The Guide to Offering Affordable 2-Day Shipping

Transcription

1 The Guide to Offering Affordable 2-Day Shipping

2 1 Introduction 2 Streamlining fulfillment across sales channels 3 Understanding shipping zones 4 Determining fulfillment center location 5 Distributing inventory to multiple fulfillment centers 6 Creating a shipping pricing strategy 7 Conclusion

3 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 3 1 Introduction You don t have to be an e-commerce expert to understand the vital role of fulfillment in the online shopping experience. Delivery speed and cost have become two pivotal factors affecting consumer behavior. An Arvato study found that slow and/or expensive shipping options can harm sales and increase cart abandonment: 53% of consumers say that speed of delivery is an important factor when it comes to evaluating their online orders. 54% of shoppers in the US have abandoned an order because delivery was too expensive. 25% of shoppers have entirely canceled an order because of slow delivery speeds. Why is this? Consumers expect Amazon Prime-like service free 2-day shipping everywhere they shop online. If they don t receive this experience, it s easy to browse another site and look for it elsewhere. The good news is that big box retailers aren t the only ones who can offer quick and inexpensive delivery anymore; Independent brands can now offer the same service and compete on shipping speed and cost to meet customer expectations. In this guide, we ll dive deep into how this strategy is made possible for e-commerce companies.

4 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 4 2 Streamlining fulfillment across sales channels At the backbone of an efficient delivery strategy is the fulfillment center network and technology to support it. If you are starting from the ground up, it can take years to build and fine tune this. Luckily, some third-party logistics (3PL) providers have already done this, and e-commerce merchants can utilize these 3PLs to grow and scale. Rather than building the logistics infrastructure in-house, a 3PL provides online retailers with the fulfillment and inventory management technology, network, and services to unify systems and ultimately meet customer expectations. Having the technology in place is the first step to automating order fulfillment, which in turn reduces manual processes and speeds up shipping. To have consistent service, you must connect all your sales channels to your fulfillment solution. When your fulfillment software integrates with the e-commerce platforms and marketplaces you sell on, you can automatically bring together your orders, shipments, customers, and inventory levels across fulfillment centers. You can fully customize shipping options and match the 3PL s carriers and services with what you offer on your shopping cart. As soon as an order is placed, the fulfillment software alerts warehouse staff to begin picking, packing, and shipping items in real-time. Since the fulfillment software powers the 3PL s network of warehouses, it can also send critical information back to your store(s). run reports to see which SKUs and sales channels are your highest sellers, and see which products aren t as popular. Of course, replenishing inventory at the right time and in the right quantities can be tricky. Fulfillment software helps you determine when you need to reorder inventory by letting you set the reorder point for each SKU, then automatically alerting you to reorder inventory when it reaches its minimum stock level. This helps you connect the upstream activities of purchasing and manufacturing to the downstream activities of sales and product demand. List of ShipBob integrations: Shopify Squarespace ShipStation Amazon Ebay Magento Backerkit BigCommerce WooCommerce Cratejoy Stitch Labs Walmart Returnly And more! Fulfillment software also lets you monitor the inventory you have on hand and units sold per day,

5 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 5 3 Understanding shipping zones Shipping zones play a key role in delivering on the promise of affordable 2-day shipping. By reducing the average transit zones of your shipments you will save in both cost and and transit time. Shipping zones are the geographical areas that carriers ship to, spanning from Zone 1 to Zone 9 for domestic shipments in the United States. Shipping carriers use zones to measure the distance a package travels not in miles but rather groupings of zip codes from the point of origin to the destination. The location from which an order is shipped is the point of origin and located in Zone 1. The address it s shipped to is the destination zone. The destination zone number will depend on how far it is from the point of origin, with Zone 8 being the farthest away. How do you calculate shipping zones? Zones are dynamically calculated based on where your package is shipped from. This could mean that two different points of origin that are shipping to the same destination address can be shipping to completely different zones. For example, if you ship from Los Angeles, California to St. Louis, Missouri, you are shipping to Zone 7. However, if you ship from Dallas, Texas to St. Louis, Missouri, you are shipping to Zone 4. Want to determine shipping zones for your orders? USPS Domestic Zone Chart: Navigate to the tab Get Zone for ZIP Code Pair. Simply enter the zip code you re mailing from and the zip code you re mailing to, and you will get the shipping zone for your destination. UPS Zones and Rates for the 48 contiguous states: Enter your zip code of origin and download zone charts to Excel. How do shipping zones affect cost? Shipping carriers use zones to calculate rates for certain services. Some services use a flat rate, letting you pay the same price regardless of the destination (as long as it s within the United States). USPS breaks down which services are zoned (Priority Mail Express, Priority Mail, USPS Retail Ground, and Bound Printed Matter) and which are not (First-Class Mail, USPS Marketing Mail, Library Mail, and Media Mail). In most cases, for services that are zoned, the greater the zone, the greater the cost. How does order weight affect shipping cost by zone? Besides the carrier and service used, as well as the origin and destination zip codes, exact shipping rates will also depend on order weight and dimensions. If all of your shipments weigh less than a pound, you won t see much cost savings as zones increase. This is because orders under one pound can ship for a flat price across the entire country, regardless of the zone they are shipped to. However, for shipments over one pound, you will see a lower shipping cost if you ship from a location closer to the end customer.

6 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 6 Understanding shipping zones Let s look at the following example: You need to ship a 20 pound box with the dimensions 4 x 9 x 12 inches. This box is particularly heavy and will be expensive to ship. As we can see from the chart below, the higher the zone, the greater the shipping cost. The lower the zone, the more manageable the cost will be for you and your customers. A note on dimensional weight: Shipping carriers use this pricing technique to estimate weight calculated from the length, width, and height of a package, using the longest point on each side. The shipping cost will be based on whichever number is greater: the actual weight of the package or its calculated dimensional weight. How do shipping zones affect delivery speed? If a package is shipped a shorter distance (e.g., Zone 1 or Zone 2), it will almost always arrive in fewer days than a package sent to a higher zone, like 7 or 8. Customers today believe the maximum acceptable amount of time to wait for their order is only 4.1 days (as compared to 5.5 days back in 2012). If all of your inventory is fulfilled from one location for example, out of New Jersey, as seen in the map below it can take 5-6 days to deliver an order to a customer in Oregon. Image source: UPS If you understand zone shipping, you can adjust your fulfillment strategy to better meet customer expectations around speedy and affordable deliveries. Not only will this help you improve efficiency by reducing distance and time in transit, but it can also help you generate more sales and improve your bottom line.

7 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 7 4 Determining fulfillment center location Now that we ve covered how shipping zones work, you might guess that where you fulfill orders from matters a great deal when it comes to the ability to meet customer expectations. To reduce shipping zones, you want to store inventory near your customers. This reduces the distance your order travels, the time it travels, and the cost spent. When it comes to fulfillment center location, outsourcing fulfillment provides much more flexibility than fulfilling orders yourself. But choose your 3PL wisely! With a fulfillment center in a large city, you are closer to larger pockets of the general population, as compared to being in a more remote area. The greatest benefit is that you are close to the majority of the buying power in the US, where your potential e-commerce customers live. Fulfilling orders in large cities can help you reach a high volume of people faster, as opposed to shipping from a less densely populated area that can t efficiently reach as many people. With continued population growth in big cities, using urban fulfillment centers is on the rise. If we look at the chart below, we see the population of the largest metropolitan areas in the US from A fulfillment center in any of the top cities listed below would be positioned to reach more people more efficiently. Image source: Statista

8 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 8 Determining fulfillment center location Similarly, you can identify major cities in the US on the map below by the darker marks. The redder the area, the greater the population per square mile, while the lighter areas are more barren. As you can see, highly populated regions are present throughout the continental US. That s why having fulfillment centers in different regions can help you reach various areas with a high population density. Image source: bl.ocks Getting a package from point A to point B can be easily done within one to two days when your inventory is only a dozen miles away from your customer, rather than thousands of miles away. Keep in mind that the location of your fulfillment center(s) will affect where you can offer same-day and 2-day deliveries. List of ShipBob fulfillment centers: Chicago, Illinois Brooklyn, New York Los Angeles, California San Francisco, California Dallas, Texas

9 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 9 5 Distributing inventory to multiple fulfillment centers Shipping your items from a single fulfillment center in a major city can greatly benefit the customers who live near there; however, your customers who are on the other side of the country will still have to wait longer or pay for expedited shipping via air. What s better than one urban fulfillment center is having inventory in several major cities throughout the country. After all, one of the major benefits of outsourcing fulfillment to a 3PL is taking advantage of their geographic footprint. The more fulfillment centers used, the greater your reach and the less money spent on shipping. In the maps below, we compare the use of one fulfillment center in the continental US with three fulfillment centers. The legend shows the color of each shipping zone, with dark green representing the closest and cheapest zone to ship to. As the zones increase, the colors shift to orange and darker shades of red. The yellow dots represent fulfillment center locations. When using one fulfillment center (in Los Angeles, California, as seen above on the map to the left), we see one region of the country is green, yet much more is red. If you re shipping to any of the dark red regions, the shipping rates will be higher, since it will go to Zone 8. When using three fulfillment centers (in San Francisco, California; Dallas, Texas; and Brooklyn, New York, as seen on the map to the right), there are many more green areas. We ve also eliminated Zones 7 and 8, leaving only a couple of areas that are in Zone 6. These three fulfillment center locations also provide coverage in highly populated states (e.g., California, Texas, and New York).

10 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 10 Distributing inventory to multiple fulfillment centers Using multiple fulfillment centers can help you offer 2-day shipping via ground in more regions, instead of relying on expensive air shipping. If we look at the chart for our 20 pound box example below, great cost savings would be realized by eliminating the highest shipping zones. The average shipping cost per order would dramatically decrease with the addition of each fulfillment center. Your 3PL should be able to help you determine your optimal fulfillment center locations based on your past customers zip codes. To help you figure this out, ShipBob created the Inventory Distribution Calculator, an Excel tool that s free to download. This template lets online retailers enter their products, inventory quantities, and a historic breakdown of items shipped to each zip code. The tool then provides recommendations on how to distribute your inventory across the country. Understand where your customers are located Analyze where your products are shipped to determine if you should fulfill orders from more than one location. Split your inventory across fulfillment centers Send your inventory to the 3PL s fulfillment centers that match your customers geographic footprint to reduce time in transit. Save money by reducing shipping zones A 3PL can find the fastest and most cost-effective option to get each order delivered to its shipping destination.

11 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 11 6 Creating a shipping pricing strategy Pricing your products can be challenging, but pricing shipping can be just as important. Unfortunately, there is no one-size-fits-all approach or formula that works in all scenarios, and e-commerce businesses must be strategic in their decision. We ve talked about how you can save money on shipping for your business, but what should you do to keep it affordable for your customers, too? How important is free shipping? As a consumer yourself, you are aware that getting something for free can influence behavior. A Walker Sands survey found that 90% of consumers view free shipping as the top incentive that would encourage them to shop online more often. Similarly, a FuturePay survey found that 86% of people abandon their shopping cart because of the cost of shipping. Offering free shipping is a great way to help prevent any unwanted surprises at checkout. Yet, with the high costs of shipping (and carriers increasing rates over time), many businesses may wonder how e-commerce companies afford to offer free shipping. It may even seem counterintuitive or impossible. The truth is there is no such thing as free shipping. Just as the popular economist adage states, There s no such thing as a free lunch; someone is paying for shipping one way or another. to their immense order volume, they are able to negotiate much steeper discounted shipping rates with carriers, but offering free shipping still takes a hit on their bottom line. Note: If you ship internationally, it is going to be much more expensive to ship orders. Every e-commerce business must find the right balance of driving more conversions and not breaking the bank. The most common options used to price shipping are: Bake the cost of shipping into the product price (using the average shipping cost). Require a minimum dollar amount to be spent to receive free shipping (to increase the average order value). Pass the cost of shipping on to the customer. Even for the largest e-commerce giants, shipping is far from free. According to a GeekWire analysis of Amazon s financial results from Q4 2016, Amazon lost $7.2 billion on shipping costs in Due

12 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 12 Creating a shipping pricing strategy Bake the cost of shipping into the product price Offering free shipping often means the perceived savings are hidden or inflated somewhere else. If you offer free shipping, there s a chance you will need to raise your product price tag to make up the money you re losing. You ll need to do the math and calculate the necessary markup. For more expensive items, this may be less noticeable. If you don t increase the product price, you may still find the increase in orders from a lower shipping fee makes waiving the shipping fee worth it. However, for cheaper items, you simply might not be able to absorb the cost of shipping. If your product costs $6 and the cost of shipping is $7, you are going to lose money by offering free shipping. In this case, the question isn t necessarily around if you should offer free shipping, but whether you can afford it. If increasing the price tag will result in you losing more customers than you gain by charging $0 for shipping, this might not be the best strategy for you. Require a minimum dollar amount to be spent By offering a minimum order requirement in exchange for free shipping, retailers can increase the average order value and make customers feel like they are getting a good deal. For this strategy to be effective, the minimum amount spent to qualify for free shipping should be larger than your average order size. According to a Shippo survey, 93% of shoppers will take action to qualify for free shipping, with the top action as adding items to their cart. If shoppers are trying to hit a minimum threshold, they may be a loyal customer stocking up, or they are simply spending more only because they know they will likely return some of these items. If this happens, you may need to make your returns policy stricter and determine if you will lose money on sales that are returned from offering free shipping in the first place. Pass the cost of shipping on to the customer Many retailers choose to pass the full cost of shipping onto their customers as a separate line item. While there are potential repercussions for this in the form of abandoned shopping carts, at least you can be sure to cover your costs. When someone is in a bind and they need your product ASAP, they may opt for an expedited option such as air shipping to get it in time. However, for most customers, they will turn to a competitor. As we ve talked about in earlier chapters, it s ideal to offer 2-day shipping outside of expedited air by using ground shipping and a network of fulfillment centers. Having customers pay the direct shipping costs or your average shipping cost may be your best option, but this is still different from trying to make a profit by charging them more than the cost of shipping. If shipping fees are too high, it can potentially hurt your conversion rate.

13 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 13 For businesses that use Shopify, ShipBob has a 2-Day Express Shipping program. How it works: When a customer checks out on your Shopify store and enters their shipping destination, ShipBob dynamically verifies the delivery zip code and the inventory on-hand at each of our fulfillment centers. If the order qualifies for 2-Day Express, the new 2-Day Express option will dynamically display in real-time as seen below. The 2-Day Express option adds a shipping option to your checkout that is only displayed to customers with a shipping address within the areas of coverage. It requires no extra work for you and still gives you control over the cost of the customer-facing 2-Day Express Shipping option. The guaranteed 2-day shipping is for customers who live in the shaded zones around the ShipBob fulfillment centers your inventory is in as seen below. The eligible zip codes are determined by ShipBob using its partner carrier networks.

14 SHIPBOB THE GUIDE TO OFFERING AFFORDABLE 2-DAY SHIPPING 14 7 Conclusion People shop online for convenience, a huge piece of which entails convenient delivery options. Offering 2-day shipping has become the norm, and making your customers wait can be costly. To be competitive, e-commerce merchants must find the right balance of affordability and speed for their shipments. A good fulfillment strategy can help you improve efficiency by reducing distance and time in transit, and also help you meet customer expectations around quick and affordable deliveries.

15 About ShipBob ShipBob offers simple, fast, and affordable fulfillment for e-commerce businesses and crowdfunding campaigns. With a network of warehouses across the US, ShipBob lets you split inventory across locations for faster and more affordable delivery. ShipBob s software seamlessly integrates with the leading e-commerce platforms to automatically fulfill orders as they are placed online. Learn more at shipbob.com.