7 ways to reduce eCommerce shipping costs

By Scott Taylor, Brand and eCommerce Manager at Reckless

7 ways to reduce eCommerce shipping costs

In the dynamic landscape of online commerce, minimising shipping costs has become a key concern for eCommerce businesses. Finding the balance between providing exceptional customer service and optimising operational expenses has never been more critical.

In this blog, we delve into how brands can cut down eCommerce shipping costs without compromising on the quality of service. From negotiating commercial rates and taking a profit-driven approach, to enhancing your customer experience and streamlining your online store’s returns process, here’s seven practical approaches to help reduce your eCommerce shipping costs.

💸Commercial shipping rates

A common mistake many ecommerce businesses 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 when compared to buying directly from a courier. For example:

Despatch Bay

TransGlobal

🚛 Talk to couriers

If sales start to build, you may be able to negotiate with couriers directly and receive not only better prices, but also increased shipping times and collections. For example, if you’re selling with Amazon, you can receive excellent rates by joining Amazon logistics.

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

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

Post purchase, they’ll want tracking numbers, delivery dates and times. Most prominent courier and logistics companies automate these via email and/or SMS but make sure they’re available because delivery can make or break your customer experience and chances of repeat purchase. Let’s face it, nobody wants to wait weeks for something they’ve bought and have no idea when it’ll turn up.

🆓Free shipping threshold

Offer free shipping for orders above a certain threshold. This encourages customers to buy more to qualify for free shipping, increasing your average order value and potentially covering the shipping costs.

However, setting a free shipping threshold isn’t something that should be done without a little research and care. Quite often many retailers succeed in increasing their average order value but cut deep into their margin. As the saying goes, revenue is vanity, profit is sanity.

Here’s how you ensure your Free Shipping Threshold is sane:

Calculate your Average Order Value (ensuring you exclude 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, you need to put it to the test:

Determine the difference between the proposed Free Shipping Threshold and the Average
Order Value (£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 proposed Free Shipping Threshold and the Average
Order Value (£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 end up paying £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 average order value, while also offering the customer increased value and incentive to buy.

Of course, all this is theoretical and 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 always think carefully and do the calculations before setting a single, free shipping threshold.

⏲️Estimated delivery times

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

This can be a particularly effective method at increasing 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 eCommerce shipping costs.

🗃️Package inserts

Make your shipped items work for you and upsell 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).

📨Returns management

Implementing a streamlined return management process to reduce the costs associated with processing returns and exchanges is an effective way to keep eCommerce 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:

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.

🏭Fulfilment Centres

Utilise third-party fulfilment centres 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 2x the cost of shipping.

To reduce the costs of shipping to these areas, consider fulfilment centres like Huboo, Whistl, Fulfilment Lab or Shft Fwd.

Summary

Shipping is an unavoidable eCommerce logistics cost, so spend time doing your research to find the best, most cost-effective solution for your business model and customer base. You’ll save money and provide a much better shopping experience for customers, so they’re much more likely to return when they need you.

A bit about Reckless
We’re an eCommerce 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 eCommerce brand to the next level, get in touch 👇