12 Small Business Shipping Tips to Grow Your Profit Margins
As a small business owner, you’re probably already familiar with just how expensive shipping can be. Paying for different small business shipping options can be a significant cost when you’re just getting your new e-commerce startup off the ground. This is especially true when you have to keep up with the expectations of modern consumers who have become accustomed to fast (and free) shipping from e-commerce giants like Amazon.
For example, according to data from reports cited by The National Retail Federation (NRF), “75 percent of consumers surveyed expect delivery to be free even on orders under $50.” Additionally, many consumers expect their shipping to be fast. As noted by RetailWire, “Free two-day shipping, what many see as the norm of online retail, was important to 79.3 percent of those surveyed.”
Being able to deliver fast and free shipping is crucial for gaining and keeping customers. However, this can bite deeply into your profits. So, what can you do to fulfill your customers’ expectations while keeping costs down? Our 12 small business shipping tips will show you how to reduce shipping costs for small business (and earn some loyal customers).
Small Business Shipping Tips
Tip #1: Understand Shipping Costs
Shipping costs vary depending on a number of factors, so it's important to understand what factors into shipping calculations. Always be sure to check your carrier's shipping policy for small business, however the five main factors impacting costs are as follows:
- Speed. Unless you're sending a niche product or a customized item, most customers want fast shipping (and often they expect it to be free). Of course, both of these will cost you more money. However, there are ways to offset the costs of expedited or free shipping. Learn more about this in our blog How to Offer Free Shipping (& How to Calculate Your Free Shipping Threshold).
- Services. There are some extra costs for services such as insurance, packaging, tracking, or obtaining a signature confirmation of receipt, etc. Whether you opt for these services or not is strictly up to you (and your budget).
- Weight and Dimension. The larger and heavier your item, the more it will cost. And, it's not just weight. Dimensional weight, or DIM, is also a factor for many carriers (this takes into account the size of your shipment when calculating costs; the more room it will take up, the more they may charge).
- Destination. The further your package travels, the more it will cost (this is determined by zones, which we'll cover later). Delivery to a commercial property will generally cost more than delivery to a residence as well.
- Shipping Volume. Are you shipping frequently? As a small business owner, it may not be enough to get a discount. But, as your business grows (along with the amount of shipping you do), you can often negotiate lower rates.
Tip #2: Determine Your Shipping Strategy
Understanding costs is just one part of developing a shipping strategy. Next, you'll want to consider the following:
- Where You'll Sell. Most small businesses only sell out of their garage for a short period of time. As you grow, you'll want to consider a multi-channel approach, selling on different marketplaces such as Amazon, eBay, and Walmart. Each channel has different requirements, so you'll want to be sure you can manage them before you sign up.
- Who You'll Ship With. While using one carrier may get you to the price negotiation stage quicker, you may also want to consider a multi-carrier approach, mixing and matching carriers based on the item you're shipping and the services it will require.
- Whether You'll Outsource. Managing your own shipments can become a hassle (and waste valuable time you could be instead be using to grow your business). A third-party logistics company, or 3PL, can help store and drop-ship your products. We'll talk more about them later.
Tip #3: Know Your Carriers
What are the best shipping carriers for small business? First, it's important to understand that not all carriers are created equally. Be sure to check out their websites to find the one that's right for you, or as mentioned previously, to decide your multi-channel shipping strategy.
- USPS. Small businesses can take advantage of the USPS' free Priority Mail Starter Kit when setting up a PO box. For low-volume shippers, there are programs for fulfilling orders in-house, such as Click-N-Ship, which allows you to purchase postage and print shipping labels online. Home pickup is another an option if you can’t make frequent trips to the post office. USPS also provides a certificate of mailing for most shipping services.
- FedEx. FedEx Small Business is designed for startups and offers numerous benefits, including a rewards program and the Packaging Help Hub, a resource that helps you calculate package DIM. Are you shipping perishables? FedEx offers temperature-controlled shipping.
- UPS. Offering a variety of resources, UPS' Small Business Program lets you schedule pickups and manage customer returns. The carrier also encourages you to participate in virtual brainstorming sessions with their small business solutions team. They can help you map out and fine-tune your supply chain, discover opportunities for greater agility, productivity, and growth, and discuss other tools and services that will help accelerate your business.
Tip #4: Know Your Shipping Zones
Whenever a package is sent from one location to another, it will cross through one or more shipping zones. A shipping zone is a geographic area defined by a carrier which includes a set grouping of address zip codes. These zones are dynamic so that the origin zone is always Zone 1 while the destination zone’s number will be higher the further away it is from the shipping zone.
For example, UPS bases their zone calculations from the first three digits of a package’s origin and destination zip codes. So, if you were to ship from a 335 zip code in Florida to a 902 zip code in California (or vice versa), then it would be going from Zone 1 to Zone 8. This would incur a larger shipping charge than going to a 341 zip code would be (which is Zone 2 from a 335 zip code).
Knowing your shipping zones is crucial when negotiating shipping rates with carriers. It’s also important for considering how you market your products and services—targeting “local” customers who are in nearby shipping zones can help you save on shipping costs in the long run. Want to learn more? Check out our blog How Shipping Zones Might Affect Fulfillment.
Tip #5: Negotiate Your Shipping Rates
How are your negotiating skills? If you’re shipping regularly, you may be able to work a deal with your carrier. There are two methods: Benchmarking and Cost-modeling.
- Benchmarking. This negotiation tactic focuses on the volume you ship and the dollar amount. You might look at the rates that a company with a like product or one in the same industry is getting, and use that as your “benchmark” to negotiate a similar shipping rate.
- Cross-Modeling. This negotiation tactic takes a more sophisticated, and complicated, approach. It involves taking into consideration the specific characteristics of your shipments, and requires an understanding of where carriers have the highest profit margins. Are you boosting these margins? If so, they may agree to reduce costs as long as they still maintain their desired profitability. Most businesses taking this approach have someone on staff who has previously worked within the shipping industry who understands these complexities.
Tip #6: Collect Average Shipping Cost Estimates and Adjust Prices To Offer Free Shipping
How much can you expect to spend on shipping for the average order? There are a lot of variables that go into this, such as the number of zones your packages cross, the average shipping weight of your products, the dimensions of your products, the speed at which you ship, and which small business shipping options you use.
Collecting information about all of the shipments you’ve made so far can help you establish a few key facts about your shipping costs—which can help you estimate what those costs should be moving forward. This can be invaluable for setting your product prices so that you can offer “free” shipping (by including the average cost of shipping in your product’s base price).
Why raise prices to create “free” shipping? Because, free shipping has a major impact on purchase decisions. In a survey cited by Digital Commerce 360, 50.2% of consumers surveyed cited “free shipping” as being more important than free shipping, and 47.4% said that both factors were “equally important.”
Other surveys cited by econsultancy.com stated that “74% of respondents had abandoned a basket due to high delivery charges.” Basically, the “sticker shock” of the additional shipping fees made the shopper abandon their purchase entirely. In many of these cases, shoppers may have simply purchased less instead of completely abandoning a shopping cart if the prices had accounted for the cost of shipping up front.
By including the cost of shipping in a product’s base price, it is possible to avoid last-second sticker shock that causes buyers to abandon their carts.
Tip #7: Offer Free Shipping on Orders over a Certain Value
If including the cost of shipping in a product’s base price would raise it too high, you could alternatively offer free or discounted shipping on orders over a certain dollar amount. As noted in the NRF article cited previously, “65 percent [of customers say] they look up free-shipping thresholds before adding items to their online shopping carts.” People may end up buying additional products to their order simply to enjoy free shipping—making a bulk purchase to avoid the “shipping tax.”
The precise amount extra that people are willing to pay will vary from one transaction and person to the next. It may be necessary to experiment to find the sweet spot for a particular set of products.
Read this article for more information on offering free shipping and calculating your free shipping threshold.
Tip #8: Consider Packaging Solutions
You're not just shipping an item; you're shipping the container or box it's inside of, and the costs of packaging can really add up. Some things to consider:
- Reusing Packaging. Most likely, you have supplies arriving in boxes; why not reuse them for shipping your products? It's a great way to save money and recycle. However, reused boxes have been known to lose around 60% of their strength, and even the slightest bit of damage can compromise their integrity. If you’re shipping something of value or something fragile, it's best to use a new box.
- Buying in Bulk. Some carrier and shipping supply stores offer discounts on packaging when you buy in bulk. If you have the storage room and are confident the packaging will get used, why not buy more and save?
- Right-Sizing Your Packaging. Too often, small businesses ship using boxes larger than their product (which costs more due to dimensional weight calculations) and then have to put more padding (peanuts, bubble wrap, etc.) on the inside to (another expense). By using smaller packaging, you can often save on DIM and insulation.
Tip #9: Compare Each Carrier’s Small Business Shipping Options
Different carriers will have different small business shipping solutions that may offer you some unique advantages (or disadvantages). In the USA, this typically means choosing between the United Parcel Service (UPS), the United States Postal Service (USPS), and FedEx.
The choice of carrier may depend on several factors, such as:
- Typical Order Volume. For low-volume e-commerce businesses, the local post office may be sufficient. Higher-volume businesses may wish to use a different carrier, as you may be able to negotiate better rates.
- Delivery Speed. Customers want fast shipping. Here, choosing a carrier with high-speed delivery options that are also low-cost is a must.
- Packaging Material. The fragility of a product may demand extra packaging and protection. Almost all major carriers have a variety of packaging—though costs may vary.
- Package Dimensions. How big are the products being shipped? Carriers need to have the capacity to ship the bulkiest items the store at a reasonable rate.
- Package Weight. Check with each carrier to see what their rates are for different package weights. Try to identify the one with the best price for your store’s typical order weight range.
- Delivery Days. Some carriers (like USPS and FedEx) deliver Monday-Saturday without charging a premium (for certain package and service types). Others, like UPS, may deliver on Saturdays, but charge a premium for it. When evaluating options, consider if free Saturday delivery is available. It helps avoid making customers wait for a weekend.
- Package Tracking Options. Some carriers have free package tracking options, some have paid tracking that is more detailed, and others might have the bare minimum amount of tracking for packages. If your customers want to know where their products are at all times, using a carrier with a robust tracking option may be a good idea.
- Carrier Shipping Zones. How does the carrier define their shipping zones? Are the majority of your customers in a nearby shipping zone (Zone 2 or 3) or a more distant shipping zone according to the carrier?
Take some time to shop around with each carrier and find the best long-term deal for your shipping needs. Learn more about small business shipping options and considerations for choosing a carrier in this post.
Tip #10: Use Third-Party Insurance
Many small businesses pay for insurance when shipping; it's a smart move, but it can also be an expensive one. Instead, you can purchase "peace of mind" using third-party insurance. While carriers typically charge about $1 per $100 of insurance, a third-party insurance company is often half that price. Read more from small business owners just like you looking for third-party insurance on this Amazon forum.
Tip #11: Purchase Shipping Software
Shipping software for small business can save you time and money, and you don't even have to be too technically inclined to use it. Good shipping software can do all of the following:
- Provide real-time shipping rates across carriers based on product/package specifications.
- Reduce shipping rates through arrangements made with large carriers.
- Customize, buy, and print shipping labels and packing slips (not interesting in a whole software system? You might just consider finding the best shipping label printer for small business instead).
- Provide a summary of shipments so you can see where you ship the most and how much your shipments tend to cost.
- Support returns management, generating return labels with each shipment.
Peer-to-peer review site G2 has a list of the best shipping software for small businesses that you can check out here.
Tip #12: Partner with a Fulfillment Center
Shipping for small business doesn't have to be complicated. Instead of trying to figure out the vagaries of finding the best small business shipping solutions for yourself (and trying to negotiate with the different carriers for good shipping rates on small orders), you may want to consider partnering with a fulfillment specialist like The Fulfillment Lab.
The Fulfillment Lab can ship your products from centers near where your customers live—helping to minimize the number of zones they cross (and thus the cost of shipping). Additionally, fulfillment specialists like The Fulfillment Lab have longstanding relationships with carriers that allow them to negotiate highly favorable rates—not to mention the advantage of being able to do bulk business with carriers to streamline costs.
A fulfillment center can also help you market your products through fulfillment marketing—using our proprietary software and custom packaging solutions to create a memorable unboxing experience for your customers. Learn more about The Fulfillment Lab and why we’re the best partner for your fulfillment needs by contacting our team today.