Shipping and Fulfillment

8 Innovative Ways to Reduce Ecommerce Shipping Costs

Aaron Sullivan
February 21, 2024

Ecommerce shipping costs can be a thorny issue for both retailers and consumers. As a business owner, you're constantly on the lookout for ways to make your operations more efficient without compromising customer satisfaction. As a shopper, nothing dampens the excitement of an online bargain like a steep shipping fee at checkout. But what if you could have the best of both worlds — exceptional service without exorbitant shipping costs? 

In this blog post, you'll learn 8 strategies to trim your ecommerce shipping expenses without sacrificing quality. 

1. Reduce package dimensions

When it comes to shipping, size matters. Major carriers like FedEx, USPS, and DHL often calculate shipping rates based on dimensional weight pricing. This method considers both the actual weight of the shipping package and its dimensions. Bulky but lightweight packages can cost as much as small, heavy packages. This pricing model can be especially costly for small businesses that haven't optimized their packaging. If you're running a small business, this model can take a chunk out of your profit margins.

Here's how to combat this issue:

Become a packaging pro with custom-fit solutions

Standard-sized boxes may offer convenience, but they often come with a hidden cost: wasted space. By switching to custom-fit packaging that matches the dimensions of your product, you're effectively reducing the package's volume and, consequently, its dimensional weight. The result is a more efficient use of space and potentially lower shipping costs.

Master the art of multi-product packaging

If you frequently ship multiple products in a single order, consider packaging solutions that can accommodate several items efficiently. Custom inserts can help position multiple products securely in a single package, reducing the need for multiple boxes.

Optimize packing materials

While it's important to ensure that your products are well-protected during transit, excessive packaging materials like bubble wrap and foam peanuts can add to the dimensions. Consider streamlined alternatives like air pillows or inflated poly mailers. These provide excellent protection while conserving space, making them a win-win for both the customer and your bottom line.

2. Decrease shipping distance

Most major carriers use shipping zones to determine the cost of shipping a package. The further the shipping zone from your location, the higher the shipping fee. This is due to increased fuel surcharges, greater risk of package loss or damage, and longer delivery times. For shorter and cheaper routes, try the following:

Optimize warehouse locations

Location, location, location — it’s not just for real estate. The closer your products are to your customers, the less you'll have to shell out on shipping.

Use regional carriers

Big names in shipping are great, but don't overlook the little guys. Consider partnering with regional carriers who may offer lower rates for local deliveries. They often offer competitive rates for local shipments and may be open to negotiating deals. Their proximity could also mean faster deliveries, thereby improving customer experience.

Split shipments strategically

If you have multiple fulfillment centers, split shipments to make sure each package is sent from the location closest to the customer. This will result in shorter shipping distances and lower costs.

Implement zone skipping

Zone skipping is essentially the shipping equivalent of a layover on a direct flight. You send your packages in bulk to a nearby distribution center, which then sorts and forwards them to their final destinations. The technique is called “zone skipping” because it allows your packages to bypass multiple shipping zones, reducing the distance they travel through more expensive zones. It's a detour that actually saves you time and money — quite the paradox, but it works!

3. Build shipping costs into pricing

Free shipping: the two words that can make any shopper's heart sing. It's the ecommerce equivalent of finding a twenty-dollar bill in an old coat pocket. In fact, 76% of online shoppers admit that free shipping motivates them to hit the “buy” button. However, offering free shipping can be a double-edged sword for business owners because it eats into profit margins. The solution? Build shipping costs into the pricing of your products. Here are two ways to do that:

Adjust product prices

One straightforward approach is to include the cost of shipping in your pricing. If a product costs $20 and the average shipping cost is $5, you might think about pricing the product at $25 and offering “free shipping.” Zappos has achieved strong customer loyalty in part because it offers free shipping that’s included in the price of the product.

Offer free shipping thresholds

Another strategy is to set a minimum purchase requirement for free shipping. This can encourage customers to buy more, thus increasing your average order value. Make sure to set the free shipping threshold just above your current average order value to incentivize additional purchases without scaring customers away with a too-high minimum.

4. Bundle items

Bundling is the practice of selling multiple products together as a single package deal, often at a discounted price. Not only does this strategy increase the average order value, but it also offers a way to reduce shipping costs per item. When items are bundled together, they are generally shipped in one package, leading to less expenditure on shipping supplies and labels.

The math behind bundling is fairly straightforward. Assume the cost to ship a single item is $5, and the cost to ship three separate items to the same location is $15. However, if those three items are bundled together, the shipping cost might only be $7 or $8 — leading to savings that can be passed on to the customer or added to your bottom line. Here are a few bundling strategies you can use for your ecommerce store:

Complementary bundles

Combining items that naturally go together enhances the customer's overall experience. For instance, a coffee maker could be sold along with a grinder and a set of coffee mugs. It's not just convenient; it's an intuitive way to shop.

Seasonal bundles

Just like pumpkin spice lattes in the fall or fireworks on the Fourth of July, seasonal bundles have their own allure. For example, during the back-to-school season, an electronics retailer could bundle a laptop, headphones, and a mouse at a discounted rate.

Tiered bundles

Offering tiered bundles adds another layer of choice. This is when customers can choose from different bundle sizes with increasing discounts. This can entice them to go for a higher-value bundle, increasing both your sales and the cost-effectiveness of shipping those items.

5. Use third-party logistics (3PL) providers

As your ecommerce business grows, managing the complexities of shipping can become a challenging task. This is where third-party logistics (3PL) providers come into play. 3PL companies work as intermediaries between retailers and shipping carriers. They can handle various aspects of your supply chain, from warehousing to shipping, making your shipping process not just manageable but more efficient. Here are some of the financial upsides of outsourcing to a 3PL service:

  • Economies of scale: 3PL providers can offer economies of scale by combining the shipping volumes of multiple businesses. This results in lower shipping rates, thus reducing your overall shipping costs.
  • Professional expertise: With 3PL providers, you’re tapping into a wealth of logistics knowledge. They have the experience to optimize shipping routes, packaging, and even carrier selection, which can translate to more cost savings for you.
  • Reduction in overhead: Managing your own warehousing and shipping can be costly. 3PL providers can significantly help reduce these overhead expenses, freeing up resources for other aspects of your business.
  • Flexibility: 3PL providers often offer a range of shipping services and pricing models, giving you the flexibility to choose what suits your business best.

There are plenty of 3PL providers you might consider for your ecommerce business, including familiar names like Amazon Fulfillment Services, FedEx Fulfillment, and DHL ecommerce Solutions.

6. Offer local pickup options

Offering a local pickup option is a smart move that can eliminate shipping costs for you and your customer.

Each shipment that gets switched to local pickup means one less shipping label, one less package to prepare, and one less item to be transported. Those "lesses" add up. By slashing the number of packages that actually need to be shipped, you can significantly cut down your overall shipping costs. This can be especially beneficial if you're offering oversized items that require special packaging and high shipping costs.

Furthermore, local pickup options can help you build stronger relationships with your customers by providing them with an easy way to get their items quickly and safely. Additionally, it can provide a more positive shopping experience as customers can avoid the hassle of waiting for their items to arrive in the mail, which can often take days or even weeks.

7. Utilize bulk shipments

Shipping items individually can become a financial drain on your ecommerce business, given the high shipping rates from some of the largest carriers. By leveraging bulk shipments, you can unlock substantial cost savings and make your shipping process more efficient. This is because most major carriers often offer discounted rates for bulk shipments, significantly lowering your overall shipping costs. These discounts can sometimes be negotiated further, leading to even greater savings.

Here are a few strategies for negotiating bulk rates:

  • Research different carriers. Don't limit yourself to a single shipping company. Research options, ask for bulk shipping discounts, and negotiate for tailored pricing. These will provide you with a pricing structure specific to your needs and can result in a better long-term relationship with your carrier.
  • Understand your shipping volume. The more accurate you are about your shipping volume, the better you can negotiate bulk rates. Knowing your exact volume gives you a stronger negotiating position and helps you identify which discounts or pricing tiers you may be eligible for.
  • Commit to a minimum number of shipments. Some carriers may offer lower rates if you commit to a minimum number of shipments per week or month. This commitment gives the carrier assurance of consistent business from you, making them more willing to offer you discounted rates.
  • Utilize 3PL services. A good 3PL provider can also handle bulk shipments efficiently and may even negotiate rates on your behalf. Using a 3PL provider not only outsources the logistical complexities but also leverages their expertise and existing relationships with carriers to potentially secure better rates.

8. Offer shipping protection plans with Extend

Shipping protection plans offer a twofold advantage — they enhance customer confidence and reduce operational strain. By acting as a safety net, these plans help cut down on costs related to solving issues like refunds or sending out replacement items. What's more, they take care of the administrative work and costs involved when a customer's service request is approved. This not only benefits your customers but also has a positive impact on your bottom line.

Extend Shipping Protection, for example, offloads much of the service request resolution process, enabling your customer service team to focus on other areas that drive customer satisfaction and retention. Plus, you cut down on overhead since Extend absorbs the costs of both replacement products and their shipping.

Businesses that have partnered with Extend report an uptick in attach rate — the percentage of customers choosing shipping protection during checkout. For example, Glamnetic, a well-known figure in the beauty industry, collaborated with Extend to provide extra security against lost, stolen, or damaged packages. Within just six months, the brand generated nearly $100,000 in total contract sales and an impressive 68% attach rate.

Learn more about Glamnetic's success story here, including how Extend Shipping Protection not only increased revenue and margin but also boosted their overall purchase conversion rates by 6%.

Master the art of cost-effective and customer-centric shipping

In the competitive ecommerce space, every penny counts. From optimizing packaging to exploring bulk shipping discounts, the array of shipping methods we’ve delved into are designed to give you an edge by reducing your shipping expenses. But cost-cutting shouldn't be your only goal here.

It's crucial to adopt a balanced strategy that serves dual purposes — minimizing expenses while enhancing customer value. By offering customers a variety of options and taking a comprehensive approach to shipping, you can ensure that you're both cutting costs and delivering an optimal customer experience.

Schedule a demo today to learn more about Extend.

Aaron Sullivan
Aaron Sullivan is senior content marketing manager at Extend. He specializes in writing about e-commerce, finance, entertainment, and beer.

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