Your shipping costs significantly affects your company’s profitability. Most carriers tend to revise their rates on a yearly basis. Because demand in the ecommerce industry has increased considerably over the past few years, carriers also need to adjust their rates based on factors ranging from the amount of warehousing space they have available to the distance to be covered in transit.
Learning how to reduce shipping costs is incredibly important for your business. Larger corporations like Amazon use free shipping virtually all over the globe to make it harder for the average business owner to compete by offering free shipping virtually all over the globe on pricing. Low shipping costs are therefore a key tool in your arsenal to improve your margins.
Unfortunately, this is much easier said than done. There are plenty of factors that affect your shipping costs. For instance, you need to be very careful about the kind of packaging that you use. More importantly, you will also have to conduct careful research in order to figure out which shipping carrier is best suited to your needs.
- 10 Ways to Reduce Shipping Costs
- How Other Entrepreneurs Cut Down on Shipping Costs
- Is Outsourcing Fulfillment a Good Idea?
There are plenty of different ways by which you can reduce your costs of shipping. Learning how to reduce shipping costs could allow you to generate higher profits. Ultimately the money you save could be better utilized in advancing your business. But how can you reduce your shipping costs? Read on to find out.
10 Ways to Reduce Shipping Costs
Here are some of the most effective ways that may reduce your average shipping cost.
1. Negotiate with Several Carriers
Too many businesses stick with the first shipping carrier that they come across. Obviously, that’s a bad idea. Virtually all shipping carriers change their pricing based on volume. The higher the volume, the lower the price.
Unfortunately, many small businesses fail to realize that they have a bit of wiggle room when negotiating the price. Visit the offices of a few local carriers, or talk to them over the phone. Familiarize yourself with factors like the size and weight of your package, as well as its origin and destination, and use this information to get a better bargain. Some also offer ecommerce payment processing as a package deal, so you may want to look into that.
2. Weigh Packages and Shave Dimensions
Heavier packages generally cost more to ship unless you have opted for flat-rate shipping. If you are printing the labels and shipping everything from your garage or a shop, you might want to consider buying a postage scale. This will give you a better idea about the weight of each package, and allow you to calculate the costs more accurately.
You should also try to reduce the dimensions of the package as much as possible. Some companies charge more depending upon the size of the box. If the item is lightweight, there’s no reason to pack it in a big box. Use smaller ones, and you can save a significant amount.
3. Use Packages Given by Your Carrier
One of the best ways to reduce shipping costs is to only use the boxes and packaging provided by your carrier. Most carriers like FedEx and UPS charge a dimensional fee if you use your own boxes. It might help with branding, but unless you can afford to incur an extra charge on each package shipped, you should definitely consider using the ecommerce packaging provided by the carrier.
4. Look for Discounted Supplies
Larger shipping carriers like UPS and FedEx often provide discounted or even free packaging supplies to small business owners. Packaging material like bubble wrap, poly mailers, and dunnage can be purchased in bulk quantities, which will result in additional cost savings for your business.
5. Pay for Shipping Online
This might come as a surprise to most people, but you can save up to 16 percent on priority mail orders via USPS by simply paying for shipping online. This figure can go all the way to 60 percent for express shipping, which can be a significant amount when you consider the number of packages shipped each month. On top of that, you also get a free pick-up!
6. Choose Prepaid Shipping
Prepaid shipping offers a discount of up to 20 percent. What this means is that you buy a bunch of shipping labels and put them on packages when they are going to be shipped out, instead of paying for each when you have to ship it. This is the ideal choice for people who know that same weight packages will be shipped out again and again from their company.
7. Use Third Party Insurance
Shipping insurance can put a serious dent in your profit margins, especially for valuable goods. Most people usually opt for insurance from the shipping company only, but opting for a third party could net you significant savings. It’s usually cheaper than the one your shipping company is going to offer.
8. Be Accurate with Billing
There are a whole host of different shipping charges that might be levied on the product, so you need to factor in all of them when billing your customers. If your customer is paying for shipping, send them an accurate estimate so that you don’t have to absorb them.
9. Choose Hybrid Services
In certain situations, hybrid services that are offered by logistics companies like UPS and FedEx might be cheaper. These services are generally cheaper, and they will also pick up the packages and ship them to the post office closest to the destination. They do cost less, but you should know that the delivery time is also slower. But, this is a great way to reduce shipping costs.
10. Opt for Poly Mailers
If you have to ship non-fragile goods like clothes, you might want to consider using poly mailers instead of boxes. Poly mailers are cheap because they take up less space and reduce packaging costs. Conventional tape can be used for sealing the poly bags.
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How Other Entrepreneurs Cut Down on Shipping Costs
We have discussed the best ways to bring down shipping costs. In this section, we shall focus on advice from other entrepreneurs, and the steps they take to reduce shipping costs.
1. Partner with a Fulfillment Center
Calloway Cook, the President of Illuminate Labs, says that you should partner with a fulfillment center. When you get a 3PL partner, they can negotiate significantly lower shipping rates with all major carriers (both domestic and international) because of their shipping volume. Our current shipping rates are about 30% lower than retail rates thanks to our fulfillment partner company. The other way that a fulfillment partner helps to reduce shipping costs, is by separating your inventory in different warehouses across the country. This allows orders to ship from the closest warehouse, which reduces cost significantly.
2. Akram Tariq Khan, Yourlibaas.com
Akram Tariq Khan at Yourlibaas.com says it’s best to partner with companies that have similar shipping accounts. We ship over 400 packets daily internationally, primarily within India. The strategies we have adopted are:
- Partnered with multiple shipping aggregators and courier partners. We have developed a PHP script in-house which requests for quotes from all providers while creating shipping labels and sends shipping requests to the one with the lowest quote.
- As courier companies have high surcharges for services like Cash on Delivery, we incentivise users who make online prepaid payments. This results in both shipping costs being reduced and also a reduction in RTO (Return to Origin) shipments. RTO shipments are the ones that aren’t delivered to the receiver due to any reason.
- Reduce the volume of the shipment to reduce volumetric weight. Apart from the actual weight in kilograms/lbs, the courier providers also consider the volume of the package.
- We have partnered with a nearby company who uses the same shipping account to ship. We have created a sub-account for them. This results in a higher minimum commitment to the shipping provider and they agree on lower quotes.
- Choosing which method to ship using through the automated script mentioned earlier. For instance, a package sent through ground shall reach around the same time to a nearby destination. Opting for a faster air delivery would only result in higher charges while the service will be the same. These decisions are made by the script which calculates the distance between the customer’s ZIP code and our warehouse. It can also be done manually for stores with low volume.
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3. Use Different Sized Boxes and Envelopes
Meaghan Thomas, Pinch Spice Market says, “the biggest shipping savings has come from us using Shipping Easy, which connects to our Woocommerce website and lets us compare shops to determine which size of box or padded envelope will be cheapest to ship each order in.
This means we need to have a variety of different sized boxes and padded envelopes on hand. We always have the typical USPS packages/boxes, but we also purchase our own differently sized boxes and envelopes, so we can choose the cheapest rate possible (we happen to buy our boxes/envelopes through Royal Mailers and Uline, but there’s a lot of options out there).
This results in big savings. For example, we’re based in Louisville, KY. If we were to ship spices to a Californian customer via priority mail in our own packaging, it would cost something like $13, but Shipping Easy tells us if we do it via USPS’s own priority packaging, it’s closer to $7.75, a huge savings.
Other times, it’s cheaper to use our own packaging; it all depends on the weight and which region it’s shipping to. We’ve also learned using USPS regional A and B boxes are key to getting lower rates. These aren’t available at the local post office – you have to order them online at USPS.com.
These bring big savings (40-60%) when we’re shipping packages shorter distances, let’s say to Illinois or Tennessee. That alone can save us $5-7 per order. As you can see, we primarily use USPS, but there is an exception. If we have a package that weighs over 5 pounds, we turn to UPS, which typically has better rates for higher-weight packages.
4. Focus on Reducing Returns
David DeCorte of Chargebacks911 says, “you can cut shipping costs considerably and encourage customer loyalty by reducing returns. Four out of five customers see free shipping as a plus when deciding whether or not to complete a purchase, and nearly half of all eCommerce businesses now offer it.
Free return shipping can be unrealistic, though, if you don’t address the common reasons why buyers request returns. For instance, buyers often justify returns by saying that the products received are incorrect, or that they don’t match the images or description.
An item might be bigger or smaller than expected, or be the wrong color. But, by having detailed product descriptions, accuracy during the fulfillment process, and having a clear and comprehensive return policy listed on the site, a merchant can prevent these losses.
This will have additional, knock-on effects, too. For instance, fewer returns mean a lower overhead and more savings over time. Plus, many of the triggers that can cause a return are also related to chargebacks, which are even more costly.
5. Use a Big Company Like FedEx
Jennifer Mayne of Dorothy Lane Market says, “we ship our great brownies, baked goods and gourmet food gifts all over the country. Many of our gifts and food items are perishable so we spend a lot on shipping. We work closely with FedEx to get our shipping fees lowered.
Here are some of the suggestions they have given us and have implemented with success in reducing our costs: Fedex provides reports on the actual weight of each package versus the dimensional weight of each package that we ship. We carefully analyze the report to capture savings.
FedEx charges for dimensional weight, so larger boxes cost more. At times we send two smaller boxes as opposed to one very large box due to higher fees for larger dimensional weight. They have done an analysis of our gift boxes to help us figure out less expensive sized boxes to use.
We try to select our food items that go into the gift boxes that have been predetermined as more efficient. It doesn’t always work out, but that is our goal. We also are taking advantage of their new service to do ground delivery on Saturdays. This allows us to use ground more often toward the end of the week if we do not need a guarantee arrival date and the packages are not too perishable.
I think once the weather cools down, we will take advantage of this more. Right now with the heat wave in many parts of the country, we have to use a lot of ice and prefer to ship Monday to Wednesday. But when the weather is cooler, we can let shipments go to be delivered on the weekend now.
Is Outsourcing Fulfillment a Good Idea?
One of the things that you might have to consider is whether to outsource fulfillment or keep it in house. There’s little doubt that outsourcing fulfillment is going to save you a considerable amount of money on shipping and improve delivery times . But there’s a downside to this as well.
When you outsource fulfillment, you won’t have any control over operations or inventory. You won’t be able to decide how much to store, what to package, and what to ship your products. More importantly, you won’t have any control over the facilities or the team working in the warehouse.
In the beginning, most businesses prefer to outsource fulfillment because it offers greater cost savings. If you want to outsource to a fulfillment center, you need to evaluate your options considerably. For example, you can hire Los Angeles fulfillment services to cater to your customers in LA. Carefully calculate the cost savings, and then determine whether the trade-off is worth it or not.
Outsourcing is ideal for smaller businesses that want to register rapid growth. Once you can afford to spend enough on shipping, you should consider setting up your own fulfillment center.
Many business owners are confused about how to reduce shipping costs. In this article, we have covered multiple strategies that will help you reduce shipping costs by a significant margin, and allow you to focus on business growth. At the end of the day, you need to create a balance and find what works best for your business. More importantly, you should know that shipping costs are dynamic, and you will have to revise your estimations from time to time.
Q1. What is the cheapest shipping method?
UPS First class mail is the cheapest shipping method if your parcel weighs less than 16 oz. For shipping physical goods, it’s an incredibly cheap option. However, you should know that the costs vary based on the weight and distance to be covered.
Q2. How much does shipping cost?
The shipping costs vary based on several factors such as the distance in transit, the mode of shipping (air or overland), and the weight of the goods being shipped.
Q3. How can I lower my shipping costs?
There are several ways to lower shipping costs, starting from using smaller-sized boxes to opting for cheaper shipping. Many carriers also provide packages so you can use those as well.