7 Steps to Create a Cost-Effective and Customer-Friendly Shipping Strategy

Introduction

In the fast-paced world of eCommerce, shipping has become a crucial battleground for businesses. On one side, customers demand fast and free shipping, reminiscent of services like Amazon Prime. On the other, businesses grapple with the costs of fulfillment, especially when offering "free shipping." The challenge lies in finding a balance between customer satisfaction and cost management. This is where a well-crafted shipping strategy comes into play.

At FreightAmigo, we understand the importance of a robust shipping strategy. We recommend aiming to keep shipping costs between 15-20% of total revenue. However, it's essential to recognize that shipping can be more than just an expense - it can be a competitive advantage. When done right, an effective shipping strategy can drive conversions, improve customer retention, and foster loyalty.

In this article, we'll guide you through seven crucial steps to create a shipping strategy that's both cost-effective and customer-friendly. Let's dive in!

1. Consider Your Customers

The foundation of any successful shipping strategy is a deep understanding of your customer base. In today's Amazon-dominated market, online shoppers have high expectations, and they tend to favor brands that offer premium shipping experiences, particularly free shipping.

However, it's crucial to recognize that not all customers are the same. Recent research reveals some interesting trends:

• 54% of Gen Z shoppers expect same-day shipping
• 66% of shoppers (predominantly younger ones) expect free shipping on every order
• 70% of international buyers appreciate the option to add shipping insurance

These preferences can vary based on your product type as well. For instance, if you're selling small, low-cost items like phone cases, free shipping might be expected. For higher-value or bulkier items, customers are often more patient and understanding of shipping costs.

As you develop your shipping strategy, consider the following questions:

• Who is your target audience?
• What are their expectations regarding shipping costs and speed?
• How do these expectations align with your product type and value?
• Are you selling domestically, internationally, or both?

By answering these questions, you can tailor your shipping options to meet your customers' needs while keeping your costs manageable. Remember, your shipping strategy isn't set in stone - you can always adjust it as you gather more data and feedback from your customers.

2. Weigh and Measure

Before you can effectively price your shipping, you need accurate information about your products. Courier companies like USPS set their shipping rates based on several factors, including:

• Shipment weight
• Package dimensions
• Destination
• Delivery lead time (speed)
• Value-added features (e.g., shipping insurance, signature confirmation)

To get started, weigh and measure all items in your inventory, rounding to the nearest pound and inch. Don't forget to account for the weight of the box and packaging materials, as rates are assessed based on the total package weight, not just the item inside.

Record this information for each unique shipment. This data will be crucial when you're getting rate quotes from couriers and estimating your shipping costs per item. It will also help you calculate your average shipping cost and price your shipping in a way that's both sustainable for your business and acceptable to your customers.

As you gather this data, keep in mind that heavier items and faster delivery times generally result in higher shipping costs. However, for heavier items being shipped over long distances, flat-rate services (available from most domestic couriers) can be a cost-effective option.

3. Compare Courier Rates

With your product measurements and customer preferences in hand, it's time to start comparing courier rates. Your goal is to match each item in your inventory with the most cost-effective shipping service that meets your delivery speed requirements.

Couriers offer a wide range of services, some tailored for specific item sizes, weights, or destinations. While this variety can be beneficial, it can also make the research process time-consuming. Here are two approaches you can take:

Manual Comparison

Visit each courier's website and get estimates for each service. This method is thorough but can be tedious, as you'll need to enter full shipment details for each quote.

Use a Shipping Rate Calculator

Tools like FreightAmigo's shipping rate calculator can streamline this process significantly. These calculators provide real-time rates from multiple couriers based on just two data points: shipment weight and delivery destination. This approach saves time and makes it easy to compare rates across different services.

As you compare rates, pay attention to both cost and delivery speed. While it might be tempting to always choose the cheapest option, remember that delivery speed is a critical factor for many customers. Striking the right balance between cost and speed is key to a successful shipping strategy.

4. Factor in Global Considerations

If you're planning to sell internationally, there are additional factors to consider in your shipping strategy. Cross-border shipments are subject to import duties and taxes in the receiving country, which can add complexity and cost to your shipping process.

Here are five key steps to prepare for international shipping:

1. Research restricted and prohibited items in your target countries
2. Look up exact duty and tax rates for your shipments (based on value)
3. Decide whether you or the customer will pay these fees
4. If customers are paying, choose when to collect fees (in-cart or upon delivery)
5. Learn which customs documents are required for each country

While international shipping might seem daunting, it's often simpler than it appears. Most shipping couriers handle the customs clearance process and guide you through the necessary paperwork. At FreightAmigo, our Digital Logistics Platform can further simplify this process by automatically generating all required customs documents based on your shipment data.

Remember, not all shipments incur taxes, but it's wise to check which items in your inventory might cost more to ship on a per-country basis. This information will help you price your products and shipping accurately for international customers.

5. Account for Returns

Returns are an increasingly common and potentially costly aspect of eCommerce that your shipping strategy needs to address. While profit margins on returned items can be as low as 1%, a customer-friendly return policy can significantly impact your sales:

• 75% of first-time eCommerce site visitors are more likely to purchase if the company's return process is easy
• 67% of consumers read a company's return policy before deciding to purchase

However, "easy" returns often translate to "free" returns for the customer, which can be costly for your business. As with outbound shipping, the cost of return shipping labels depends on the package weight, dimensions, and distance.

To create a sustainable returns policy:

1. Consider the costs of returns for each item in your inventory
2. Determine if you can afford to offer free returns, especially for low-weight, inexpensive-to-ship items
3. For heavier items or those shipped to distant regions, consider charging for returns or offering store credit instead of refunds

Remember, while a lenient return policy can help secure sales, it's important to account for the potential revenue loss. With return rates averaging around 10% according to McKinsey, make sure to factor this into your overall shipping costs.

6. Calculate Your Shipping Costs

Now that you've gathered all the necessary information, it's time to calculate your shipping costs. Remember, these costs are shared with your customers, and online buyers are sensitive to shipping charges. In fact, 43% of buyers say that unexpectedly high shipping costs cause them to abandon their shopping carts.

There are four main ways to price your shipping:

1. Exact courier rates: Charge customers the exact amount quoted by the courier.
2. Flat rate shipping: Charge a single flat rate for each order, regardless of the actual shipping cost.
3. Free shipping: Offer free shipping on all orders, above a certain cart value, or during special promotions.
4. Discount courier rates: Use a Digital Logistics Platform like FreightAmigo to access discounted shipping rates from various couriers.

To determine which rates are right for your business:

1. Refer to your rate quotes from couriers
2. Match each item to a cost-effective shipping service
3. Ensure the delivery speed for each service meets your customers' expectations
4. Consider alternatives for shipments to different geographies

Many businesses use a combination of shipping services from different couriers to optimize costs for various items and destinations. Offering multiple shipping options at checkout, with different delivery speeds, can appeal to a wider range of customers. According to surveys, 66% of shoppers say that the shipping options offered by a merchant influence their purchase decision.

Setting Your Shipping Rates with a Profit Margin

When pricing your products, it's common to include the total cost to ship plus your desired profit margin. Here's a basic example of how to calculate this, assuming a 50% profit margin:

• Cost of goods: $10
• Shipping fee: $3
• Packaging costs: $0.50
• Credit card processing: $1.00
• Total cost: $14.50
• Price to sell the item at (including 50% profit margin): $21.75

Repeat this calculation for each item in your inventory to determine the right price for shipping in your cart software. If you use a Digital Logistics Platform like FreightAmigo, you can automate this process, including rate display and label generation, based on rule-based shipping preferences.

7. Implement and Optimize Your Strategy

With all the pieces in place, it's time to implement your shipping strategy. However, remember that creating an effective shipping strategy is an ongoing process. Here are some final tips to help you optimize your approach:

Monitor and Analyze

Regularly review your shipping costs, customer feedback, and sales data. Look for patterns and areas where you can improve efficiency or customer satisfaction.

Stay Flexible

Be prepared to adjust your strategy as needed. Market conditions, customer preferences, and shipping rates can all change over time.

Leverage Technology

Consider using a Digital Logistics Platform like FreightAmigo to streamline your shipping process. These platforms can help you compare rates, automate label generation, and manage international shipments more efficiently.

Communicate Clearly

Make sure your shipping policies and options are clearly communicated on your website. Transparency can help reduce cart abandonment and improve customer satisfaction.

Consider Seasonal Adjustments

Your shipping strategy might need to adapt during peak seasons or promotional periods. Plan ahead for these times to ensure you can meet increased demand without sacrificing profitability.

Conclusion

Creating an effective shipping strategy is a balancing act between cost management and customer satisfaction. By following these seven steps, you can develop a strategy that not only keeps your shipping costs in check but also turns shipping into a competitive advantage for your business.

Remember, shipping is more than just a necessary expense - it's an opportunity to enhance your customer experience and drive loyalty. With the right approach, you can create a shipping strategy that supports your business growth and keeps your customers coming back for more.

At FreightAmigo, we're committed to helping businesses navigate the complexities of shipping and logistics. Our Digital Logistics Platform offers tools and resources to streamline your shipping process, from rate comparison to customs documentation. Whether you're just starting out or looking to optimize your existing strategy, we're here to support your shipping needs every step of the way.