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March 03, 2020

How to Reduce Small Business Shipping Costs

Shipping costs are an expense that can reduce profitability. The costs are inevitable, but they are manageable. How can you reduce the cost of shipping for your small business?

Use A Cheaper Shipping Method

Most of us only think of a handful of options when we think about shipping. We think of the common mailing options through the USPS, the ground service options from FedEx and UPS, and of course the premium air services that deliver orders to customers overnight or second day. However, there are other options that may be more economical depending on your situation.

FedEx’s SmartPost and UPS’s SurePost offerings are worth considering if your shipments are less than 70 pounds. These services give you the convenience of FedEx’s and UPS’s terrific services, with the economic benefit of having the USPS make the final delivery. You’ll also gain access to P.O. Boxes, including those for the armed forces and diplomates (AFO/FPO/DPO) that FedEx and UPS can’t deliver to directly. So which is better and why not just use the USPS? We have a great blog post about that titled: USPS vs FedEx SmartPost vs UPS SurePost.

If you routinely have shipments that are over 100 pounds, then LTL freight may be a more affordable option. LTL freight shipping rates are a bit more complicated than postal and parcel shipping rates, but LTL carriers can save you a ton of money in certain situations. They can even enable you to expand your product catalog to include things you haven’t thought of selling before. If you’re unfamiliar with LTL Freight, check out this resource: LTL Freight Primer: How To Make It Work For Your Online Store. We also have a number of articles in our blog that will get you up-to-speed quickly.

One truly unique service is UPS’s Ground with Freight Pricing or “GFP”. If you have larger shipments that would benefit from LTL freight pricing but can be packaged without a pallet and tendered to UPS’s parcel network, then this service should be of interest. If UPS approves you for this contract service, you’ll get the economy of LTL freight rates; avoid the cost of a pallet, strapping and wrapping materials; and gain the convenience of UPS’s robust parcel network. If your deliveries tend to be to residential addresses, you’ll also avoid the expense of LTL freight fees for residential and liftgate delivery.

Choose a Cheaper Shipping Channel

Sometimes, it is tempting to stick with one shipping company because it’s convenient. However, the company may be charging higher rates than what you might be able to obtain elsewhere. If you decide to shop around, don’t limit yourself to companies that you think of as direct competitors.

Some popular software platforms like ShipStation, Shipping Easy, and ShipRush may give you access to better discounts than you’re getting on your own. Companies that offer warehousing and order fulfillment services, like ShipBob, are also possibilities for lowering your shipping charges. And don’t overlook what’s available from your e-commerce platform if you’re using a fully hosted platform like Shopify.

If you think you’ve found favorable options through one of these third parties, pause a moment and do your homework. They all make fantastic savings claims that are based on the most extreme examples. Use some of your previous, most representative orders as test cases to see what your shipping costs would have been with the alternative you’re considering. Also, recognize that if you use one of these third parties, you’ll be giving up some degree of control. If there’s a problem, you’ll need to rely on them for a resolution.

Qualify For Better Discounts

The more you ship, the more willing shipping companies are to provide larger discounts. One way to qualify for larger discounts is to have your suppliers use your account to ship to you. You’re already paying them to ship your inventory, supplies, and materials to you, often at a marked up rate. You may be able to lower your costs by using your shipping account, and the additional volume may qualify you for better discounts and even more savings.

If you use this strategy, make sure you get the benefit of lower rates. UPS uses a 52-week moving average to determine the discount tier you have access to. If you’re a UPS customer, additional savings through increased volume should come automatically. FedEx doesn’t automatically adjust discounts, so you’ll need to give them a call if you believe your additional volume warrants better discounts.

Setting Up Distribution Centers Near Customers

Distance usually factors into shipping pricing. Setting up fulfillment centers near your customers can substantially lower the cost of shipping and the time it takes to satisfy your customers. Of course, there are other costs to consider.

Additional facilities and personnel add to your overhead and expenses in other ways. Fortunately, there are third-party logistics and fulfillment companies (aka “3PLs”) you can use to share the expense with other merchants with the same objective. Because 3PLs fulfill orders for many companies, they receive substantial volume discounts from shipping companies which they pass on (at least partially) to their clients.

Although you might be trading one expense for another, you may find that the savings in shipping costs offset (perhaps more than offset) the additional costs of using a 3rd party fulfillment company. If it delights your customers and increases your sales, it’s an option worth considering.

Shift the Cost to Consumers

Adding shipping costs to the price of a product is another way to reduce small business shipping costs. The strategy enables you to offer “free” shipping while recovering the costs of it in the amount paid for the order. This strategy is easier to implement if you are using a flat rate shipping service like FedEx OneRate or USPS’s Flat Rate services.

A lot has been written about consumer behavior regarding free shipping. If you decide to pursue this strategy, be careful! If you’re upside down on your shipping costs you might not be in business for long. Carefully consider proven strategies for how to offer an option for free shipping.

Use The Optimal Package Dimensions

Parcel carriers use billable weight to compute the cost of a shipment. Billable weight refers to either the actual weight or dimensional weight, whichever is greater. The actual weight is just that, the actual weight of the package rounded up to the nearest pound. To get the dimensional weight of a package, multiply its length, width, and height and divide the result by 139. You need to round up the dimensions to the nearest whole inch and the dimensional weight to the nearest pound.

If it’s possible, you always want the actual package weight to determine what you pay for shipping. If you find that you’re routinely billed for shipping by dimensional weight, then you need to explore how you can reduce the dimensions of your shipments. Failing to understand how package dimensions inflate shipping costs is the most common shipping related oversight of SMB online merchants.

Use Free Packaging When Possible

Shipping companies provide free packaging materials for certain services. Free packaging is available if you use “premium” services like 2-day are or overnight delivery. In other words, you’re not shipping the order the cheapest method available from the carrier.

Your customers may not choose expedited shipping options often, but when they do you can save yourself the expense of packaging supplies if the order will fit in the supplies the carrier is willing to provide for free. The savings may seem insignificant, but if you’re trying to be as lean as possible they can add up.

Affinity Programs

It’s fairly common for shipping companies to offer affinity programs to the members of large associations. The most common type of association that receive these benefits are professional organizations. But other organizations, like some credit card companies, have negotiated shipping rates that you can take advantage of if you’re willing to charge your shipping expenses (and perhaps get cashback, miles, or other benefits).

Don’t underestimate how advantageous affinity programs can be. Explore the associations you’re a member of and see if they can make a difference in what you pay for shipping. You may be pleasantly surprised.

About Eniture Technology

Eniture Technology specializes in helping e-Commerce merchants grow by providing useful information, digital marketing services, off-the-shelf apps that solve common problems, and custom programming services. Please contact us if you need help growing your online business or implementing the concepts presented in this blog post.

Interested in learning more? Check out our free guide, A Beginner's Guide To E-Commerce Shipping and subscribe to our blog!

A Beginner's Guide To E-Commerce Shipping


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