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Warehousing & Fulfillment

How to Reduce Shipping Costs: 8 Effective Ways

Warehousing & Fulfillment
April 29, 2021
8 min read
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Customer expectations for shipping are higher than ever. Learn how to meet expectations without sacrificing bottom line revenue with these 8 simple tips.

Why Shipping Costs Matter

In today’s anything, anytime connected world, shipping costs and delivery speed have become make-or-break factors for small-and-medium sized businesses (SMBs) across the business-to-business (B2B) and business-to-consumer (B2C) spectrum.

Led by Amazon, the largest ecommerce companies have reset shoppers’ expectations for freight costs and delivery time. Sixteen years since the debut of Amazon Prime, large-scale, fast shipping has become standard to the point where 2-day nationwide shipping is expected from all merchants – even SMBs. In fact, 37% of consumers actually expect small to mid-sized merchants to ship faster than their big box competitors.

Merchants who prioritize customer expectations for fast shipping have a distinct competitive advantage. 65% of merchants in a recent survey reported an increase in ecommerce cart conversions of up to 25% when they offered a 1-2-day delivery promise. Further, 75% believe that offering 2-day shipping makes them more competitive. 

The real question for SMB’s is, without the resources and infrastructure of a large-scale enterprise, how can fulfillment operations be streamlined to reduce shipping costs without negatively impacting bottom line profitability?

1. Design a Warehouse Network that Gets You Closer to Customers

Shipping fees increase as orders are sent further away. For domestic shipments in the U.S., shipping zones span from Zone 1 to Zone 8. The point of origin is in Zone 1, and zones measure the distance a shipment travels. The higher the zone, the more expensive an order is to ship.

For example, a package sent 2,000 miles through USPS from Seattle to Tulsa would be Zone 8. But the same package sent only 107 miles from Oklahoma City to Tulsa would be Zone 2. 

As a result, storing inventory closer to customers will eliminate shipping to higher zones, reducing transportation costs and improving shipping speeds. SMBs should evaluate their fulfillment network, with the goal of identifying optimal warehouse placements across the country based on historical and projected customer demand.

2. Establish Rigorous Packout SOP’s 

Having a top-notch packout solution is especially important for SMBs because inventory is typically their largest investment. Protected products arrive in one piece more often, reducing logistics costs and damage complaints. 

When hydrogenated water brand HyVIDA found a fulfillment partner that took responsibility for the safe delivery of their product, they saw their Amazon reviews and return rates improve significantly.

Learn more about Ware2Go’s Warehouse SOP’s

3. Calculate Dimensional Weight Accurately 

Dimensional Weight (of DIM Weight) is the method that freight and postal carriers use to determine shipping prices. Pricing varies by carrier, but the formula always multiplies length, times width, times height.

Making sure DIM Weight of products is accurate on all documentation with a fulfillment provider will give you a more accurate idea of your shipping costs and will also ensure against costly shipping charge corrections.

The calculator below will calculate DIM weight and carrier rates from length, height, width, and package weight.

Dimensional Weight Calculator

4. Reduce Dimensional Weight When Possible

No matter the carrier, a greater DIM Weight will always equal higher shipping costs. Assess whether your package could be safely shipped in a smaller box to bring down your per-shipment cost.

Additionally, well-designed custom packaging saves money on package fillers such as packing peanuts, bubble wrap and shredded paper. 

5. Switch from Boxes to Poly Mailers

For non-fragile items, poly mailers can cost significantly less per unit than cardboard boxes. They will also have a lower DIM weight, which will reduce shipping costs as well. 

There are plenty of options for poly mailers, from padded to eco-friendly, and they can even be custom-printed to build a more personal experience with your brand. 

6. Increase Average Order Value (AOV)

Many outsourced fulfillment providers offer economies of scale for multi-sku packouts. This makes each shipment more profitable and off-sets per-shipment costs. Three reliable methods for increasing AOV are: 

  • Bulk discounts: Bulk discounts give shoppers a higher perceived value and actually make value shoppers spend more per order.
  • Kitting and bundling: Grouping skus commonly bought together into a convenient kit will increase the likelihood that shoppers will purchase accessories and add-ons.
  • Payment options: Most ecommerce platforms offer financing plugins like Four through their app store. Many shoppers will be enticed to buy more if they can pay later.

7. Reduce Return Rates

Reducing return rates decreases shipping costs while encouraging customer loyalty. On the front end, invest in writing accurate, detailed product descriptions and shooting high resolution photos and video to reduce returns from customers who say the product does not match the image or description. 

On the back end, proper warehouse packout procedures are essential for ensuring the safety of products in transit. Damaged items result in costly returns and negative reviews, which hurts brand equity, word-of-mouth, and repeat business. 

8. Partner with Third Party Logistics Providers (3PLs) or a Fourth Party Logistics Provider (4PL) to Access Economies of Scale 

The enormous resources corporations have at their disposal allows them to easily reduce shipping costs and access the latest technology, transportation, and economies of scale to deliver on 2-day and even same-day delivery. 

Unfortunately for SMBs, it is typically less economical to handle their own fulfillment – on top of lacking budgets necessary to access the latest and greatest in technology and transportation. 

This is where 3PL providers come in. 

These logistics service providers store inventory, pack shipments, and ship packages, taking over the responsibility of fulfilling orders and shipping nationwide. Outsourcing supply chain management improves service levels and bypasses expedited shipping charges, while allowing merchants like children’s toy and furniture provider ECR4Kids to concentrate more time and budget on what they enjoy most – solving problems and delighting customers. 

Put another way, 3PLs let sellers spend more time on innovation, sourcing, marketing, and growing their brand instead of worrying about high cart abandonment rates due to expensive shipping fees, or customer complaints about long transport times and damaged goods. 

Existing to help sellers manage their distribution and logistics workflows, 3PLs can be big time and money savers. On the other hand, thriving businesses can quickly outgrow the delivery limitations and stricter long-term contracts of 3PLs. Additionally, 3PLs often have out-of-reach minimums for Average Daily Volume (ADV). 

For this reason, small-to-medium-sized businesses in growth mode should consider partnering with a professional fourth party logistics (4PL) fulfillment company that provides nationwide warehousing, inventory management, and ecommerce fulfillment services. This will reduce the operational burden of managing multiple fulfillment solutions and redundant distribution networks, along with reducing logistics and supply chain costs.

Talk to one of our 3PL experts

The Bottom Line

Ware2Go was created by UPS specifically to address this need and provide affordable 1-2-day delivery coverage nationwide for merchants across a broad range of industries in all growth phases. 

While other areas of the business traditionally receive more attention, reducing shipping costs will go a long way. It will improve the bottom line, optimize working capital, and offset investments in free, 2-day delivery that will improve eCommerce cart conversions and increase sales. To learn more about how Ware2Go can help you reduce shipping costs, please reach out to one of our shipping optimization experts.

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