Strategy to Reduce E-Commerce Shipping Cost
Want to Keep E-Commerce Shipping Prices Down? You Need the Right Strategy
Fast, efficient shipping and distribution are vital to keeping your E-commerce customers happy. Whether you’re selling directly, or through a third-party marketplace like Amazon, eBay, or Jet, you need to balance shipping costs with reliability and customer expectations. We’ll break down your best options for sending products in the US, so you can deliver excellent products without destroying your profit margin.
The Quick Takeaway
Although we recommend reading this article and developing a proper shipping strategy, here are the key takeaways for choosing the best shipping carrier.
- If you are sending small, light packages, USPS has the lowest rates.
- For larger and heavier packages, FedEx is a little cheaper than UPS and much cheaper than USPS.
- Although they have slightly higher prices, UPS is almost always faster than FedEx and USPS.
- If you’re only sending small, light items, use USPS.
- If speed is more important than price, UPS is a great option.
- If price is more important than speed, FedEx is worth a look.
There are lots of factors that determine shipping prices and speeds, and we think it’s worth developing a proper strategy to take advantage. Let’s get into it.
Why You Need to Get Your Shipping Right
It’s fair to ask the question “Why do I need to spend time and effort looking into shipping?” We know online merchants are busy, and you have plenty to do, but spending some time on shipping and distribution can help you in several areas.
The Right Shipping Options Will Boost Your E-Commerce Profit Margins
Your profit margin is everything. Choosing the right shipper could save you a few cents or a few dollars on every item you send out. That might not matter too much if you’re only selling a few items a month, but as your volumes increase, it makes a big difference.
For example, you purchase a product and your all-in costs, excluding shipping to a customer, come to $12. You sell that item for $25, meaning a profit, before shipping, of $13. Shipping with carrier A costs $3.25 per item, whereas shipping with carrier B costs $2.50. With carrier A, your overall profit margin is $9.75 on each item and with carrier B, it’s $10.50. If you’re selling 200 items a month, choosing carrier B over carrier A would increase profits by $150 a month. Over a year, that’s almost $2,000.
Of course, you may charge customers for delivery to preserve your profit margins, and in those cases it still makes sense to keep your shipping costs down.
The Right Shipping Options Reduce the Costs You Pass To Customers
Keeping customer costs down is an important part of building better relationships and getting repeat business. A marketplace like Amazon will display shipping costs along with the item, which can affect if a customer buys from you. Having a lower shipping cost (or, better yet, “free” shipping, where you bear the cost) makes your products more attractive.
The Right Shipping Options Help You Delight Online Customers
Customers have come to expect more from online merchants. They want to receive products quickly, reliably, and in good condition. Carriers will have different service levels for speed of delivery, and choosing the right one for each item you send ensures customers get what they want. This helps to build long-term trust in your store and brand.
Even small changes to the cost and speed of delivery can make a big difference to cart conversions, customer trust, profit margins, and repeat business.
The Right Shipping Options Let You Meet Marketplace Requirements
Many popular third-party marketplaces, like Amazon and eBay, expect you to meet their standards for shipping. Meeting these requirements is necessary for you being able to sell on their platforms. They will need you to meet guidelines around shipping costs, quality, speed, and other areas.
This all means you need a shipping strategy. There’s a fair amount to get into here, and we’ll explain everything. Remember that if you want to save significantly on your shipping, it’s well worth spending a little more time right now.
Your E-commerce Store Needs a Proper Shipping Strategy
If you’re a successful E-commerce merchant, it’s very likely that you send several types of products to many different locations, domestically and internationally. This means a “one-size-fits-all” approach may not work for all of your shipping.
For example, shippers will charge different prices and have varying service levels based on:
- Smaller, easily handled items.
- Larger boxes.
- Multiple items delivered to one location.
- Specialized shipping, like food or perishable products.
- Awkwardly shaped items that need special handling.
- Domestic shipping to remote locations in the US.
- International shipping.
This means in some examples, the United States Postal Service (USPS) may be a great option, and in other cases UPS, FedEx, or a specialized carrier might be a better choice.
Choosing the Right Shipping Carrier Depends on Several Factors
A carrier’s “logistics operations,” how they get products from one place to another, will have a big impact on the pricing, speed, and quality of their services. This means you’ll want to choose shippers based on:
- What you’re sending.
- Where you’re sending it.
- The size and weight of the product.
- How fast it needs to get there.
- Various other factors.
This all comes through your shipping strategy, a collection of carriers that provide the right mix of speed, quality, reliability, availability, and price depending on your merchant and customer requirements.
A shipping strategy is really just a set of instructions that says “If this package meets these requirements, and it’s going here, use this carrier for the best price, speed, and service.”
How to Get the Right Price, Speed, and Service from a Shipping Carrier
Let’s explore what you need to do to create an effective shipping strategy so you can get the best rates and services. You’ll need to follow these steps to help you find the best shipping prices.
Define the Types of Products You Need to Ship with Size and Weight
Get measurements for all of the items you plan to send to customers. If you’re not handling the items yourself, it’s important to get the dimensions from the manufacturer. This will help you understand the size and weight of each item.
Calculate the Overall Box Size and Weight
Based on your average sale types and quantities, work out the size of boxes you will need for the majority of your orders. You will want to establish a few different shipping scenarios, based on common variations on orders. For each one, establish how many boxes you will need, and the overall dimensions and weight of each one.
Work Out Where You Will be Shipping Products
The shipping destination can make a big difference to the price. Look over your sales history and any markets you’re expanding into. Establish where most of your customers are to help you understand the most popular locations for deliveries.
Understand How Carriers Price Their Shipping Services
Once you know the sizes, weights, and destinations of your deliveries, you can look into carrier prices. It’s important to understand how carriers will charge you for shipping and delivery.
Carriers Tend to Use “Dimensional Weight” to Price Services
Many carriers use a concept known as “Dimensional Weight,” also known as “Dim Weight” to determine the base price to ship boxes. Here’s how it works:
- Measure the longest point on each side of a package (length, width, and height), in inches.
- Round each measurement to the nearest whole inch.
- Multiply the measurements together.
- Divide the total by the DIM Divisor.
- This gives you the total dimensional weight.
- The dimensional weight is used to calculate rates.
UPS and FedEx typically use dimensional weight for all parcels and packages. USPS uses dimensional weight for all items over one cubic foot in size (1,728 cubic inches).
Carriers Use DIM Divisors to Work Out Dim Weights
The DIM Divisor is simply a number you divide by to calculate the dimensional weight of a box.
- The current DIM Divisor for USPS is 166
- The current DIM Divisor for FedEx is 139
- The current DIM Divisor for UPS Daily Rates is 139
- The current DIM Divisor for UPS Retail Rates is 166
For our purposes, we will use the UPS daily rates, as those are the ones you will typically get if you arrange for pickup and delivery through an online account. That means you can use the DIM Divisor of 139 for FedEx and UPS, and 166 for USPS.
Using Dim Weight to Price Deliveries
Once you have the final dimensional weight, you can work out how much a carrier will charge.
A carrier will typically use the higher of either the “actual” weight of the box, or the “dimensional” weight, rounding each up to the nearest pound.
You have a box that is 15” x 12” x 12” which means the dimensional weight is calculated as 15.5 lbs. The actual weight of the box is 10.5 lbs. You will be charged at the rate for 16 lbs (15.5 rounded up).
If, instead, the box were the same dimensions but weighed 22 lbs, that is the weight a carrier would use to set the price.
Using Location to Price Deliveries
Most carriers will charge varying rates depending on how far the package needs to be transported. These are shown in rate tables, so it’s typically cheaper to send a package from San Francisco to LA than from New York to Sacramento.
Using Speed to Price Deliveries
Carriers will also charge more for priority items. If you want to send something for delivery in one or two days, that’s going to be a higher price than four or five days.
Other Charges Levied by Carriers
In addition to the charges for dimensional weight and location, you may face additional charges from carriers. Typical reasons for extra charges include:
- Fuel surcharges.
- States adding on surcharges.
- Special carrier liability coverage.
- Collect money on delivery services.
- Very large items.
- Hazardous material handling.
- Inside pickup or delivery.
- Various other factors.
Final Rates Charged by Carriers
The final rate you will be charged will be based on:
- The higher of the dimensional or actual weight.
- Where the delivery is going.
- How fast it needs to arrive.
- Other surcharges.
There may be ways to reduce that charge.
How to Keep Your E-Commerce Shipping Costs Down
The prices you see for shipping are not necessarily those you will get. There are a few things you can do to bring shipping rates down.
Create an Online Account
Dealing with your shipping needs online is almost always going to give you a cheaper option. Most carriers will offer their best base prices for you self-managing shipping, printing out your own labels, and ensuring items are ready for pickup.
Use a USPS Flat Rate Box
One option for less expensive shipping is the “USPS Flat Rate Box.” These are standardized boxes that USPS will deliver for a fixed fee. For smaller and lighter items, they are very competitively priced.
Never Use a Retail Location
You will always pay higher rates if you go to a UPS or FedEx store or one of their partners. This can make a significant difference to your overall costs.
Don’t be Afraid to Negotiate with Carriers
UPS and FedEx may both be willing to negotiate on their rates. Any discounts you get will largely be driven by the quantity of parcels you’re going to ship, and ensuring you meet all requirements for packing and pickup. It’s always worth picking up the phone and speaking to a sales rep to see if you can get a discount. Of course, this does also largely tie you to sending everything through one specific carrier so you can get your volume pricing.
Other Important Factors for Choosing a Carrier
While price may be the main factor in choosing the right carrier, it isn’t the only factor. You will also need to look at:
- Priority services and speed: What options does a carrier offer for urgent delivery, and how do those speeds and prices compare?
- Guaranteed delivery times: What guarantees does a carrier provide that they can deliver your items in time?
- Reliability: How reliable is the carrier and how often do items get lost? USPS isn’t considered as reliable as UPS or FedEx.
- International shipping: What are the costs for shipping items internationally?
Bringing it All Together and Comparing Prices
Now we’ve explained everything on what goes into finding the right carrier, let’s compare prices, based on size, speed, location, and carrier. Please note that these are prices for comparison only, and the actual rates you are charged may vary. We used the rates from Online Shipping Calculator to work these out.
Send a Parcel of 6” by 6” by 2” weighing 1 lb from San Francisco to Los Angeles
- USPS Parcel Select 7-day delivery: $7.46
- USPS Priority Mail 2-day delivery: $8.00
- FedEx Ground 4-day delivery: $9.12
- UPS Ground 2-day delivery: $9.98
Send a Parcel of 6” by 6” by 2” weighing 3 lbs from Chicago to Austin
- USPS Parcel Select 7-day delivery: $9.34
- FedEx Ground 4-day delivery: $11.33
- UPS Ground 2-day delivery: $12.40
- USPS Priority Mail 2-day delivery: $12.55
Send a Parcel of 10” by 10” by 4” weighing 6 lbs from Tampa to Phoenix
- FedEx Ground 6-day delivery: $14.87
- UPS Ground 2-day delivery: $16.28
- USPS Parcel Select 7-day delivery: $21.15
- USPS Priority Mail 2-day delivery: $25.90
Send a Parcel of 12” by 12” by 8” weighing 15 lbs from Washington, DC to New York
- FedEx Ground 3-day delivery: $13.41
- UPS Ground 1-day delivery: $14.66
- USPS Parcel Select 7-day delivery: $16.80
- USPS Priority Mail 2-day delivery: $23.60
Send a Parcel of 24” by 18” by 12” weighing 30 lbs from Boston to Raleigh
- FedEx Ground 4-day delivery: $25.13
- UPS Ground 2-day delivery: $27.46
- USPS Parcel Select 7-day delivery: $37.67
- USPS Priority Mail 2-day delivery: $46.30
Developing a proper shipping strategy will help you to balance price, speed, and reliability and delight your customers. Putting some effort into understanding your various options for sending products can help you stand out as an E-commerce merchant and keep your customers coming back.
Omer Riaz is an eCommerce strategist, Forbes and Entrepreneur contributor, and adviser to many eCommerce businesses. He is passionate about empowering others to maximize the potential of their brands as well.