Shipping in e-commerce holds a high priority for two reasons: One, it plays a huge role in the CX, and two, it is the second most expensive area of a business, only next to product costs.
Product costs can be cut down by making executive decisions. However, shipping, on the other hand, is one of the primary areas where merchants don’t directly handle things but outsource things to a third-party shipping carrier.
Making the shipping process effective requires merchants to invest more and more as technology advances. Also, with the risks of shipping being frequent, given the events that happen outside anyone’s control, cutting down shipping costs is a real challenge.
But fret not because there is still light at the end of this tunnel, and we’re guiding you toward it. Here, we discuss everything you need to know about shipping costs, from what they are and how to calculate them to some actionable strategies that will help you reduce your shipping costs. Let’s dive in!
Understanding Shipping Costs
Shipping cost optimization first requires us to understand what exactly counts as shipping costs. Simply put, this refers to the cost of logistics that you incur to send your package to your customer. Every action, pause, or movement of your package while it’s in transit or even preparing to be shipped contributes to your shipping costs. Here’s a closer look at this:
- Packaging Cost: This includes the cost of boxes, tapes, corrugated boards, bubble wrap packing foam, labels, and any other material you invest in to ensure your offering sails through its delivery journey without a scratch.
- Labor Cost: This includes the cost of human resources engaged in picking, packaging, dispatching, and delivering your packages to the customer.
- Fuel Cost: This refers to the cost of the fuel used by shipping transport (whether ships, trains, airplanes, or vehicles). Since this often fluctuates, carriers usually mark it at a specific average when invoicing.
- Customs, Fees, and Taxes Paid to Ship Packages: The last common contributing factor that can drive up your shipping costs includes the brokerage, customs charges, or any other duties and fees you pay for international shipping.
So, next time you wonder what shipping costs really include, you’ve got a succinct list of suspects. That said, it can be difficult to calculate your shipping costs when planning budgets or looking for ways to optimize costs. For this, check out our next section.
The Role of Shipping Calculators
Shipping calculators can help you manage and optimize your shipping costs seamlessly. By accurately calculating costs based on inputs like destination, dimension, carrier rates, etc., these handy tools can help you set clear expectations for customers and make informed budgeting decisions without the tedious and complex math. What’s more, it also eliminates the risk of human error, ensuring you’re always working with reliable shipping cost figures.
How to Calculate Shipping Costs
Shipping cost calculator tools or other shipping cost estimators are an easy way to ascertain your possible shipping costs, but if you’re an admirer of the old ways or are just looking to understand the math behind your shipping invoice numbers, we’ve got you covered.
To begin with, calculating your shipping costs isn’t just a numbers game—it’s a mix of dimensions, weight, delivery speed, and destination, with a dash of carrier-specific quirks.
To estimate your shipping costs, start by measuring your packages’ weight and size (even oddly shaped packages must undergo this). Then, check out its shipping zone (the farther your package needs to be shipped, the more expensive its shipping will be). After this, factor in extra costs like shipping insurance, customs (if applicable), and handling fees. That should give you an approximate idea of what your shipping invoice is going to quote.
Pro Tip: Keep an eye on your Dimensional Weight (DIM). It can be a sneaky cost driver. Even more so if your offerings are actually lightweight.
Strategies for Optimizing Shipping Costs
Here are some strategies to help you streamline and optimize your shipping costs:
1. Packaging effectively
Smart packaging can help reduce your shipping costs, especially if you’re sending out multiple packages in a single day.
You can start with repurposed boxes and packing materials whenever possible and reusing shipping labels is also a perfect norm in the shipping industry. Bulk buying packaging supplies can also lead to significant discounts.
As much as the packaging matters, the content within it matters too. Don’t miss out on secure packaging while cutting costs.
On average, 1-in-10 e-commerce packages arrive damaged
Remember, damages to your packages can prove to be costly when they happen frequently in the long run. Thus, keep in mind to use proper materials like bubble wrap, packing peanuts, crinkled kraft paper, etc.
2. Adjusting based on DIM weight
Dimensional weight (or volumetric weight) was introduced because lightweight, low-density packages had become unprofitable for shipping carriers due to the amount of space they occupy in relation to their weight. So, for each shipment, carriers charge you based on the dimensional weight or actual weight of the package—whichever is greater.
DIM weight is calculated based on the formula:
Dimensional Weight = (Length x Height x Width) / DIM factor (traditionally 139)
If you’re a merchant, who deals with odd-sized packages frequently, then DIM weight would make shipping packages more expensive. It is therefore important for you to ensure that you use the right packaging techniques to save on costs.
In this case, the key is to use the right size of box that can comfortably hold your oddly-shaped item without taking too much excess space.
3. Making the right shipping carrier choices
Making the right carrier choice for your shipping needs is like a falling pile of dominoes where one thing leads to another and ultimately you end up saving a lot or paying more than you ought to depending on your choice.
As a priority, you can understand your needs by asking yourself these questions:
- Is my shipping volume higher than usual, so that it might require frequent services?
- Am I selling products that are based on urgency and require faster shipping options?
- What are my most frequent shipping destinations?
Following up, you can check if your carrier offers any value-added services that can help you avoid unnecessary cost inflation.
4. Claiming refunds for carrier service failures
Order deliveries aren’t always 100% successful.
Shipping carriers are prone to mess up on deliveries and billing from time to time. In fact, there are over 50 types of carrier errors such as late deliveries, products damaged on delivery, lost packages, etc.
Unless you audit your shipments, you will never know how much you’re actually overpaying your shipping carrier.
Thus, regularly auditing your shipping invoices helps you hold your carriers accountable for their mistakes by claiming refunds for service failures. This can help you get your shipping carrier to improve the quality of their service, and also be a negotiating tool.
Auditing can be a pain if done manually, but there are automated options to make your life easier.
LateShipment.com is one of them. Check us out. We’re waiting.
5. Not falling prey to money-back guarantee waivers
Out of all service failures, the most frequent and damaging in the current e-commerce delivery scenario is the ‘late delivery’.
Around 8-12% of shipments are delivered late
Customers are already blaming the brand (you) for delivering their parcels late. So, why bear the brunt of the costs as well? Carriers, too, are aware of this and have their policy titled ‘money-back guarantee’ or ‘guaranteed service refunds’ that allow you to file refund claims and ensure you are rightly compensated for each late delivery incident.
However, here comes the catch. Carriers also have ‘waivers’, a small clause in the money-back guarantee policy that, once signed, discourages you from claiming refunds. Of course, it is suggested under the guise of discounts and other benefits, but these waivers often come with a series of pitfalls.
Therefore, ensure that you haven’t signed a money-back guarantee waiver and file refund claims for late deliveries.
6. Negotiating with your carrier
Many new SMBs fail to realize that shipping rates are negotiable.
Don’t just settle for the rate your carrier charges you. Do a thorough comparison of the rates various carriers offer before settling on a carrier, and then negotiate.
The carrier needs your business as much as you need their service. Inform the carrier representative of the rates other carriers offer. Tell them your options are still open. You will probably end up getting a sweet deal!
Also auditing your shipping invoices gives you insights into your carrier performance that you can leverage to gain an upper hand while negotiating.
7. Using multiple carriers for your shipping needs
As mentioned, each carrier has its own set of pros and cons.
One might offer superior speed for urgent deliveries, while another excels in cost-effective ground shipping. By having access to multiple options, you can choose the carrier that best suits the specific needs of each shipment.
Also, if the performance of one carrier isn’t keeping up with your expectations and is frequent with delays or service disruptions, you can still fulfill your shipping needs by seamlessly switching to another provider with minimal impact on your customers.
8. Including the cost of shipping in the final bill
This is something many small businesses overlook.
Explicitly state and include the cost of shipping on the billing page. If you don’t, the burden of paying for shipping will fall on you.
Another thing that is possible is that the customer will be required to pay for shipping on delivery. This can lead to a bad delivery experience, and the customer may choose to not buy from you again.
Also, if the shipping price varies from region to region or you plan on shipping internationally, make sure you include the relevant rates on the billing page.
P.S. On that note, absorbing shipping costs entirely might be too expensive at times and on the other hand, not offering free shipping can be a factor for the customer to avoid your business. Thus, the key is to offer ‘free shipping’ only for customers in the loyalty program or have an item/spend threshold.
9. Choosing multiple delivery options
As a shipper, you have the advantage of choosing a list of delivery options that work best for your business needs at that point. For instance,
- Invest in flat-rate shipping to optimize costs if your business frequently ships packages to select locations
- Encourage options such as BOPIS (Buy Online Pickup In-Store) for shoppers at close distances to prevent shipping in the first place
- Offer options like standard, expedited, and even same-day delivery to cater to a wide range of customers. P.S. Allow customers to see the exact cost of different delivery options upfront, empowering them to make informed choices
10. Setting up delivery areas
Creating designated delivery warehouses or hubs within your city, region, or where your shoppers frequent can significantly save last-mile delivery costs, which are often the most expensive part of the shipping process. Here’s how:
Firstly, optimized delivery routes and consolidated multiple deliveries mean fewer stops for your carriers, thereby minimizing travel time and fuel consumption.
Secondly, reduced shipping distances and the number of individual trips needed also improve delivery speed and lower the chances of late delivery incidents.
Remember, this strategy is most effective if you have a high volume of deliveries concentrated in specific geographic areas. Individual carrier pickups might be more efficient for a low volume of dispersed deliveries.
11. Preparing yourself for the peak season
The peak season is the perfect time for SMBs to boost sales.
However, amidst all your shipping strategies, things can still go out of control during peak season times like the holidays. This is because the shipping volume increases multifold during such times, forcing carriers to strain their capacity to deliver parcels on time.
With the probability of late deliveries becoming 2-3x, things get even worse with carriers temporarily suspending their money-back guarantee owing to the increased demand.
Here’s where you can bring your a-game to the table and draft special plans for the peak season like shipping out parcels early, letting customers know that delays are imminent once we get close to the holiday season, getting familiar with carrier service schedules for closing times and last day to ship, etc,. Such actions can ensure that a sudden surge in demand has less/ no damage to your shipping.
12. Tracking your orders
Tracking your shipments, especially in real-time, empowers you to stay on top of your customers’ orders. You can then extend the capabilities of ‘real-time tracking’ by communicating the same with your customer. With customers in the loop of their orders, they are less prone to contact your support team with WISMO inquiries. This frees up staff time and reduces costs associated with fielding inquiries.
Similar to order status information, tracking also allows you to identify exceptions like delays and lost packages promptly. This enables you to take proactive actions, such as course-corrective measures, to minimize delays and potential re-delivery costs.
Also, frequent tracking gives you detailed records of on-time deliveries and delays for each carrier you use. This data strengthens your position when negotiating with carriers for better rates. You can demonstrate your business value and hold them accountable for performance.
Tracking packages manually is an option that is not preferable, given that there’s no room to scale. Thus, you can always make use of a real-time tracking solution like LateShipment.com that:
- Provides the most up-to-date order tracking information for your support team to intervene and proactively fix issues
- Enables easy access to tracking information to customers through your website, emails, or SMS notifications.
- Reports of trends or recurring issues to help you optimize your fulfillment process to minimize delays
All of which can contribute to significant cost savings.
13.Insuring your shipments
Unexpected damage or missing items during shipping can be a significant financial blow for you
In such cases, insuring your shipments provides peace of mind from the financial protection that you get while covering the cost of replacing the items.
Plus, with insurance absorbing the costs and potentially impacting your cash flow, you can confidently commit yourself to resolving any issues that might arise during shipping. This builds trust and confidence, potentially leading to repeat business.
Now, you can either insure shipments with carriers or pick a third-party insurance provider that offers custom insurance rules that allow you to decide on what gets insured and what doesn’t, thereby keeping insurance cost-effective.
14. Optimizing order returns and return shipping
Contrary to popular beliefs of being a cost center, when optimized, order returns can be a goldmine for cost savings for your business. Here’s how:
- Returns are a necessary evil. Thus, they need to be kept to a minimum to display high customer satisfaction metrics. Start with high-quality product photos, detailed descriptions, and size charts to ensure customers receive what they expect. This minimizes the chance of unwanted returns due to size or feature mismatches
- Apart from ensuring reasons for return and a nominal return window, you can also offer and incentivize customers to opt for exchanges/ store credits over refunds
- Also, tracking and analyzing the reasons for returns can help identify recurring issues and areas for improvement in your product descriptions, packaging, or fulfillment process, etc, and can lead to fewer returns and lower costs in the long run.
Apart from cost-cutting, if you’re also a CX-obsessed brand, you can choose a tool like LateShipment.com that makes returns self-service and helps you boost buyer confidence.
With an easy returns portal, flexible return methods, seamless return shipping, automated and immersive returns tracking, LateShipment.com can be your one-stop solution to offer return experiences that your customers truly love.
15. Using a 3PL for your shipping needs
For SMBs fairly new to the market or ones struggling with managing shipping costs, a 3PL partnership can be a strategic decision.
Since 3PLs have expertise with shipping packages of multiple SMBs, they already have established relationships with major carriers and can leverage this buying power to negotiate significantly lower shipping rates.
Outsourcing warehousing to a 3PL eliminates the need for SMBs to lease or manage their own warehouse space, reducing overhead costs like rent, utilities, and equipment. Also, with shipping-related tasks now outsourced, your staff can now focus on core business activities, and you can reduce labor costs associated with in-house fulfillment.
Impact of Shipping Costs on Customer Satisfaction
Your shipping costs can make or break your customer’s decision to buy from you before you can even say ‘abandoned cart’! If they’re too high, your customers go poof! Vanished in thin air, and if you’re able to bring down the shipping cost but the package is estimated to reach them next week, that’s not okay either.
But here’s an interesting statistic: 82% of online buyers would rather get free shipping than expedited shipping. What’s more, your customers are okay with spending $40 more, provided they get free shipping.
With these numbers, it’s safe to conclude that shipping costs reign supreme on your customer’s list of factors considered during a purchase. Try to minimize your shipping costs (both for your own operational cost reduction and to woo your customer) by comparing carriers to find the best deal, negotiating with shipping carriers, etc.
Further, keep your shipping costs transparent and as reasonable as possible to foster trust with your customers. That is, no surprise fees during checkout. Nail this, and you’re not just delivering a stellar product but also paving the way for customer satisfaction, loyalty, and maybe even a glowing review!
Technology and Shipping Cost Optimization
No, don’t even think about it. Manual shipping cost management is about as fun as running a marathon after downing a bowl full of fettuccine alfredo pasta, just ask Michael Scott.
If you want to do it right, invest in the right tools and technologies. These will help you track shipping carrier performance, flag billing discrepancies, and help you find ways to reduce your shipping costs without compromising on customer experience.
What’s more, you don’t even have to look far and wide for the right tool for your tech stack! LateShipment.com offers a range of advanced post-purchase experience tools that streamline and optimize your shipping invoice audits, delivery and returns management, and shipping insurance, ensuring you always draw the long stick out when it comes to your shipping costs management.
Conclusion
For an e-commerce business, shipping costs are unavoidable and inevitable. However, with the 15 strategies we shared earlier, you’re well on your way to ensuring your shipping invoices are optimized and your shipping budget well spent!
That said, to make your shipping operations truly cost-effective, you need automation. More specifically—LateShipment.com’s suite of post-purchase tools.
LateShipment.com is the ultimate all-in-one post-purchase success platform for e-commerce retailers, D2C brands, and businesses shipping small parcels, no matter their size or shipping volume. Here’s a look at our software offerings:
- Delivery Experience Management (DEM): To build memorable experiences that prevent bad delivery experiences and also boost recurring revenue during order tracking moments.
- Returns Experience Management (REM): To make returns hassle-free with flexible return options and smart automations to help retain revenue.
- Parcel Audit and Shipping Refunds: To save big on shipping costs through automated shipping refunds and drive supply-chain optimization with in-depth shipping analytics and insights.
- Shipping Insurance: To simplify protecting your e-commerce parcels from lost and damaged packages via fully customizable and automated processes for maximum cost savings.
LateShipment.com seamlessly integrates with 1200+ Shipping Carriers and Business Tools that include E-commerce platforms, Order Management Systems, Helpdesks, and Marketing Automation tools to help you drive post-purchase experiences and shipping cost savings, at scale.
Ready to streamline your shipping costs while driving customer experience? Book a demo today!
