7 Steps You Can Take to Reduce Shipping Costs
Shipping represents one of the most significant expenses for any business that relies on prompt delivery to customers. Whether you manage a small start-up or a well-known name brand, your delivery promise is key to customer satisfaction, so to reduce shipping costs without cutting service levels can be something of a Catch-22 situation.
Fortunately, there are a number of areas to save some money on your shipping, simply because you're probably spending more than you have to there already. Streamlining in these areas has the potential to yield the kind of cost savings that have a positive impact on your bottom line, while still shielding your customers from any negative impact.
All of this assumes you know where to look, of course, which is where we come in.
Areas to Review As You Reduce Shipping Costs
Consider these seven areas when you think about how to trim the amount you spend on shipping:
- Vary carriers and cost types
- Understand different mailing types
- Dimensional weight considerations
- Hybrid mailing services
- Work with a fulfillment partner
- Review your freight data
- Review return shipping costs
Let's take a closer look at each of those ideas. If any in particular sound the alert as areas you know your business can do better, skip straight on to the item most relevant to you.
Alternate Your Carriers
The old adage about where you should store your eggs holds just as true for your deliveries; usually, one basket simply isn't enough. Aside from the potential to shift order volume from one carrier to another if your primary provider experiences a major disruption, there are some important cost implications of this decision.
When you work with multiple providers, you can compare costs and service levels more easily so that you better understand the value for money from each of them. Furthermore, if you have the volume or high value of goods to negotiate a better rate, it often helps if you can dangle the prospect of taking your business to the competing carrier. That's easier to accomplish when you work with those competitors directly and have the confidence to switch volumes quickly, should the need arise.
Vary Mailing Types
Most of the ads like to keep this side of shipping simple: "if it fits, it ships," "relax, it's FedEx / the world on time." They emphasize a quick decision about both packaging and processing. That's fine for consumers mailing individual items, but when you ship at volume, it pays to understand different mail types and know where to deal with discounts.
Speed and distance are well-known variables, but neither are entirely within your control as the shipper. You can offer consumers basic shipping standards for free or at cost, with premium services hiking up the price, but if your competitors offer overnight for free, they often take that decision out of your hands. Destination is, of course, entirely down to the customer, but you have the ability to alter how you package the product and, in some cases, to tell the carrier how to classify its contents.
If you deal in anything that could be classed as "educational materials," for example, Media Mail® can be a more cost-effective way to send your shipments. It's also possible to eke out some extra discounts by prepaying for your shipping, buying in bulk, or purchasing postage online. Finally, if your products are fairly uniform in size, you'll also benefit from the ease of using the boxes or envelopes created by your carrier.
This helps to keep costs predictable, as well as leading us neatly on to the next item...
Perfect Packaging for Dimensional Weight
If you follow parcel carrier pricing to any extent, you'll be acutely aware that the major carriers moved to dimensional weight pricing earlier this year. The news rattled around our industry with a grudging acceptance, as many had predicted its arrival but few had yet to take the next step of calculating its impact.
For some businesses, though, dimensional weight pricing could be a blessing in disguise. It may be possible to save some money by adjusting the way you pack products, or even altering packaging altogether to make the new pricing model work for you. As advised in the previous section, start with carrier-provided containers. If you can rely on most of your orders to be shipped in standard packaging that the carrier can count on, the cost variations of dimensional weight can be mitigated.
This could even be the jumping off point for an opportunity to review your wider order fulfillment solution. There may be other unnecessary costs lurking in your pick, pack, and ship process, so if you have the time and resources to commit to a full review, the wider cost savings potential should tip you towards doing so.
Explore Hybrid Delivery
We dedicated an entire Unpacking article to hybrid delivery services earlier this year, so that post is an ideal primer for this cost-effective shipping option. Suffice it to say, if you can stand to lose a little visibility in your order tracking, this could be the delivery solution for you.
Find a Fulfillment Partner
There are times when getting a better shipping rate is simply impossible by yourself. Often you need a seat at the negotiating table to secure deeper discounts, which is hard to do if your volumes aren't large. When you have a fulfillment partner in your corner, that changes.
An effective service provider will use their aggregated volume across many shippers to secure preferential rate agreements with major carriers. These are savings that they can pass on to you, and it's much simple to negotiate with your dedicated supplier than the carriers, who work for everyone.
Some partners will also offer multiple fulfillment locations, which opens up the ability to look for cost savings in terms of both inbound and outbound inventory management.
Don't Ignore Your Freight Data
When you know the size, scale, and seasonality of your shipping habits, you're in a stronger position to understand legitimate charges and those that may be over inflated by the carrier. Often this is simply a case of the provider following a standard fee structure, but there can still be items that don't apply to your business, or should at least be reduced because you don't use them to the extent that would jusify how high the rate is set.
An example is the fuel surcharge, which is common among carriers but can vary greatly in terms of calculation and volatility. If you understand what you're being charged, it opens up the opportunity to negotiate and reduce shipping costs with a better deal.
When you know your numbers you can make the argument for a standard surcharge, at a level that fairly reflects the volumes that you ship with that carrier. On the same note, having those volumes readily available will put you in a better position when it comes time to negotiate your rates (or to have a trusted fulfillment partner handle it for you!)
Review Your Return Shipping Policy
How you handle returns can make a big difference to both customer satisfaction and shipping costs; in some ways, they exemplify the difficult decision to balance brand reputation and bottom line costs.
When we look at a brand like Zappos, for example, the cost of providing no questions asked returns at any time, with free shipping, is unpalatable for most businesses. For Tony Hsieh's company, however, it's what made them famous and why they have such a loyal brand following. It works for them.
There are ways to make your returns work more cost effectively for you, without resorting to unworkable restrictions that alienate customers.
If you have stores and facilities that are easily accessible, for example, it's often worthwhile offering customers a prompt exchange service that incentivizes them to bring the product to you. Customers want to avoid further delay to receiving a product they want as much as you do, so direct returns can be a win-win for both parties.
Another potential solution is to have a liberal return policy but only open it up to repeat customers. When you know someone is buying from you regularly, it makes sense to offer them as many reasons as you can to keep them coming back.
You need to get them there, of course, so you still require some kind of returns option for every first-time buyer, but eliminating the one-hit wonder, "buy, try and return" crowd can help to ease the drag factor of return costs on your bottom line.
If you can't take advantage of any such solutions, you can still apply many of the earlier ideas to your return shipments to reduce shipping costs. Find the carrier and packaging solution that minimizes your return costs, for example, and don't hesitate to dive into your returns data to flag the most prominent reasons for sending back products.
If you can cut out avoidable errors that cause customers to return things in the first place, it's a win for both your shipment costs and service levels.
So if it comes to the crunch and budgets get stretched, your shipping expenses are one area that you can rely upon to yield savings without having to sacrifice service to any great degree.
When you want to reduce shipping costs, be sure to check back on these seven suggestions to see which could work for your business. And if you could use some help applying these ideas, don't hesitate to contact Capacity.