So, if you don’t offer fast shipping, you could leave potential customers with a bad first experience of your brand.
But next-day shipping isn’t the only thing to consider, as many businesses now offer free shipping for their customers. This is great for the consumer and your brand, as customers love the feeling of getting shipping free and it can significantly boost your sales.
However, this can have a massive impact on your profitability, so it is important to make sure you understand the financial implications.
My point here is that, when it comes to shipping, there’re a lot of elements to balance out.
In this guide, we will go through the end-to-end process for ecommerce shipping, plus some of the key things you need to consider when updating or creating your ecommerce shipping strategy for your brand.
If you’re a small business selling products on Amazon or Etsy, the ecommerce shipping process might be as simple as updating a spreadsheet and packaging up a product to be sent to the customer.
But, even if you are at this early stage, you should start to prepare and understand all the processes involved in professional ecommerce fulfillment.
The Ecommerce Shipping Process Explained
Shipping is one part of your overall order fulfillment process. Whereas fulfillment starts the moment an order is placed, the shipping part starts between the product leaving the warehouse to the customer receiving the item.
The shipping process has four main stages, and each one is an important part of the process and should have its own system.
Receiving an order
The first step of ecommerce shipping is the order being received by the warehouse.
If you have a good inventory management system, your order management system will already be connected to your front-end or customer-facing system, so the customer knows that there is stock available.
Once the order has been placed by a customer, a notification will be sent to the warehouse to prepare the order for shipment. This notification could be a simple email or a more sophisticated warehouse ticketing system that integrates with your OMS. You might also be using a third-party warehouse (3PL or Third Party Logistics) or an in-house warehouse.
Either way, the warehouse must receive the order in order to move to the next stage.
Processing, Picking and Packing
Once the order is received, the warehouse must verify the order and prepare the package for delivery with the correct packaging and shipping label. This stage could involve manually going to the warehouse shelf and removing the correct item, or it could involve a more technological solution.
Once the order has been picked, the order needs to be packaged correctly. This is an important step as the packaging is likely to influence your customer’s first impressions of your brand. For example, if you’re a fashion brand, you might want to have very pretty packaging, but, if you’re shipping glass, you need to make sure it is secure.
As soon as the order is ready to be shipped, the inventory levels need to be updated in your inventory management system to stop another customer buying the same item.
Unless you sell very specialised or large items, shipping the product to a customer will almost always involve using a third-party shipping carrier, such as DHL Express, FedEx, or Royal Mail. It is important you choose a partner that will work with you and the shipping terms that your customer expects.
For example, if you have promised next-day delivery, then you must make sure your shipping team can reliably ship their products on the next day.
It is extremely important that you know the shipping conditions for your shipping partners. For example, you need to know the size limits for different shipping prices and the cut-off time for ensuring a parcel arrives the next day.
Many ecommerce businesses now offer free returns on their products and, in fact, this has been shown to increase revenue for many brands. Some brands such as Amazon and Asos have found that customers are more likely to place an order with them if they offer free returns.
Some brands even offer prepaid shipping labels so the customer can return the product straight away if they don’t like it. This helps to create a fantastic customer experience, but it can be costly.
However you choose to manage your returns, they are an inevitable part of running an ecommerce store. It needs to be clear to your customers how they will be able to return their items.
The Main Things You Need To Consider When Shipping Your Products
The process of ecommerce shipping is a big part of your overall strategy. There are many tactics and smaller parts to the process that impact your customer’s experience and your bottom line.
Depending on the type of customer you have, your customers might have different expectations for the delivery method. It is important to do some market research here to see what your competitors are offering so you can match or beat them.
For example, you have the option of offering next-day shipping, and absorbing the cost, or making the customer pay for all or part of the shipping.
Other factors are whether you offer different shipping times and costs for different geographies.
Businesses in the US and UK, for example, often have different shipping offerings for different regions. Customers in the Scottish Islands or Northern Ireland often get charged more or have slower shipping times for example. Is this something your customers would be happy with?
Your business exists to make money. So, if you’re going to offer free shipping, for example, it’s important that your products have a big enough profit margin to absorb the cost.
If you are selling on marketplaces, you will also need to factor in the fees, such as FBA fees, as these can be quite high.
When I am working out the profit margin for my business, I always factor in the return rate, as some of the returns won’t be sellable.
Here’s an example of how I work out my profitability for products sold on Amazon, including the fees and returns:
Some shipping carriers charge for shipping by weight and some by volume. Some also charge more for shipping by the location of the address and how far it is from the origin address. When you are choosing a shipping carrier, you must understand how their rates work so you can make an informed decision.
Parcel Monkey has a handy calculator to help you compare the different carriers.
There are a huge amount of different carriers to choose from, and many of them have different requirements and fee structures. Some carriers are able to collect pallets and large items, and some carriers will not be able to handle pre-paid return slips. Do your due diligence to ensure that the carrier matches your requirements and is affordable.
Choosing your packaging is important as it’s the first impression a customer will get of your brand. The packaging needs to be secure, especially if the products are fragile, but it should also incorporate your branding.
The measurements the shipping companies take to charge you include the packaging. Therefore it’s best not to add too much bulky padding or unnecessary paper if you can avoid it, as these will add to the volume and weight.
Some shipping companies, such as UPS and FedEx, have pre-made parcels you can use to ship your products. This can be an easy way of guaranteeing your shipping costs and the parcels are very secure.
However, they are obviously branded with the FedEx or UPS logos all over them, so this might not be the look you want to go for.
If you are shipping your products from a marketplace, they will often have branded packaging included. This isn’t as much of an issue as the customer ordered the product from the marketplace, so that is where they expect it to arrive from.
If your product isn’t fragile, consider using a polybag or a mailer bag to ship your items. The reason for this is they are cheap and lightweight, and they can be branded easily with your company details.
Some companies, like Printful and Vista Print, offer a huge range of customisation options and some templates so you can make something look really professional without the need for a graphic designer.
What Shipping Methods Are Available?
Same-day delivery is a premium shipping option that was started by Amazon in cities such as New York and London. Whilst this isn’t an option for most ecommerce brands, there are carriers offering it, including Royal Mail.
It is much more expensive than other shipping options, but, if your business sells products that have a short shelf span, or are needed by customers immediately, then it’s a great option. For example, many shirt companies in large cities offer same-day delivery in case you spill coffee on yourself before a meeting!
2 day, Next Day or Expedited Shipping
Since Amazon started Prime shipping, all other ecommerce brands have been playing catch up. Nowadays, the 2-day shipping method in the US is seen as the standard shipping time. Whilst in smaller countries, next-day has become more common.
With more and more customers shopping solely on Amazon, you might need to offer similar shipping rates in order to compete.
We’ve seen growing demand for locally made products for a few years now, and that trend doesn’t seem to be slowing. But, often, local producers and brands want to sell their products to a wider audience.
Many customers are willing to pay a premium for high-quality products that can’t be sourced in the customer’s own country, and marketplaces such as Etsy, Wayfair, and Amazon Handmade have fuelled this trend.
International shipping has more complications than local shipping, and the fees can vary massively between different carriers. You also need to consider customs and taxes, which I discuss later in this article.
If your brand also has physical locations, you could give customers the option to collect the product directly from the store. Whilst this might involve you moving the products from the warehouse to the store, the customer will usually expect this shipping service to be free.
If you have a great inventory management system, you should be able to see your stock levels across all your stores to reduce unnecessary deliveries. Plus your customers could see if a product is in stock, and collect it straight away.
This is the model that companies, such as Argos in the UK, use for their fulfillment to create an omnichannel fulfillment system that customers love.
If you are a smaller brand you could also utilise an in-store style collection using a service such as Amazon lockers, or similar services from InPost or Evri.
Some marketplaces such as Amazon (FBA) and Walmart (WFS) have their own fulfillment services. Marketplaces can be a great way to get more customers buying your products, and the customer trusts the marketplace brands to have a reliable fulfillment service.
However, the trade-off for using these services is higher fees and you need to keep your stock in their warehouses. This is a fantastic way to get extra sales for your brand, but you might want to use them as a part of your overall shipping strategy rather than relying on them to ship all of your orders.
Ecommerce Shipping Costs
As we’ve discussed, there are a lot of different processes involved in getting your products from the warehouse to the customer!
That is why you need to understand all the processes we have been through before you can start to work out your shipping cost. Unexpected shipping costs can have a huge impact on your bottom line, so here are all the costs you need to consider.
Postage or carrier cost
This is the amount the carrier will charge you to get the products from A to B. When you are starting out, this could be something as simple as a stamp or a prepaid envelope. But, as your shipping becomes more sophisticated, your carrier’s charges will change.
Some carriers charge by the weight, and some by the volume of the product. But many carriers, especially larger international carriers such as UPS and FedEx use something called Volumetric or Dimensional weight. This is a formula that the companies use to measure your products to give a shipping price. Each company has a slightly different way of measuring this weight.
All of the packaging you use to send the product to the customer has to be included in your shipping cost and profitability calculations.
This includes the packaging of the product itself, plus any mailers or boxes you use and any safety packaging such as styrofoam blocks, packaging beans, or dunnage.
This includes the cost of your warehouse or 3PL picking and packing the products, and storing them. Most warehouses charge monthly storage on a per pallet or square foot basis, and then charge an additional fee for picking and packing each individual item.
Other costs and overheads
There may be other fees you need to understand such as monthly storage, insurance, software, and labeling or printing costs. Each business will be different here and might have a different inventory management system.
Marketplace shipping costs
Marketplaces generally include the shipping costs as a part of their overall fulfillment fee, which means the warehousing and handling are all included together.
Generally, these fees are measured on the volume and the weight of the product, as larger products use more space on the shelves.
The fees can be more expensive than shipping the products yourself, but the trade-off is the marketplace can bring you far more traffic than you would get for your own website alone.
Ecommerce Shipping Rates
As we discussed, the amount you charge your customers for shipping is an important factor in a customer’s buying decision. 66% of customers expect free shipping for their orders now, but that doesn’t mean the shipping is free for you.
If you are going to charge customers for shipping, then there are a few different factors to consider.
Real-time carrier shipping rates
Real-time carrier rates are the actual prices the shipping companies charge. The benefit of having real-time carrier rates is the customer knows exactly how much shipping costs, so it is the most transparent option.
This method also allows customers to understand why the shipping will be more expensive, for example, if they live in a remote location such as Hawaii or the Scottish Islands.
Another benefit of this method is that customers can see the prices for different shipping methods, such as next-day delivery.
Ecommerce platforms such as WooCommerce and Shopify offer plugins and APIs that integrate directly from shipping carriers to your website, so they can be very easy to install.
Flat rate shipping
This is the most old-fashioned kind of shipping rate, and you don’t see it with many modern ecommerce brands.
Flat rate shipping is where you charge the same rate to each customer regardless of the shipping address, weight of the product, the value of the order or any other variable that could affect shipping rates.
The benefit of this is the customer knows exactly where they stand and how much the shipping will be. The downside is that for some customers you might be undercharging, while some customers might feel that you are overcharging them for the shipping rate.
As we discussed before, store collection is a great option if you have physical locations. However, most customers will expect this service to be free as they’re doing the legwork!
A new trend for ecommerce brands is instant delivery, especially in large cities. Ecommerce brands such as Deliveroo and UberEats have pioneered this model with food delivery. However, more companies have started offering this for general ecommerce brands including startups such as Gorillas.io.
Most of these delivery companies will have integrations that can be easily installed on your ecommerce platform. When setting delivery rates for local delivery, customers expect to pay extra for it.
Generally, local delivery will only be available to people living within a certain area, and you can set up local delivery shipping rates on most platforms.
For larger companies, it is important to make sure that your inventory is updated regularly for local delivery, as the items will generally need to be very close to where the customer lives.
Local delivery is often charged on a zonal basis, with each zone covering a different radius. For example, you might have 3 zones covering 1 mile, 3-mile, and 10-mile radius, with each zone being charged a different amount.
For some businesses, it makes sense to offer different shipping prices based on the value of the basket. It is very common to see something like “free shipping for orders over $50” for example.
The benefit of offering free shipping at a certain threshold is that customers will often add extra items to their basket, increasing the basket size. Many ecommerce brands set the threshold at just above the average basket size.
For example, if you have a brand that sells t-shirts for $20, you might set the free shipping threshold at $45 to encourage the purchase of a third t-shirt.
Customers expect to access a tracking number so they know when the product will arrive. The tracking number is also important for you so you can follow up with the shipping company if there is an issue with the order such as a lost or damaged parcel.
All decent shipping carriers will offer shipping tracking and the tracking number will usually integrate directly into the shipping confirmation email. The tracking number should also feed directly into your overall inventory management system so a customer service representative can follow up with a customer.
Some carriers offer their own shipping software that customers can log into to track their order. This is a great option for new businesses, as there are no additional costs.
Shipping insurance will help you and the customer to get compensation if an order isn’t delivered in good condition. This becomes especially important if you sell fragile or high-value items, as the financial risk of losing or damaging the product is much greater.
Many carriers offer shipping as a part of their rates. Royal Mail, for example, offers insurance of up to £100 on returns. Check the insurance coverage offered by various carriers before making a final decision, especially if you sell high value or breakable products.
International shipping can become quite complicated, especially if you are shipping to countries that don’t have a trade agreement with your origin country.
Many countries have specific customs and tax forms that need to be filled in for international shipments, and customers might get annoyed if there is a big tax bill that they need to pay to get the products into the country.
It is important to be transparent with the customer if there are any potential customs fees, so I always like to have a clear disclaimer on the checkout page and on the order confirmation email.
Some of the different shipping carriers have different procedures with customs fees, so make sure you understand the policy before deciding on a carrier.
It isn’t uncommon to have a different shipping handler for your international shipments. In my business, I use Royal Mail for most local shipments within the UK and FedEx for my international shipments as they have an easy customs process.
Wrapping Up (No Pun Intended)
Shipping is so important for your business because it’s often the first time a customer has a physical interaction with your business.
On top of this, there are a lot of variables you need to consider, such as shipping speeds, different carriers, and how you package your product.
Like with every aspect of your business, there will need to be some experimentation to get the right fit for you.
The products I sell on Amazon have free shipping as they are stored in FBA warehouses. This works well, as I have factored the fees of Amazon into my profitability. For orders from my own site, I usually offer free shipping above $30 or £25, as my best-selling products fall just below this threshold.
The most important thing is to balance profitability with making as many sales as possible for each customer. Understanding all the concepts laid out in this guide will make that a whole lot easier.