Based on Baymard Institute’s 2019 research, the average e-commerce cart abandonment rate is approximately 70 percent, and one of the key drivers behind cart abandonment is the “sticker shock” that occurs when extra charges associated with shipping are presented at checkout. A December 2020 survey by RetailMeNot reinforces these findings, reporting 82 percent of survey respondents prefer free shipping to paying a fee to have their shipments expedited, and 70 percent prefer a lower price than waiting longer to receive their order.
Though Amazon has clearly normalized free same-day and next-day delivery, e-commerce retailers are often unable to absorb shipping costs, which typically account for up to 5% of the total cost, without significantly sacrificing their margins. RetailMeNot’s research also found that 63% of merchants have trouble matching or beating shipping deals offered by their rivals.
Minimize Parcel Shipping Costs
The key to offering free shipping is to find the sweet spot between costs and increased sales. How? Many companies are embracing free or expedited shipping to gain a competitive advantage, but also using the following four strategies to increase the profit per item shipped:
1. Implement Cloud Parcel Shipping Software
With consumer expectations mounting, many retailers turn to cloud parcel shipping software to keep shipping costs palatable while improving delivery speeds. Long used by retailers such as Belk and Men’s Wearhouse, cloud parcel shipping software can yield a number of benefits for companies hoping to compete by enabling them to automatically compare carrier rates, print carrier compliant shipping labels and documentation, track delivery, and simplify the complexity of returns.
2. Find the Pricing Model that Works Best
Retailers should be sure to choose the right pricing model. While any merchant can benefit from Cost of Distribution (CoD) reductions, cost savings will vary depending on the answer to one question: does my CoD represent a significant portion of my net landed cost of goods? In general, free shipping offers are better suited to high-margin items and/or low-shipping-cost items. Possible strategies to balance costs with profits include:
- Requiring a minimum purchase to qualify for free shipping
- Offering flat rate shipping for commodity items of a similar size and shape
- Integrating cloud parcel shipping software with e-commerce technology to present real-time shipping quotes to customers for oversized or heavy orders
3. Leverage Less than Truckload (LTL) Rates for Bulk and Oversized Shipments
For buyers with large orders and longer delivery windows, retailers can save upwards of 50 percent by choosing to ship using LTL services instead of parcel.
4. Consider Hybrid Mail Shipping
When delivery speed isn’t a priority, hybrid mail services such as UPS SurePost and FedEx SmartPost can cost substantially less than standard UPS and FedEx services, assuming package dimensions and size requirements are met. In hybrid mail shipping, packages originate with UPS or FedEx, but go to a United States Postal Service (USPS) sorting facility for final mile delivery. It’s important to note: hybrid mail shipping often leads to delays and parcel tracking may be unavailable, which means merchants who offer this carrier service for customer orders must position the option clearly as a niche choice for those who don’t care when their order arrives. Some merchants retain this as a delivery option primarily to give customers an alternative to premium charges for faster, traceable deliveries. In this context, merchants give a sense of control to customers, who decide if they want to spend extra to receive it faster.
Logistyx Can Help
Logistyx helps e-commerce and omnichannel retailers keep customers happy and costs in line. To learn more about how Logistyx streamlines and simplifies parcel shipping, download this Insider Q&A with our President, Ken Fleming.