How to reduce e-commerce shipping costs

How to reduce e-commerce shipping costs

By Scott Taylor, Brand and E-commerce Manager at Reckless

6 minute read

Reducing shipping costs has become a key concern for e-commerce businesses. Finding the balance between providing exceptional customer service and optimising operational expenses has never been more critical.

Exploring commercial shipping rates, enhancing your customer experience and streamlining your returns process are all great ways to reduce e-commerce shipping costs. In this blog, we’ll delve into how you can cut shipping costs without compromising on quality of service.

So, how can you reduce e-commerce shipping costs?

💸Explore commercial shipping rates

A common mistake many brands make is continuing to ship with public rates when commercial rates are available via shipping wholesalers. Commercial rates are generally 10% cheaper, but can be up to 140% cheaper than buying directly from a courier. Here’s a quick example to highlight the cost difference between Royal Mail vs Despatch Bay, and Evri vs TransGlobal.

🚛 Talk to couriers

If sales start to build, you may be able to negotiate with couriers directly and receive better prices, shipping times and collections. For example, if you’re selling with Amazon, you can receive excellent rates by joining Amazon logistics:

How to reduce e-commerce shipping costs
Amazon Logistics rates – August 2023

You’ll need to be shipping at least 200 units a day to be considered for Amazon, DPD or Evri’s logistics services, but it may be worth building these prices into your product margins and seeing if you can push sales further to qualify.

Whichever you choose, make sure they’re a logistics partner you trust and that compliments your customer’s buying journey. When visitors are considering buying from your website, they’ll want to know which delivery dates and shipping methods you offer so make these crystal clear. 

Post purchase, they’ll want tracking numbers, delivery dates and times. Most prominent courier and logistics companies use automated emails or SMS, but make sure they’re available because delivery can make or break whether a customer comes back to your brand. Let’s face it, nobody wants to wait weeks for something they’ve bought and have no idea when it’ll turn up. 

🆓Offer a free shipping threshold

Offer free shipping for orders above a certain threshold. This encourages customers to buy more so they qualify for free shipping and as a result, increases your average order value (AOV) and potentially covers the shipping costs.

However, make sure you research what your realistic free shipping threshold should be. Quite often many retailers succeed in increasing their AOV but cut deep into their margin. As the saying goes, revenue is vanity, profit is sanity.

Here’s a quick explanation on how to ensure your free shipping threshold is sane:

🧮Calculate your AOV (excluding shipping costs). For example £20
💸Determine your average shipping costs. For example, £5.00
💰Calculate your gross profit margin. For example, 25%
📨Propose a free shipping threshold. For example, £25.00 

Now that you have a proposed free shipping threshold, put it to the test: 

🧮Determine the difference between the free shipping threshold and the AOV (£25 – £20 = £5)
🫰Multiply the difference by the gross profit margin (£5.00 * .25 = £1.25)
💷Subtract the result from the average shipping cost (£5 – £1.25 = £3.75)

In this case, you’ll end up paying £3.75 per order to cover the free shipping which is over 60% of your increased gross profit margin. A bit too big of a hit to your bottom line.

Let’s try again with a £30 proposed free shipping threshold:

🧮Determine the difference between the free shipping threshold and the AOV (£30 – £20 = £10)
💰Multiply the difference by the gross profit margin (£10.00 * .25 = £2.50
📨Subtract the result from the Average Shipping Cost (£5.00 – £2.50 = £2.50) 

In this case, you’re going to pay £2.50 per order to cover the free shipping, which is 33% of your increased gross profit margin. A much healthier balance of profit to increase AOV, whilst offering your customers increased value and incentive to buy.

Of course, all this is theoretical. A lot depends on the weight and size of your items, and the shipping rates available to your business. However, the key message is to think carefully and do the calculations.

⏲️Show your estimated delivery times

Integrate real-time shipping calculators into your online shop that provide accurate shipping quotes based on your customer’s location and order details. This not only prevents undercharging for shipping (hello, Scottish Highland and Northern Irish orders!) but it encourages customers to buy when they can plan their purchase around their day to day life.

How to reduce e-commerce shipping costs
Example of estimated delivery times and dates

This can be a particularly effective way to increase your margin too when offering a Standard and Express/Next Day/Name Day shipping. Customers will be willing to pay a little extra to receive the certainty of the item arriving on a particular day, cutting down your e-commerce shipping costs.  

🗃️Add marketing materials into your boxes

Upsell to your customers by including marketing materials or promotional offers in your packages to encourage repeat business and offset shipping costs. This can be particularly effective when trying to acquire customers from one platform to another (warning, do not try this with Amazon orders, as this could lead to an account wide penalty).

How to reduce e-commerce shipping costs. Example of marketing materials for Feeds & Seeds.
Marketing materials for Feeds & Seeds
📨Streamline your returns process

Implementing a streamlined return management process to reduce the costs associated with processing returns and exchanges is an effective way to keep e-commerce shipping costs down.

It could be as simple as having a clearly structured returns policy, or as advanced as a returns portal that deals with all returns and exchanges for you. Either way, having a dedicated system to deal with customer returns is vital when trying to reduce costs. Here’s a great example by Mountain Dog.

How to reduce e-commerce shipping costs.
Mountain Dog’s returns management portal

Instead of a customer having to contact a customer service agent, they just simply pop in their order number, email and the reason they’re making a return. If it matches a certain criteria for a paid return, the portal will produce a return label. If not, the customer will be instructed to process the return at their cost.

As you can imagine, every eventuality has been thought out and this tool likely saves Mountain Dog precious operational costs while also making the returns process more convenient for the customer.

🏭Use third-party fulfilment centres

Utilise third-party fulfilment centres that are strategically located to reduce shipping distances. They can handle order processing, picking, packing, and shipping on your behalf, often more efficiently and cost-effectively.

This can be particularly effective if you want to continue selling to areas like Northern Ireland, Scottish Highlands and the various island locations dotted around Britain’s coasts. These locations can be quite expensive to ship to, often costing two times the cost of shipping. To reduce the costs of shipping to these areas, consider fulfilment centres like Huboo, Whistl, Fulfilment Lab or Shft Fwd. 

A bit about Reckless
We’re an e-commerce digital marketing agency with offices in Chester, Liverpool and Manchester. We help brands grow through custom websites, bespoke software development, paid media, SEO and online marketplaces. If you need a hand taking your e-commerce brand to the next level, get in touch 👇

Let’s talk

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