This post is recently updated on 16 January 2019.
So, you have an e-commerce site, or maybe you are planning to have one. You’ve spent a lot of money in designing your online store to provide the best user experience in your niche, enhanced your marketing budget, and double-checked your analytics. But none of these solved your core problem that lies in your ecommerce shipping strategy.
Well, chances are that your strategy is not fully optimized, which led to lost sales or failed to perform as expected. Does the situation sound similar to you? If yes, what may be the reason?
According to a Business Insider Study, 58% of U.S. online shoppers abandon the cart when the shipping costs make the total purchase value more than expected. The success of any e-commerce business heavily relies on how effectively its ecommerce shipping solutions are designed and implemented. For example, pricing too much could make you less competitive and make the customer leave your site while charging too little can pare down your profit margins.
Related Article: Guide to Building a Drop Shipping Business
Having a smart ecommerce shipping strategy is one of those most impactful steps that help you grow your online business. Your strategic shipping will not only differentiate your business from your competitors but add to your bottom line as well.
We’ve got a 5 steps to help you formulate an effective Ecommerce shipping strategy.
Five steps guide to develop an efficient ecommerce shipping strategy
- Building a potential shipping team
- Setting and defining the goals for your shipping strategy
- Identifying the options
- Structuring shipping charges effectively
- Implementation & analysis
Let’s delve into each of them in detail.
1. Great Team for Great Ecommerce Shipping
The first step of the process of building an effective ecommerce shipping strategy is to identify the right people. A right team can help you make the right decisions for your business and make your strategy actually work while increasing your conversion rate. For this, you need to bring into the conversation the right stakeholders within your organization. Get through this quick breakdown of the process to learn how to pull in the appropriate stakeholders.
- Marketing team
You will need an effective marketing team to communicate to your customers how your shipping strategy can benefit them over your competitors. They will use strategies like free and flat rate shipping to exert a pull on the targeted customers. All these strategies are described later in this post.
- Web design and development team
This team will be responsible for ensuring that the right shipping options are being shown to your targeted customers at the right time. They also make sure that the offers are clear and luring to the customers.
- Fulfillment Team
No matter what happens, the orders must be picked, packed and shipped accurately in time to the customers, and this is what a fulfillment team has to ensure. This team must be able to handle everything effectively regardless of the choices and options placed by the customers.
- Customer service team
You should be aware of how you approach shipping will influence customers at each stage of the customer lifecycle. So, it is the responsibility of a customer service team to understand the marketing approach and answer the customer questions appropriately to provide them with a distinctive experience.
2. Setting & defining goals for your shipping strategy
Once you have developed the key teams in your company for establishing your strategy, it is time to define what you want to achieve with your ecommerce shipping strategy. Here are the most common yet most crucial areas to focus.
- Boosting the conversions
Conversion rate implies the percentage of users who take the desired action. For instance, the percentage of website visitors who buy something on the site will be considered as the conversion rate of that e-commerce site. If 100,000 people visit an e-commerce site during a month and 2,000 visitors purchase something from the site, the site’s conversion rate will be 2,000/100,000 = 2%.
Offering the shipping options and rates as expected by the customers can enhance the conversion rate. Regardless of the volume and niche of your e-commerce business, these two factors leave a massive impact on the conversion rate.
- Adding to Average Order Value
AOV or Average Order Value is the e-commerce metric used for measuring the average total of each order placed with trade over a defined period. It is one of the most important metrics for online stores that drive key business decisions such as expenditure on advertising, store layout, and product pricing.
Here is how to calculate the AOV:
Average order value (AOV) = Revenue / Number of orders
So, increasing the AOV should be included in your priority list, and you can achieve it by offering promotions that will encourage your site visitors to buy more.
- Expanding the Market
Market expansion is basically a process of providing a product or service to a wider section of an existing market. This is an attractive strategy to grow your business where the sales to current customers and markets will be maximized.
Expanding the market is crucial for any business, and there is a number of ways to accomplish this goal. Offering to ship to new areas or customer demographics who couldn’t access your products before is a great idea. Moreover, you can implement alternative shipping strategies such as international shipping, in-store pickup or local delivery to extend your reach.
- Decreasing the shipping costs
By optimizing your order fulfillment process and the shipping services, you can attract more potential customers while compelling the present ones to purchase more from you. Strategically designed shipping options can help you reduce costs while ensuring a high level of service.
Managing the relationship with shipping provider effectively and sourcing for a real-time ecommerce shipping calculator and shipping partner can help you minimize the shipping costs to a great extent. A real-time calculator is a tool that can give you a better idea of pricing and costs.
Also, try to bring additional in-house manufacturing resources that would help you cut additional costs from product manufacturing and enhance profit margins while maintaining flat shipping expenditures.
- Improving operational efficiency
Operational efficiency is the ratio of an output gained from the business to an input to run a business operation. Inputs can include costs, people, time or efforts that are incorporated into the business. However, the outputs would typically be revenue, profit margin, cash, new customers, customer loyalty and so on.
To improve the operational efficiency, your fulfillment teams must know how to make better decisions regarding picking, packing and shipping orders while maintaining the delivery timeframe strictly. Purchasing new package types and implementing new services and walking through the fulfillment process thoroughly helps to eliminate any unnecessary manual or sometimes costly step.
3. Identify the options
Once you are done with identifying a great team and goals for your business, it’s time to think of the ecommerce shipping strategy best for you. Whatever strategy you’ll adopt, make sure it is going to work for your team to accomplish the goals you’ve set. Read on to find out some valuable strategies with the pros and cons of each. Several of these options are implemented by the most successful businesses and helped them rise above the competition.
While identifying a shipping model best-suited for you, you’ll get several major options to choose from. Here is a quick rundown of the key ones.
- Ship Yourself- Starter
For a startup business, shipping on their own involves shipping from home, writing or printing shipping labels, pasting them on the delivery box, and ensuring delivery of the product on or before time.
- Ship Yourself – Intermediate
This option may include shipping from home, automated label printing and package pickup by your carrier.
- Fulfillment warehouse
In this scenario, the orders are automatically received and shipped from a fulfillment warehouse.
Orders can be shipped directly from a drop ship partner on behalf of your brand. You will not have to purchase inventory upfront or hold inventory yourself, eliminating the need of maintaining infrastructure.
Before you zero in on any of the above options, you need to consider the ecommerce shipping industry key elements to have a clear picture of the entire shipping scenario.
Here are three crucial considerations you must mull over.
Hundreds of e-commerce surveys, polls and studies reveal that the success of an online retailer heavily relies on the right shipping rates and options provided by it to the customers. Getting this right is a bit tricky as when you charge too much you will end up with losing a customer. On the flip, charging too less will lead your path to loss.
Not just the cost, but the right shipping options have an equally important role in reducing cart abandonment and thus, an increase in revenue. You have to offer the lowest shipping rates possible but still cover your costs, while maintaining your profit margin. Providing customer with the options they want will boost up the sale and possibilities of customer retention. Go through the list given below to learn how to determine what you can offer and when and why to boost sales and decrease costs.
- Product size and weight
The first and easiest thing to get your head around is the product size and weight that has the biggest impact on the approach you take.
For a relatively uniform product, per-item and zone-based approaches are the best bet. In per item approach, the number of items included decides the price whereas, in a zone-based approach, the shipping costs vary with a customer’s location.
Each of these two approaches works well when it comes to developing a clear understanding of the impact of product size or weight. Here is where you can build easy to understand promotions that not only lure the customers but keep you from incurring additional shipping costs. For instance, you can think of something like $15 shipping per order, $10 shipping per item or even free shipping over $50 and so on.
If you have products of varying sizes and weights, receiving rates directly from a shipping carrier is a great way to make sure you’re offering the best possible shipping rates to your customers. In this case, it is crucial to ensure that you have almost accurate dimensions and weights of the products to be shipped so that you can get back the rate as accurately as possible.
For this, categorize your products into groups and focus on receiving product weights and dimensions for the smallest and lightest 20% or heaviest and largest 20%. In this way, you can see the biggest effect on your shipping rates and get the best return on investment.
- Shipping destinations
Another consideration that is as crucial as product dimensions and weight is the shipping destinations. For situations such as domestic shipping, you can think of a flat-rate or free shipping option. Flat rate shipping is a popular free shipping method that enables you to determine a standard rate per product, per shipping order or class. You can step a bit up by deciding the rates based on shipping zones. For instance, for convenient destinations, a cheaper rate can be applied while the rate can be increased for distant destinations.
- Managing your shipping options
A great shipping option can not only delight customers but also keeps your overhead costs in check. Try to see beyond the big-name carriers to witness a world of opportunity, in a cost-efficient manner. It is often seen that joining hands with local delivery and courier companies in major cities makes the shipping process fast and more hassle-free than the big carriers.
Stages of shipping growth
The average online business usually goes through several stages of shipping and logistics growth. Here are the stages of shipping growth you should have a clear understanding of.
This is the initial stage where you’re likely to receive just the occasional order sporadically without real consistency.
At this point, the orders will be consistent but still limited. The orders may vary from fewer orders per day to approximately 20+ orders per week. There can be some consistency and predictability to the orders.
Once you have picked up the orders, there comes e-commerce fulfillment which will take a large chunk of time to manage the growth stage. An increased volume of orders and the need for services to help streamline the operations and shipping may feel chaotic at this point.
A very high volume of orders is there in the scaling/infrastructure stage, which demands you to develop own infrastructure or partner with a third-party e-commerce fulfillment service provider to manage the shipping process on your behalf.
4. Structuring shipping charges effectively
Imagine this: a new customer visits your e-commerce store and finds a product he/she wants within his/her budget, and then adds it to the cart. Everything goes well until he/she gets to the checkout page and gets hit with the shipping rate. All of a sudden the customer starts having a second thought to the decision of buying from your store. Suddenly the price that he/she thought to be fair starts to seem a little expensive after the shipping charge gets added to it.
There are two consequences that can happen next. Either the customer will continue shopping despite the increased costs, or simply abandon the cart and navigate away from your website. In most of the cases, cart abandonment remains as the major outcome. Thus it can be concluded that your shipping strategy has the ability to make or break your online business. Here are some of the most popular strategies for charging your customers shipping.
- Offer free shipping
Free Shipping is one of the enticing options for customers that compel them to purchase from your website instead of your competitor’s. In general, a business offering free shipping can expect to outweigh the competition largely. Online stores with free shipping offer tend to get an increase in sales as well as an increase in customer retention rates.
You can offer this facility when the total buying amount reaches a certain amount. This can influence the customer to buy more to qualify for that free shipping offer. It is one of the most effective ways to get your customers’ attention and increase conversion rates.
However, you should understand that free shipping is not actually free. And it only means that the shipping cost has shifted from your customer to you. But first of all, you need to figure out whether offering it makes any sense with regard to your profit margin.
In today’s competitive e-commerce landscape, big names have left many consumers with the expectation that shipping should be free. So offering free shipping can be a significant advantage for your store over any competitor that doesn’t provide the same perk.
There are two key factors you would need to consider when it comes to offering free shipping. Either you need to absorb the shipping cost or slightly increase your product prices to cover or offset that cost. Free shipping over a certain purchase amount is another way to employ the feature on your product. This offer will help you increase your average order value (AOV) also.
The general strategy for availing free shipping over a certain amount is to get some sales under your belt first and decide your average order value. Then you can provide this feature on all orders that are some percentage greater than your average order amount.
For instance, let’s say you have some orders for $86, $112, $71, $65 and $105. If you sum up all of them and divide them by the total number of transactions, you’ll get your average order value (AOV).
AOV = ($86 + $112+ $71+ $65+$105)/5 = 87.8
In this case, it works out to $87.8. Again, in this case, you might want to provide free shipping on all orders above $100. This will increase your average order size and provide you with a little more profit that helps you partially cover the cost of that free shipping. Whether to provide this facility on all orders above a minimum threshold depends on your profit margins, the niche you deal with and how your competitors are operating.
Rolling in an extra percentage for shipping isn’t too much of an issue while you are selling luxury, handmade and one-of-a-kind items. Moreover, it may not matter much for the customers who are willing to pay top dollars. However, marking up your products to cover shipping costs isn’t a great option when you are operating in a highly competitive market where free shipping and the lowest prices are usually considered as the standards.
In a competitive market, it becomes easier for a customer to notice the increased product cost. Here you have to go for a different approach entirely or have to try absorbing the shipping cost on most of your products. However, exceptions to these shipping strategies are always there. For instance, free shipping promotion is not suitable for large and heavy products like furniture as it can be extremely expensive. Here, the shipping cost can pare down your profit margins to a good extent.
So, do a little research, gain some knowledge about how much each of your products actually costs to ship, monitor your competitors’ shipping strategy, keep a track of your average order size, and finally chalk out a realistic profit margin to develop an informed strategy best for you.
- Charge Real-time rates or exact costs
Some e-commerce businesses enable customers to see real-time shipping quotes in the shopping cart. This implies that the checkout process will be linked to your preferred shipping carrier and the customers will get a real-time shipping quote based on the number of products, size, and weight of all items added to their cart. The consumer will be charged more or less the price that you will be charged for shipping their order.
Even in some cases, you may end up breaking between the shipping charges you collect and what you have to pay to ship the order. Once a customer gets to the checkout process, he/she chooses the location where he/she wants the order to be shipped to, and the shipping calculator does the rest work on your behalf.
Using a real-time shipping calculator can help you win a lot of trust with your customers. It reflects that you aren’t inflating your quoted shipping fees or increasing your item prices to cover other charges. Although this method doesn’t convey the same persuasion as free shipping, it offers an easy way for you to ensure you’re not losing on shipping costs. Your customer will get the possibly best deal with this strategy. It is also great for heavy or oversized shipments that don’t qualify for free shipping.
- Provide Flat rate shipping
The next option that you can consider is to offer a flat shipping rate on every package based on weight ranges and order totals. Flat rate shipping is a method of shipping where a standard rate is charged to transport packages, no matter what their weights or sizes are. Online stores offer flat rate shipping to customers, who purchase pre-defined order value, as an incentive. This approach of shipping demands a bit of preparation to determine your average cost of the shipping package.
It is perhaps the best practice to ensure that you don’t drastically overcharge or undercharge your customers. Though hitting the actual cost may lead you to a little over or under the actual shipping cost but in the end it should even out.
- Free in-store pickup
Rather than offering free shipping to your customers, you can promote free in-store pickup to sell up and enhance your brand affinity. In-store pickup is a process in which the customer can place their order online and pick it up at a store convenient to them. Providing such intriguing shipping options cannot only attract your potential customers but also works best for online retailers having brick and mortar locations.
- Less than truck load freight carrier
Less than truckload shipping is the method to transport relatively large goods or freight. When you need to ship very large items, this option works great. Showing the large shipping rates for the item in the cart that is beyond the weight limit of standard shipping with the help of LTL freight offer is a great move to save on additional shipping costs.
- Same day delivery
Many products call for same day delivery option, and you must ensure to deliver them on time. This shipping option is suitable for those who are selling perishable or time-sensitive goods. Retailers with multiple warehouses in distinct areas (based on their major customer bases) can also consider this as an ideal shipping option.
Steps to ship Items sold online
- Organize an online sale.
- Determine the total size and weight and which products to package
- Confirm the shipping destination
- Determine the shipping carrier and calculate the shipping cost
- Selecting the best carrier to ship the package
Now that you have all of this considered, it is time to endorse the gamut of questions and potential pushback from other teams. Here are some effective shipping strategies you should consider to rise above the competition.
- Free shipping
The simplest yet perhaps the most effective strategy that has grown massively in hype is the concept of free shipping. It is the holy grail of profitable shipping strategies. But again, as we’ve talked about it earlier, free shipping is free to your customers but not to you. You’ll have to pay the carrier and make sure you’re making enough to cover the associated shipping costs. Hence most of the companies offer free shipping at a pre-defined price amount and only on some specific products.
While making up your mind to offer free shipping to your customers, it is crucial to be aware of its impact on your bottom line. Although you will make more sales, you will be losing at least some amount of money on each one, and it adds zero benefits to your bottom line.
So, when should you offer free shipping? Well, the smart move is to offer free shipping only for those orders that are gaining enough on the sale to cover shipping costs, while helping you keep a good profit margin. Ideally, you should set a free shipping order subtotal threshold and exclude products that are too heavy or bulky or aren’t profitable for you to provide this facility.
Advantages of free shipping
- It’s easy to understand for a customer and easy to explain to you
- It meets customer expectations
- It has a positive impact on conversion rates
- Table rate shipping (here you set different shipping rates for different regions based on price, weight, number of products in the cart etc)
It is a bit complex and one of the most configurable extensions that enable you to create a table rate shipping for different products in different combinations. It allows you to create zones to target your shipping costs for a particular geographic region or you can team up the products based on similar shipping sizes. You can determine the cost based on product weight and create a table of rates for determining the rate depending on where the order appears in that table.
Table rate shipping can be highly beneficial for customers located in certain regions. For instance, a retailer might charge customers near the city less shipping charge with the rates going up as the customer gets further away from the fulfillment center. Sometimes the charge is also based on the order subtotal. Alternately, you might charge according to certain pre-defined groups of products or set shipping rates based on the order weight.
- Live rates from a carrier
If you wish to provide the best possible shipping rate while still covering your costs, getting live rates in real-time directly from a carrier is the best way to go. This is the option where you will offer the cheapest possible shipping solution with a price that is exactly what you’ll be charged by the shipping carrier.
It may seem a bit difficult from a promotional point of view as the rates may differ considerably based on what a customer orders and the distance from your warehouses to that customer’s location. If you see many of your competitors are offering live shipping rates in the market, it may be important for you to do so.
This means you can offer significantly cheaper ecommerce shipping options than your competitors when it comes to delivering lightweight orders or to customers situated near your warehouses. It is not that simple as plugging into a carrier and showing exactly what it returns for each order. You have to make sure you are covering your costs while maintaining a standard profit margin.
If you want your shipping charge to cover things like packaging and your fulfillment costs, you can even add a surcharge.
- Mixed and alternative strategies
The above-mentioned options are the most frequently used and more popular shipping strategies. But you can think out of the box by mixing and matching the above approaches for an extremely overwhelming result.
Along with promotional opportunities, this approach allows you to balance your revenue needs. For instance, you can consider offering free standard shipping delivery and live rate options for second day and overnight delivery.
Opting for some additional and less orthodox shipping options will help you stand out from the crowd. For example, you can drive customers to your retail locations through the free in-store pickup. This method can pull additional traffic and sales at your brick-and-mortar locations.
However, for selling particularly heavy or large items, an LTL freight delivery option seems to be the right choice. This way you can manage to pare the costs down on your store while making it much easier for customers to place larger orders online.
5. Implementation & Analysis
With the right team at work, goals defined, and approaches opted for; it’s the time to implement the ecommerce shipping strategy. Everyone in your team must have a clear understanding of their responsibilities. This doesn’t mean you have to do everything all at once, but each team member should properly handle his/her responsibility in each step throughout the process.
The marketing team should effectively communicate your new approach to your potential customers while the web design or development team should set up the stage to implement these new approaches. The fulfillment team should be able to use these new options and handle each option the customer chooses, while the customer service team should know the benefits of each option you’re going to offer your customers.
Once the new approaches are implemented, it is the responsibility of each team to report how well things are going for them. Although these new approaches may take some time to bed down, you must have the evidence to back up your changes. Be ready to stick with it and make some modifications, as and when required.
Choosing the shipping strategy that’s right for you
Finally, you have to take the ultimate decision. An efficient shipping strategy can ensure your business’s success. It can improve your conversion rate, average order value, and sales of more profitable products. Depending on your profit margin and product and goal, you will be able to decide the strategy. If you want your e-commerce store to be successful, it’ll be worth your while to invest some time in determining and executing a purposeful ecommerce shipping strategy.
Shipping in e-commerce is a lot more than just delivering your product to the customers’ destinations. Shipping strategy is an essential part of your business profitability and brand awareness. When implemented and managed efficiently, this strategy can help foster repeat business while solidifying brand recognition.
Right shipping strategy can even help you gain new customers with powerful word-of-mouth marketing. However, if it goes wrong, you run the risk of unhappy customers, increased costs, and potentially a loss-making business.
Most of the entrepreneurs don’t realize how important and complicated shipping can be for their e-commerce business. Planning and implementation of a perfect shipping strategy can be a huge asset for any e-commerce business. However, from an operational standpoint, it can be critical and should be reassessed on an ongoing basis. With this comprehensive guide to help you out, you will surely be able to devise an effective ecommerce shipping strategy that will lead you to have a profitable business and long-term success in your endeavor.
Also Read: How to Calculate Free Shipping Threshold?