How to make an effective e-commerce shipping strategy

How to make an effective Ecommerce shipping strategy: step by step guide

So, you have an ecommerce site, or are you planning to have one? You worked really hard with a great team and splurged hard-earned marketing dollars to drive consumers to your site. Now, finally, you crunched some data and observed some potential visitors on your site. They browsed your site, found what they were looking for and added it to cart. Everything was going smooth until they clicked “Proceed to checkout.” Suddenly they left their cart, and you lost a sale! You wonder what did possibly go wrong.

Does the situation sound similar to you? If yes, what may be the reason? You’ve spent a lot of dollars in designing your site 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. Well, chances are there is a fault in your shipping strategy.

According to Business Insider Study, 58% of U.S. online shoppers abandon the cart when the shipping costs make the total purchase more than expected. The success of the business highly relies on the right shipping strategies. Pricing too much could make you less competitive and make the customer leave the site, while charging too little can hurt your profits.

Having a smart ecommerce shipping strategy is one of the most impactful steps to grow your business online. Your strategic shipping will differentiate your business from the competition and increase margins.

We’ve got a 5 steps  to help you formulate an effective Ecommerce shipping strategy.

Let’s see one by one in detail

1. Build a potential shipping team

The first step of the process of building an effective ecommerce the shipping strategy is to identify the right people. A right team can help you make decisions for your business and make your strategy actually work. 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 commune shipping to your customer.  They will use strategies like free and flat rate shipping to exert a pull on the targeted customers.  All the strategies are described below in this, section.

  • Web design and development team

This team will be responsible for ensuring that the right shipping options are being shown to the customers at the right time. They also make sure that the offers are clear to the customer.

  • Fulfillment Team

No matter what happens, the orders must be 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 regardless of the choices and options placed by the customer.

  • Customer service team

You should be aware of how your approach to 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.

2. Set and define the goals for your shipping strategy

Once you figure out the key teams in your company for establishing your strategy, you must define what you want to achieve with your ecommerce shipping strategy. Here are the most typical areas of focus.

  • Boosting the conversions 

Conversion rate implies to 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 ecommerce site. If 100,000 people visit an ecommerce site during a month and 2,000 users purchased 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. The shipping options and rates have a massive impact on the conversion rate.

  • Adding to Average Order Value

Average Order Value (AOV) is the ecommerce metric used for measuring the average total of every order placed with a 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.

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 folks 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 the business where the sales to current customers and markets will be maximized.

Expanding the market is crucial for any business, and there is number of ways to accomplish this goal. Offering to ship to new areas or folks who couldn’t before access your products is a great idea. Moreover, you have alternate shipping options such as international shipping, in-store pickup or local delivery to extend your reach.

  • Decreasing the shipping costs 

By improving your fulfillment process and the shipping services, you can attract more potential customers. Smart shipping options can help you cut costs while ensuring a high level of service.

Managing the relationship with shipping provider and sourcing for a real-time calculator and shipping partner can help you minimize the costs by rates. A real-time calculator is a tool that can give you a better idea of pricing and costs.

Also, bring additional manufacturing in-house to cut additional costs from product manufacturing and enhance 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. Input can be costs, people, time or efforts that are incorporated into the business. However, the outputs would typically be revenue, 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. Purchasing new package types and using new services and walking through the fulfillment process helps to eliminate any unnecessary manual 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 choosing the best strategy. 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 available strategies with the pros and cons for each. Several of these options are implemented by the most successful business.

While choosing a shipping model, you’ll get several major options to choose from. Read on to find out.

  • Ship Yourself- Starter

For a startup business, shipping on their own involves shipping from home, writing labels and walking to the post office. 

  • Ship Yourself – Intermediate

This option may include shipping from home, automated label printing and package pickup from your courier.

  • Fulfillment warehouse

In this scenario, the orders are automatically received and shipped from a fulfillment warehouse.

  • Dropship

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.

Before going through any options, you need to approach the shipping industry key elements to have a clear picture of the entire shipping scenario. Here are the three crucial considerations you must mull over.

Shipping Considerations 

Hundreds of e-commerce surveys, polls and studies reveal that a success of a retailer highly relies on the right shipping rates and options provided by him to the customer. Getting this right is a bit tricky as when you charge too much you will end up with losing a customer. However, charging too much 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 an increase in revenue. You have to offer the lowest shipping rates possible but still cover your costs. Proving customer with the options they want will boost up the sale. Go through this list is given below to know how to determine what you can offer and when and why to maximize 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 approach are the best bet. In per item approach, the number of items included decides the price whereas in zone-based approach the shipping price varies with the customer’s location.

These two approaches work well and don’t rely on the product size or weight. Here is where you can build easy to understand promotions. For instance, like $15 shipping per order, $10 shipping per item or even free shipping over $50 and so on.

If you have products with varying sizes and weights, receiving rates directly from a carrier is a great way to make sure you’re offering the best possible rates to your customers. In this case, it is crucial to ensure that have accurate weights and dimensions so that you will 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 or lightest 20% and heaviest or 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 free shipping scheme that enables you to determine a standard rate per item, per shipping class or order. You can step a bit up by deciding the rates based on zones. For instance, for convenient destinations, a cheaper rate can be applied while the rate can be increased for the rest.

  • Managing your shipping options

A great shipping option can not only delight customers but also keep costs in check. Try to see beyond the big-name carriers to witness a world of opportunity. It is often seen that the find local delivery and courier companies in major cities deliver more quickly 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 must be known about.

  • Launch

This is the initial stage where you’re likely to receive just the occasional order sporadically without real consistency. 

  • 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. 

  • Growth

After the orders have picked up, shipping and fulfillment will take a large chunk of time to manage the growth stage. Increasing volume of orders and the need for services help to streamline the operations and shipping may feel chaotic.

  • Scaling/Infrastructure

A very high volume of orders is there in the scaling/infrastructure stage which demands to develop infrastructure or work with a 3rd party fulfillment warehouse to manage to ship.

4. Shipping Charges

A new customer visits your e-commerce site and finds a product they want at a price they like and then add it to their cart. All went well until they get to the checkout page and get hit with the shipping rate. All of a sudden they start giving a second thought to their decision of buying from your site. Suddenly the price that they thought to be fair starts to seem a little expensive.

There are two possibilities to happen next. Either they will continue shopping despite the increased costs, or abandon the cart and run off your website. In most of the cases, they abandon the cart. Thus your shipping strategy can be a critical element in the success or failure of 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 cause them purchase from your website instead of your competitor’s. The business offering free shipping has observed to outweigh the costs largely. Website with free shipping offer tends to get an increase in sales and increase in customer retention rates.

Offer free shipping when the buying amount reaches certain dollars. This can influence the customer to buy more to qualify for the free shipping offer. It is one of the effective ways to get your customer’s attention and increase conversion rates.

However, free shipping is never free, and it just means the shipping cost has shifted from the consumer to you. But first of all, you need to figure out whether free shipping makes any sense with your margin.

Large companies have left many consumers with the expectation that the shipping should be free. So offering free shipping can be a significant advantage for your website over any competitors that don’t provide the same perk.

For offering free shipping, you need to either absorb the cost or slightly increase your product prices to cover or offset the cost. Free shipping over a certain dollar is another way to employ free shipping on your product. This offer will help you increase your average order value (AOV).

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 free shipping on all orders that is 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, and 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 the free shipping.  Whether to provide free shipping on all orders above a minimum threshold relies on your margins, the niche you operate in and your competitors.

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 will be hard for a consumer to note. However, marking up your products to cover shipping costs isn’t a great option while you are operating in a highly competitive market where free shipping and the lowest prices are the standards.

In this case, it is easy 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 cost of shipping on most of your items.Exceptions is always there. Free shipping promotion is not suitable for large and heavy products like furniture as it can be extremely expensive. The shipping cost can cut into your margins significantly.

So a little of research, knowledge of how much each of your products actually costs to ship, competitors shipping strategy, your average order size, and profit margin can help you take the best decision.

  • Charge Real-time rates or exact costs

Some e-commerce site enables the consumer to set up real-time shipping quotes in the shopping cart. This implies that the checkout will be linked to your shipping partner and the customers will get a real 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. 

In some cases, you can end up breaking even between the shipping charges you collect and what you have to pay to ship the package. Once a customer gets to the checkout, they choose the location where they want their order to be shipped to, and the calculator does the rest.

Using a real-time calculator can help you win you a lot of trust with your customers. It indicates that you aren’t inflating your quoted shipping fees or increasing your item prices to cover the charges. Although, this method doesn’t have the same persuasion as free shipping it offers an easy for you to ensure you’re not draining shipping costs.  Your customer will get the best deal possible 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 rate on every package, weight ranges and order totals. Flat rate shipping is a method of shipping where the standard rate is charged to transport packages, regardless of weight or size. Online stores offer flat rate shipping to customers as an incentive. This approach of shipping demands a bit of preparation to determine your average cost of the shipping package.

It is the best practice to ensure that you don’t drastically undercharge or overcharge your customers. Hitting the right cost may lead you to a little over or under the actual shipping cost but it should even out in the end.

  • Free in-store pickup 

Instead of free shipping for online shoppers, promote free in-store pickup to sell up or enhance the brand affinity. In-store pickup is a process in which the customer can place their order online and pick it up at a store near them. Providing such intriguing shipping options may attract the potential customer, and it works best for retailers with brick and mortar locations.

  • Less than truck load freight carrier 

Less than truckload shipping is the method to transport relatively large goods or freight. If you have 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.

  • Same day delivery 

Many items 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 the perishable or time-sensitive goods. Retailers with multiple warehouses in distinct areas 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
  • Select an appropriate carrier to send 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 efficient shipping options and strategies you must consider.

Shipping strategies 

  • Free shipping 

The simplest strategy that is grown massively in hype is the free shipping. It is the holy grail of profitable shipping strategies.  But remember, 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 certain price amount and only on a specific product.

While making up your mind to offer free shipping to your customer, it is crucial to be aware of its impact on your bottom line. Although you will make more sales, you are losing money on each one, and it adds no benefit to your bottom line.

So, when to avail free shipping? Well, the smart move is to offer free shipping only for those orders that are gaining enough on the sale to reach shipping costs and still make a profit. Set a free shipping order subtotal threshold and exclude products that are too heavy or bulky for you to provide free shipping.

Advantages of free shipping 

  • It’s easy to understand for a customer and easy to explain
  • It meets the customer expectations.
  • It has a positive impact on conversion rates
  • Table-rate shipping

It is a bit complex and one of the most configurable extensions that enable you to create a table of shipping rates 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 by 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 the table.

Customers in the certain region prefer table-rate shipping. For instance, a retailer might charge customers near the city less price with rates going up as the customer get further away from the fulfillment center. Sometimes the charge is also based on the order subtotal. Alternately, you might charge according to certain groups of products or set rates based on the order weight.

  • Live rates from a carrier

If you wish to provide the best possible 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 shipping option where you will offer the cheapest possible shipping option with a price that is exactly what you’ll be charged by the carrier.

It is a bit difficult for promotional point of view as the rates may differ considerably based on what the customer orders and the distance from your warehouses to the customer. If you see many of your competitors are offering live rates in the market, it may be important for you to do so.

This means you can offer significantly cheaper shipping than your competition for lightweight orders or customers located 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.

If you want the shipping charge to cover things like packaging and your fulfillment costs, you can even add a surcharge.

  • Mixed and alternative strategies

The above three options are the most frequently used and more popular shipping strategies. But you can think out of the box by mixing and matching these approaches for an extremely overwhelming result.

Along with promotional opportunities, this approach allows you to balance your revenue needs. For instance, you can go with free standard shipping delivery while live rate options for second day and overnight delivery.

Opting for some additional and less orthodox options will make 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 large or heavy items, an LTL freight delivery option is the right choice. This way you can help keep costs down on your website while making it easier for customers to place larger orders online.

5. Implementation & Analysis

With the right team at work, goals defined, and approaches chosen; it’s time to implement your ecommerce shipping strategy. Everyone in the 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 their responsibility in each step of the way.

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 offer these new options. 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 approach is live, it is the responsibility of each team to report how well things are going for them. Although the new approaches 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 modification as you go.

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’ success. It can improve your conversion rate, average order value, and sales of more profitable products. Depending on your margin and product and goal, you will be able to decide the strategy. If you want your e-commerce site to be successful, it’ll be worth your while to invest some time in determining and executing a purposeful e-commerce shipping strategy.

Final words

Shipping in ecommerce is a lot more than just delivering your product to the destination. Shipping strategy is an essential part of your business profitability and brand. When done efficiently, the shipping strategy can help foster repeat business. 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 theirecommerce business. Planning of the shipping strategy can be a huge asset for business. However, from an operational standpoint, it can be critical and should be revisited on an ongoing basis. With this comprehensive guide to help you out, you are sure to devise an effective ecommerce shipping strategy that will lead you to have a profitable business.

One thought on “How to make an effective Ecommerce shipping strategy: step by step guide

  1. Hello, Great piece of information over here.
    From my opinion, it is important to train your shipping staff so they know your inventory. Knowing your sales cycles allow you to make your shipping more efficient by bringing in extra help and making sure you have plenty of the fast-selling items in stock and ready to ship.

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