Chapter 4 How to Craft a Shipping Strategy
The real challenge when figuring out your shipping strategy is determining a solution that cuts into your margins as little as possible yet remains attractive to your customers. And this is something you’re going to want to get right.
Now it’s time to plot out the Xs and Os to finalize the shipping strategy that’s right for your business.
Studies have shown that shipping and handling fees are the number one factor driving shopping cart abandonment. When it comes to pricing your shipping, there are generally three schools of thought.
1. Offer Free Shipping (Best for Increased Conversions)
Free shipping definitely catches a customer’s attention –– but it isn’t always the easiest method to success for the small business. You can either raise your prices to cover the cost, or take the margin hit (which isn’t recommended).
Instead, you can offer free shipping with a minimum order amount or minimum number of items. This will drive up your AOV (average order value) and help you have more profit dollars to apply the shipping cost against. Determining whether to offer free shipping or require a minimum threshold often comes down to your margins and the niche you operate in.
This isn’t an area in which you should make a gut decision. Instead, do a competitive analysis. See what prices your competitors are selling at –– and what they are offering for shipping. The best route to success for most BigCommerce customers just starting out is to offer free shipping based on order amount.
For instance, free shipping for orders over $100. You can set up the backend to display this message throughout the site as a customer continues to browse. This can increase your AOV, and alleviate some shipping cost as you pack both items into the same send.
2. Charge What You Get Charged (Best for Margins and Transparency)
Setup real-time shipping quotes to show customers exactly what they will pay based on their item and their address (often an IP address).
There are multiple ways to set this up.
If you’ve negotiated your own carrier prices, you can use the weight calculator to show real-time shipping quotes based on the deals you’ve earned. You’ll need to make sure that every single one of your products has a weight associated with it on the product pages if you use this method.
Or, you can connect directly to various carriers and allow them to show real-time shipping quotes.
Or, if you have a more complex shipping rate system –– if you sell internally for example and need to calculate taxes and tariffs based on location –– you can use a service like ShipperHQ to override flat rates and hide particular carriers. This will show the most accurate shipping rate to customers.
Option 3: Offer Flat Rates (Best for Customer Expectations Across the Site)
Your third option is to offer a flat rate for every package. This method requires that you configure your total cost of shipping for items, and find a medium price point you are willing to set your shipping at.
For some items, the customer will overpay. For others, they will underpay. The goal is to make sure that shipping breaks even for you at the end of the day –– or doesn’t cut too seriously into your margins.
You’ll need to calculate the statistics on your products and the best ways to ship them to be able to make the most strategic decision possible. Once you settle on a type — or combination — of how you’re going to charge your customers for shipping, it’s always a good idea to go back in a few months and re-evaluate your strategy.
Could you handle an order spike?
It’s said that all press is good press. When you get a bunch of orders in after a successful feature, or a good mention, or a new partnership, it can seem like whoever said that was out of their mind.
But just because your current shipping process may not be up to the task of handling a lot of orders doesn’t mean you can’t do it. If you’re worried about what happens when you hit it big, and especially if you’re expecting a feature, here’s some things to make sure you have in order.
Your Shipping Station
As a part of your warehouse, even if it’s your spare room or garage, you should have some sort of shipping station. Depending on your particular setup, you should have at least a few of any business cards, inserts, blank labels, regular paper, or any other material that is part of your normal shipping process. Make sure to have extra on hand of every type of material you need as a part of your shipping process.
For the actual station, make sure everything is in its place and that any hiccup you have during your normal shipping time is immediately addressed to make your process more efficient. Maybe this means hanging a white board with important information. Maybe it’s as simple as getting a roller chair to make movement easier. Whatever it is, make the changes now before you get too in the weeds to be able to change as necessary.
If you’re a one-person show, chances are you’re not going to be able to handle 1000% volume (or in some cases, even just double the volume) by yourself. If you already have a team, that 1000% number is probably even scarier. Depending on how much time you’re currently spending on shipping, and just how much of an increase you get, having a helper increases your efficiency so you get more out the door more quickly.
Having a second (or third or fourth) person on hand can help you divide and conquer the work, so that each of your strengths and abilities are put to the best use. If you are planning on hiring a new employee, creating a “how-to” guide for how things work in your business can ramp up the new workers more quickly and free you up from answering the same questions over and over again.
Even if you manufacture your own wares, stocking up on inventory or materials and having reserves should be a normal part of running your business. How big that reserve is, of course, depends on your product and how quickly you turn over that product. Having too much inventory in your warehouse is a classic mistake, and one of which you may be warned the most often.
The key here is balance. As a part of your normal business process, you should be running reports. How many orders you get. How many mis-ships and returns happen in a month. You should be able to quickly answer anyone who asks what your monthly revenue is as well as your normal stock levels, turnover rate, and fulfillment time. When you’re expecting a large spike in orders, these numbers are what will help you determine how much inventory you need to purchase or pre-create.
How are you keeping track of inventory in your selling channels or shipping software? These days, a lot of ecommerce solutions sync-up with each other, one way or another. Some even provide native inventory solutions. You should expect either basic inventory features or the ability to see inventory levels for specific products in orders.
As we’ve said before in a previous section, fulfilling orders one-by-one is definitely not the most efficient use of your or anyone’s time. When you have more orders to ship than you ever have before, this fact becomes glaringly apparent.
To best handle a large number of orders, you need to group them into batches of a common something. This something could be its location in your warehouse, shipping method/speed, carrier, package size, or even something as simple as color and size. Batching your orders together will give your shipments a point of common ground so that they’re easier to manage. This will also give you smaller chunks of orders to manage so you get constantly rewarded with completing something rather than slaving away at some giant list the entire day.
Whatever method of sorting you choose needs to also be compounded with time. When you create a batch, think of it as “locked:” it should not change even if a new, similar order comes in. Disrupting your shipping process will only cause you time. Time to go find that new order. Time to add its information to your group of shipments. Time that you could’ve spent more efficiently on a new batch, or on the next step of your current one.
Generally, each batch could be given to a person on your team, but of course, that can get complicated if you only have one printer, for instance. This is where the assembly line idea comes to fruition where each person takes a portion of the batch, and then completes their part so that it all comes together in the end.
Once you do decide on a process, don’t be afraid of changes. If something’s not working, fix it. If something could be done to make it more efficient or easier for you and your helpers, do it. One of the fun things about ecommerce is how it’s always changing; don’t let your processes fall behind the times.
Should you outsource?
While many online sellers fulfill and ship their own products, some of them outsource part of their fulfillment and shipping.
Even if after reviewing your processing and making them more efficient, you’re finding your day taken up by just shipping, outsourcing part of your fulfillment may help save you some time.
Outsourcing only part of your fulfillment efforts and just how you outsource can make it so that you keep at least part of the control within your business rather than give up all control to someone else.
Check out our post, Choosing the Right Order Fulfillment Model, for more info on making this decision.
Hiring an Employee
While this isn’t a true “outsource” channel when most people think of the term, it is technically valid for the small business. If you’re doing everything yourself for your business, then hiring an employee to take care of some areas is to source the work from a place that is currently out of your business.
Of course, there are many considerations when hiring an employee, but one of the easiest places to get someone up to speed is with the shipping. This is where your previous efforts to get your warehouse, shipping station, and shipping process in line can really show through and make the transition easy.
Once the new employee is up to speed and taking some (or maybe even all) your shipping on, you’re free to run the other parts of your business while you can still keep an eye on your fulfillments.
Fulfillment by Amazon (FBA)
If you sell on Amazon, your own site, or through multiple channels, Amazon can fulfill and ship items for you. Through the Fulfillment by Amazon (FBA) program, you pay Amazon to keep your products in its warehouse, as well as fulfill and ship your orders from any selling channel. Once the order has shipped, Amazon will send you the tracking number and shipment status.
Most consumers and businesses are familiar with Amazon, so choosing them to fulfill some of your products is a comfortable option. In addition, there are no minimums for items to be shipped, and charges are “pay as you go”—you are billed for storage space and the orders fulfilled.
While it’s incredibly easy to use FBA with orders from Amazon (it’s basically a zero-touch system until you run out of inventory), using FBA with your orders from outside their selling platform is a bit more difficult. Luckily, if you use ShipStation, there are ways to make it as easy as clicking a button with all the same automation and customization perks that come from using a system like ours.
Other Fulfillment Centers
There are many other fulfillment centers that will also ship your products, even locally. They handle the process the same way as FBA: you ship your merchandise to the provider, and the company manages your inventory by picking, packing, and shipping each order as it is received.
When selecting an order fulfillment service, you’ll want to consider the following:
- Location: Order fulfillment warehouses are located throughout the country. While it may seem easier to select one close to your business location, it’s more important to choose a center closer to most of your customers, which will lower shipping rates. Fulfillment centers located in the middle of the country will be able to ship to both the East and West coasts for similar rates.
- Turnaround Time: While you could literally get an order in and ship it in minutes, fulfillment centers probably won’t do that. Whatever their turnaround time policy is, make sure you can live with it.
- Shipping Choices: Every fulfillment center is different. Check to make sure the fulfillment service you select offers all the shipping options you currently offer your customers and ones that you may want to offer in the future.
- Size: As with all vendors, larger fulfillment houses will be able to meet your growing needs, but you may be a small fish in a big pond. Choose one that isn’t too small to grow with you, but isn’t too large that you’ll get lost in the shuffle.
- Costs: Each fulfillment house will have a different fee schedule. Some use sliding scales and require contracts while others charge per order or per item with no contracts. You will also be charged a base fee to store your inventory at the warehouse and an additional fee per pallet or per item.
Dropshipping has gained popularity in recent years, since it gives you the ability to sell a product while having it be shipped directly from the manufacturer or wholesaler to your customer’s doorstep.
The benefit to you is that you get a cut of the profits, while alleviating the need to stock, package, and ship. Dropshipping is also less risky than self-fulfillment because you aren’t buying the inventory, having to worry about keeping it safe/dry/climate-controlled, or any other other concerns when it comes to warehousing inventory.
Of course, there are also some issues to be aware of with dropshipping.
- First, with low risk comes low reward; the margins for dropshipped products are lower because someone else is taking on the work.
- Dropshipping items also tends to be popular, and so the products may be sold on many different sites. Competitively pricing your products may become more of a concern as their prevalence in the market increases.
- Finally, you need to make sure that your dropshipper’s fulfillment and shipping practices are up to your standards; after all, it’s your business’s name on the package.
If dropshipping seems to be a good way to reduce your self-fulfillment needs, here are some things to consider:
- Dropshipping items you’re not sure will sell, especially if it’s a new type of product or category that you’re selling, will help ease you into determining whether it’s a good product to sell without requiring a lot of start-up capital.
- Dropshipping high volume or high margin products can help keep down inventory management needs in your physical location.
- Always research who you’re going to dropship with, and make sure they are a reputable company.
- Find out how your shipping software supports dropshipping and see what the process is like so you’re prepared once you start dropshipping some of your products.
Periodically reviewing your fulfillment and shipping processes should be a normal part of running your business. If you’re finding yourself bogged down with too many SKUs, not enough storage space, or simply not enough time to get it all out the door in time, you may want to try outsourcing some of your fulfillment.
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