orders.
“We partnered with ShipBob to scale up operations in the US, and we’ve seen a reduction of 70% on shipping costs. Now, we can comfortably assign a shipping cost to each order by pinpointing the product weight and destination zip code. In comparison to shipping products to the US from Canada, which can be extremely variable in cost, fulfillment by ShipBob is much easier to estimate.”
Greg MacDonald, CEO & Founder of Bathorium
5. Have you tried using a shipping or fulfillment partner?
Companies like ShipStation and Stamps.com have free trials for small businesses managing shipping themselves.
Another big money and time-saver is outsourcing order fulfillment to a 3PL company that stores inventory, packs orders, and ships packages for you.
In addition to obvious direct costs like postage, outsourcing shipping and fulfillment means you have new time to focus on areas of your business that drive sales, unlike packing boxes and running to the post office as orders come in everyday.
How outsourcing fulfillment to ShipBob reduces shipping costs
Sometimes, the best way to reduce shipping costs and scale is to partner with a professional fulfillment company. ShipBob provides inventory management, warehousing, and other ecommerce fulfillment services, and also helps brands compete with big retailers.
Bulk shipping discounts
With thousands of customers, ShipBob is able to negotiate bulk discounts from shipping companies such as UPS, USPS, FedEx, and DHL to provide better rates to customers for expedited shipping, 2-day shipping, international shipping, and other speeds and services.
Optimize fulfillment locations to be closer to your customers
ShipBob helps ecommerce sellers choose the best location in the US to store their inventory closest to the most customers using shipping destinations from their sales history. By cutting down the distance an order has to travel, it can be delivered quicker and at less cost.
You can also use multiple ShipBob facilities to efficiently reach even more customers.
“ShipBob has fulfillment centers all over the US, so we’re not limited to shipping from one location. Even though we’re located near their fulfillment center in the Northeast, it’s actually more advantageous for us to ship from elsewhere. If we kept shipping only from the East Coast, it would be expensive to ship to the West Coast.”
Ryan Casas, COO of iloveplum
With ShipBob, there are no separate line items for picking, packing, or packaging supplies. We use plain brown boxes and packing materials to not overwhelm your customers with our brand, but let them focus on unboxing your product. Merchants can also send custom branded boxes, poly mailers, and inserts to use for their orders.
Offset shipping costs from additional revenue
With ShipBob’s 2-Day Express Shipping program that can be enabled for Shopify, Shopify Plus, and WooCommerce stores, you can meet customer expectations, get more shoppers to complete their purchases, and drive lifelong customers.
By outsourcing fulfillment, you can also get time back to focus on other tasks that drive new customers to your website.
Shipping and handling are unavoidable logistics costs when running an ecommerce business. Having the right strategy in place helps you reduce shipping costs and ultimately grow your business. Request a pricing quote from ShipBob to learn more and see how we can help.