In e-commerce, an effective and scalable shipping strategy is crucial. You can sell great products, you can hire genius marketing experts to help you reach the right audience, and you can have a beautiful website, but none of it matters unless you’re able to consistently provide customers with a delightful and reliable product delivery experience.
When you’re first starting out in e-commerce, shipping might not seem like much of a headache—people slowly become acquainted with your brand, orders start trickling in, and shipping out products isn’t that much work. You may even be able to manage most of the process manually on your own.
Here’s the problem:
Managing product shipping in this way isn’t sustainable over time. If you’re doing all the right things, it doesn’t take long for more people to learn about your brand, find your website, and make the decision to order products from your store. A sudden and dramatic increase in order activity can happen in as little as 24 or even 12 hours in some extreme cases.
If you’re just getting started with your e-commerce business, or if you haven’t taken the time to think strategically about how to manage product shipping in a way that allows you to easily or quickly scale your operations, it’s time to put a clearer strategy in place.
This quick guide will give you everything you need to in order to understand how to approach product shipping for your e-commerce business.
Glossary: Shipping & Fulfillment
Before you make any decisions about product shipping for your business, it’s helpful to first spend some time becoming more familiar with a handful of terms and phrases you’ll likely encounter along the way. Here are 11 words and phrases you should know:
- Inventory: an up-to-date list of products you have that can be sold to customers.
- Fulfillment Warehouse: a building where you store inventory and fulfill orders.
- Dropshipping: a product fulfillment business model that allows you to accept orders from customers and fulfill those orders through a distributor without having to pre-purchase or store inventory upfront. With this type of product fulfillment, you don’t own, pre-purchase, or store inventory upfront. Instead, you only pay for product once you receive orders from customers, and then your dropshipping vendor fulfills orders and ships products to customers for you.
- 3PL: Third Party Logistics providers, also known as 3PL, store your inventory for you and fulfill orders, but they do not own your products. They essentially act as an outsourced inventory management, shipping optimization, and order fulfillment arm for your e-commerce business.
- Self-Fulfillment: Self-fulfillment is another way to manage and fulfill product orders. With this type, you are storing, managing, and sending out inventory on your own, either from your house or your place of business.
- AOV: AOV stands for Average Order Value, a metric that e-commerce business owners use when making key business decisions that could impact or influence future growth, such as where to set your free shipping threshold. BigCommerce describes it as, “the average total of every order placed with a merchant over a defined period of time.” To calculate your average order value, you take your revenue and divide it by number of orders (over a defined period of time).
- Flat Rate Shipping: A shipping method that allows you to pay or charge a predetermined amount for a product, despite variations in weight or size.
- Shipping Rates: The fees you’ll need to account for when shipping your products through a carrier like USPS, UPS, or FedEx.
- Shipping Labels: The label you place on the outside of a box that tells carriers what to do with the box you want them to deliver.
- Shipping Carriers: The businesses and organizations that deliver your products to your customers.
It’s important to note that this is not a comprehensive list of terms you will encounter as you work to build a product shipping strategy for your business—this is simply a starter list of terms that will be referenced in the sections of this guide that follow.
Knowing Your Business
Now that you are more familiar with some of the vocabulary that relates to product shipping, it’s time to start thinking about what kind of scalable strategy you want to put in place for your business. To get started, the first thing you need to do is spend some time thinking more about your business, your products, and your customers.
Although they might look similar at first glance, no product shipping strategy is the same. There are many factors that should be evaluated and taken into consideration when it comes to deciding how you’ll approach and manage things like pricing, packaging, inventory management, and product fulfillment. To ensure that you’re able to build a strategy that meets the needs of your customers and business, ask yourself these questions:
Questions About Your Business
- What is your brand and what makes it unique?
- What type of experience are you trying to create for people?
- What first impression do you want to leave with people who interact with your brand?
- What does growth look like for your business over the next 30, 60, 90 days? What about in 6-12 months?
- What resources do you have available right now that could help you scale or optimize product fulfillment and shipping (people, money, software, storage, inventory, etc.)
Questions About Your Products
- Where do you ship your products from?
- Where are you typically shipping your products to?
- What size are your products?
- How much do your products weigh?
- How are your products typically purchased (single, multiple, bundled, etc.)?
- What is your AOV and how is it impact shipping costs?
- What carriers do you want to use to ship your products?
- What are all the costs associated with your products? What are your profit margins on products?
- What unique restrictions do you have to manage when shipping your products? For example, will you need to ship internationally? Will you need package insurance?
Questions About Your Customers
- How do your customers prefer to receive products?
- Why do your customers buy products from you?
- What impression do you want to leave with your customers when sending them products?
- Is your customer more likely to purchase if shipping is free or set at a flat rate?
To make the right decisions about your shipping strategy, spend time developing answers to as many of the questions listed above as possible. The more questions you can answer now, the more proactive and comprehensive you can be when it comes to putting your strategy together.
Understanding Your Fulfillment Options
To build the right shipping strategy for your e-commerce business, you need to first understand what your fulfillment options are. The fulfillment option you choose will ultimately affect how your products are shipped to customers. Here are the main fulfillment options you should consider for your products:
- Self-Fulfillment: you buy your products, store them yourself (at your home or place of business), and manually fulfill and prepare orders for shipment on your own. This option involves the most overhead and planning, but also the most control.
- 3PL: You purchase the products upfront, send your products to be stored at a fulfillment warehouse, and the warehouse keeps track of inventory and fulfills orders as they come in. Fulfillment by Amazon (FBA) is a version of a 3PL, and it’s tight coupling with the Amazon marketplace provides additional benefits for that channel.
- Dropshipping: You do not pre-purchase products ahead of time. Instead, you only pay for products when a customer places a new order through your online store. When you get a new order from a customer, you send it to your dropshipping vendor, and they fulfill the order by shipping the product directly to the customer. This option is the easiest on the merchant, but typically the most expensive. It also offers the least amount of control.
Each fulfillment option above has its own advantages and disadvantages.
Recognizing that Packaging Matters
As you develop your shipping strategy, it’s important to realize how much packaging can play a role in the decisions you ultimately make. There are two types of packaging you can leverage for your products. Shopify refers to them in the following way in their blog post on shipping and fulfillment:
- Utility Packaging: standard boxes or envelopes with no visible branding or customized graphics.
- Branded Packaging: unique packaging that aligns with your brand style, personality, and imagery.
The packaging you ultimately choose will depend on how much money you can and are willing to spend, what your goals are with your packaging, and which fulfillment option you’ve chosen for your business.
For example, if you’ve chosen to leverage the dropshipping business model, you probably won’t have the option to customize packaging and create a unique experience for your customers. Dropshipping allows you to spin up your business for a relatively small investment, but it doesn’t allow for the customization that you might be used to seeing from other ecommerce brands. Self-fulfillment, on the other hand, allows for much more customization and control over how your brand is presented to your customer.
Branded boxes are much more compelling than standard boxes, but they’re also a lot more expensive, as Shopify points out in their blog post. They explain, “custom boxes tend to be the most expensive costs associated with creating a custom branded unboxing experience. To have your own custom printed boxes you can be looking at a minimum order of 500+ and can cost $5-$25 per box.”
This is on the high end of what I’ve seen in my experience, but regardless, there is an added cost per package with branded boxes.
To decide which type of packaging is right for you and your business, ask yourself the following questions?
- What does my fulfillment option allow me to do when it comes to packaging?
- How much money am I willing to spend on packaging?
- What experience am I trying to create for the customers who buy my products?
- How will my packaging decisions affect my shipping rates?
- Can I start small and work my way up to what I eventually want for my products?
Evaluating Shipping Options
The next action item on your product shipping strategy development list is to make some decisions on how you’d like to ship your products to your customers. There’s a lot that can be written and covered on this topic, but for the purpose of this quick guide, we’ll focus on the most important information you need in order to ship your products.
These are the most common carriers you can leverage to ship products:
Each carrier varies when it comes to package guidelines, shipping rates, and features. Picking the right one for your business will require you to spend time investigating and evaluating all the options. A good place to start is to determine how shipping rates differ across each carrier. To see the differences, utilize these calculators:
- Postage Price Calculator from USPS
- Rate Finder from FedEx
- Time and Cost Calculator from UPS
- Rate Quote and Transit Time Quote Tool from DHS
After you’ve spent some time comparing rates, dig deeper into the business tools and features that each carrier offers to a business like yours.
Deciding on Pricing
As part of your shipping strategy, you also need to spend time thinking about how overall costs will affect how you ultimately price products and shopping costs in your store. If you’re new to e-commerce, it’s important to understand that shipping will always be an incredibly expensive part of your business. If you don’t take costs into consideration from the beginning, you risk building a shipping strategy that doesn’t allow you to profit from your products or all the time, effort, and money you put into your business as a whole.
To determine how much to charge for your products and for shipping, you need to think about the costs associated with your packaging, your shipping rates, the cost of the product itself, any marketing material that gets included with your product, the money you have to pay for warehouse space or to hire 3rd-party vendors, and any other costs that are associated with the fulfillment and delivery of your products.
Add up all the costs associated with shipping your products, then tweak pricing as needed in your online store to ensure that you’re not losing money on every order that gets placed by your customers.
And remember, free shipping has become almost expected for items over ~$20, and not offering it will impact conversion rates and long term profit. Does your shipping strategy allow for you to offer free shipping on your top products while still earning a decent margin?
Finalizing Shipping Strategy
When you’ve spent time going through all the sections and areas outlined earlier in this quick guide, your final step is to create and finalize your shipping strategy—a clear framework that you can implement and revise as your business grows and demand for your products increase over time.
Adopting Tools that Allow You to Scale
To further optimize how you handle fulfillment and shipping for your e-commerce business, consider leveraging the right software tools to automate many of the tedious tasks associated with product shipping.
Read more at https://www.business2community.com/ecommerce/quick-guide-product-shipping-everything-need-know-01997635