Friday, May 21, 2010

Shipping Considerations for Online Ecommerce Retailers

A significant expense for any online retailer is the order fulfillment process which includes the storing, packaging, and shipping of a customer’s orders. This is beyond the cost of sourcing the merchandise, regardless of what the business sells, plus marketing and other cost of sales expenses. Taken in total, all these costs have to be managed effectively for a business to maintain profit margins. A positive margin is obviously vital to the success for any online retailer. The good news is making the right decisions regarding the storing, packaging, and shipping components could possibly be the easiest to influence on that list with the most substantial impact for the betterment of your business.

The following are three main cost considerations for start up online retailers when it comes to shipping.
1 – Supplies. These include the packaging material (or dunnage) to fill around and protect the merchandise as well as the carton itself.
2 – Direct Shipping Costs. Your selection of who ships the order (USPS, UPS, Fed Ex?) and at what service level (Ground, Next Day Air, etc.) impact costs tremendously.
3 – Your Time. Is packing boxes, dealing with storage, and printing shipping labels the best use of your time? As a small business owner you should be asking yourself constantly throughout the day – Is what I am doing right now helping to make my business more successful?

Supplies – Basic shipping cartons in a limited range of sizes are free from the USPS, Fed Ex, and UPS. That’s a good option if what you are shipping fits and is not either too big or too small. Shipping a lot of empty space in every box with your merchandise is not efficient and many businesses prefer to exert more control over the customer experience with custom or specialized packaging for shipping orders. The packing material used to protect the merchandise comes in a lot of options – with some even being eco-friendly (such as styrofoam “popcorn” and expandable foam made from soy). The additional expense of customized packing materials and cartons has to be considered.

Direct Shipping Costs – The 3 main options for shipping small packages in the US are the USPS, UPS, and Fed Ex. All three offer a form of Ground (slowest and cheapest service) as well as several expedited (overnight, 2 day, etc.) delivery services. Volume speaks when you ship with UPS and Fed Ex so talk to your rep about volume discounts that will kick in once you hit certain volume thresholds. Watch out for residential delivery charges with UPS and Fed Ex. USPS pricing is generally lower – but service time are also generally slower and there are less shipment tracking options for the order as well. There is a hybrid solution in which a company (could be UPS, or DHL Globalmail, or several others) acts as a “mail integrator”. These companies pick up on their own trucks but then take the packages to the USPS who takes care of the final delivery. This set up works best in a business to consumer model and requires a minimum daily quantity of packages (usually about 250 per day).

Your Time – Again, is printing shipping labels the best use of your time? The excitement and desire to grow a business is what motivates most online business owners. Focus on helping customers fill their shopping carts.