As a consumer, you’ve likely found a great price for an item you really want, only to abandon ordering because of the shipping cost. It’s more common than we’d like to admit. By having a clear shipping strategy, you turn this expense into a profit center and a way to differentiate your brand.
A successful ecommerce shipping strategy is built on transparent pricing, optimized packaging, and strategic carrier selection. Sounds simple, but it’s not. You need to balance customer expectations (fast, free) and business profitability (covering costs, protecting margins).
In this article, we’ll look at how to build a profitable shipping strategy for your ecommerce brand that keeps customers happy and reduces the number of visitors who abandon their carts before checkout.
How Much Does a Delivered Parcel Cost You?
Before you can start to create a more robust shipping strategy, you need to know your numbers. Many founders I talk to have no idea how much it costs them to send a parcel, and even less know the value of goods in transit! Getting clear on your numbers is vital for shaping a better future.
Calculating the true shipping cost
If you think the cost is only the shipping label, you’re deluding yourself! The real cost is much higher, as your calculation should include packing materials, labor, insurance, and overheads.
Take a moment to add up all of these costs for one month and then divide that figure by the number of parcels you sent. You now have an accurate figure for the true shipping cost of each item.
Fulfilment model
There are only two overarching methods to get your product into the hands of the customer: In-house or outsourced. The right logistics set-up depends entirely on your scale and your goals.
Many brands use In-house fulfilment as they can control the entire process. They can ensure every parcel leaves the warehouse correctly, and long-term customers receive a handwritten thank you note. However, it can massively drain resources, creating a bottleneck at busy periods or when scaling the business.
A 3PL company can take over storage and fulfillment. Using their scale, they can offer volume discounts on shipping rates and generic packaging materials. As they are used to picking, packing, and dispatching thousands of parcels per day, they will ensure your orders are sent within 24 hours without fail.
While you have to give up some control when using a 3PL, you can use the time you free up on creating new products, marketing, and keeping the business moving forward.
When to outsource shipping?
It’s worth bearing in mind that picking and packing is a $10 per hour job, and your time as a founder could be worth $50 per hour. By doing $10 per hour tasks, you’re allowing yourself to be distracted by low-value tasks that don’t drive the business forward.
If you’re spending more than 5 hours a week in the warehouse, it’s probably time to consider outsourcing.
Turning Shipping into a Sales Tool
Free shipping
Many shops make the error of offering free shipping without calculating if they can afford it or what conditions should be met before a customer qualifies. You need to calculate the Minimum Order Value for free shipping that covers your costs while incentivizing customers to spend more than they planned.
Here’s how to calculate the threshold where free shipping makes sense. Simply divide the Average Cost of Shipping by your Target Margin. You now know the AOV threshold needed to break even with free shipping.
For example, if it costs me $7 on average to ship a parcel and my target margin is 50%, my threshold is $14. I’ll want to aim for an AOV of $20 to ensure every order is profitable.
Another way to offer free shipping is to bake it into the product price. By increasing the size of your margin, you can easily cover your shipping costs and provide the ability to run targeted discounts.
Flat rate shipping
If you’re selling a lot of products that are all similar in size and weight, you can calculate a single rate that averages the cost across all shipping zones. Shipping to international customers will have a higher cost, but the whole process is simpler.
Other methods
There are other ways to solve the cost of shipping, including real-time carrier rates, which change based on multiple factors. As prices fluctuate, customers can be really annoyed when they hit the checkout page.
Your shipping strategy should consider all the different options available and select the methods that make the most sense for your business.
Dialling in Operational Excellence
There’s always room to tweak how your supply chain works and drive efficiencies. Let’s consider how we can build a robust yet flexible shipping strategy.
Risk of the single carrier
Many brands rely on a single carrier, meaning they are exposed to a key business risk. What happens if that carrier has an outage, a labor dispute, or a sudden price hike? Your business will suffer as you’ll need to find a solution, and quickly.
Having diversification in your logistics is critical to keeping your business running. With multiple carriers to choose from, you can select the ideal service for the parcel’s size or address. You might even be able to negotiate better rates due to volume.
Unboxing Experience
With packing, every millimeter and gram matters. A small mistake in size and weight can turn a profitable delivery into a loss. Always choose the lightest and smallest possible box to minimize material costs. If your item can be shipped in a poly mailer or padded envelope, choose those options over a small cardboard box. I see many businesses over-packaging and over-paying.
If you want to use a custom package, ensure you can raise your prices by the amount they’ll cost you. For example, it might cost you $3 for a custom padded envelope and another $3 in shipping costs, so you need to ensure you have at least a margin of $8 or you’ll be making a loss. If not, it’s time to raise your prices.
Automation and Technology
If it takes you hours to shave off a few pennies per parcel, you’re making a poor exchange. As a small business, it’s worth using a shipping comparison site to compare rates quickly and automatically print labels.
This drastically reduces labor time and eliminates those costly human errors. With a small amount of automation baked into your shipping strategy, you can reduce your time and effort and make more money.
Another area that accounts for lost productivity is correct inventory. If your inventory isn’t accurate, you will oversell. Customers will get annoyed, and you’ll waste time trying to solve a problem you’ve created. Having a system that ensures stock levels are always correct is vital.
Creating a Customer Experience That Matters
Customer trust is an element that takes years to build and only a second to destroy. If someone has to chase you for a delivery date, you’ve lost most of the trust you’ve built. Even if it’s bad news, transparency always wins.
Transparency is non-negotiable
Make the estimated delivery date clear before checkout. Don’t hide it in a confirmation email or in small text on the checkout page. If you know an order will reach the customer late, be proactive with communication and always go above and beyond to make them happy. Unexpected flowers or chocolates can help restore some of the lost trust.
Also, in your customer portal, ensure it’s clear and easy to find orders and tracking details. You wouldn’t believe how many companies make it impossible to track orders or require you to Google the shipping company to see where the package is! Don’t do it! Instead, make it easy for customers to do business with you.
Make returns profitable
Returns happen; there’s no way to have a business with a 0% return rate. It’s just not possible, and so your shipping strategy should include how you’ll deal with returns. The best thing you can do is have a generous, transparent return policy that builds trust and encourages initial purchases.
A mistake I see with many retailers is that they believe the customer expects the brand to pay for returns. If possible, set different rules for who pays for the return. If the item is defective or you made a mistake, you absorb the cost. If it’s buyer’s remorse or the wrong size, the customer pays.
There are ways to automate returns and make the process frictionless. You can use software to generate return labels based on your rules, streamlining the whole process.
It’s worth bearing in mind that customers are more likely to talk about a negative experience than a positive one, making it harder to win back trust. As part of your shipping strategy, you want to set clear policies and be transparent.
Tweaking Your Ecommerce Shipping Strategy
You now have a clearer idea of how to create a robust shipping strategy. It’s vital to remember that shipping a parcel costs far more than just the postage label!
There’s no reason to be blind to the total cost when you can easily calculate the labor, materials, and overheads involved. You can then think strategically about shipping and delivery excellence!
Yes, it’s a balancing act. The customer must get what they expect (speed and value) while protecting your margins. So, be deliberate about your free shipping threshold, optimizing your packaging to the millimeter and gram, and eliminating the massive risk of relying on a single carrier.
You should be transparent on delivery dates and offer a frictionless returns process, as these elements ensure a one-time customer becomes a lifetime buyer. When you start building a shipping strategy, you realise it’s not a cost but a chance to improve cash flow that allows you to keep scaling.
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