What are the Cost Components of Shipping an Order for an Online Retailer?

Posted on: September 5th, 2011 by admin No Comments

One of the largest expenses for any business that sells products online is the cost for order fulfillment. In total, the order fulfillment process includes the storage, packing, and shipment of customer orders that come through an online store. These costs are beyond the expense of sourcing and purchasing the products being sold (regardless of what the business might be selling) plus all the marketing and other various cost of sales type expenses. Taken all together, this long list of different cost items have to be managed effectively for a business to maintain an acceptable profit margin. It goes without saying, a positive profit margin is vital to the viability and success of an ecommerce retailer. Fortunately, making the right decisions regarding the storing, packaging, and shipping costs are likely the easiest on the list to impact for the better.

Below is a list of the three primary cost considerations for ecommerce retailers when it comes to packing and shipping customer orders.

  • Packing Supplies. These costs include the dunnage (or packing material) to fill in and around to protect the product, as well as the cost for the cardboard carton the goods are placed into. Basic shipping supplies and cartons from UPS, FedEx, and USPS are free, as is the logistics software they will provide – so that is one thing to take advantage of when you can. Of course shipping a lot of empty space in a bad fitting carton is a poor choice for a number of reasons. Your business may also prefer to brand packaging with a company logo and not a big UPS label! The additional cost of customized packaging has to be considered.
  • Direct Shipment Costs. The choice of who ships the order (whether it is USPS, UPS, Fed Ex) and at what service level (Ground, Next Day Air, etc.) impact costs often more than any other single item. Shipping Ground Service instead of Next Day Air can often save over 2/3 off the shipping cost. Of course it can also add 4 or more days on to the delivery time. Volume means a lot when it comes to shipping with FedEx and UPS, so make sure your contract stipulates that discounts on shipping will kick in once you hit certain volume thresholds. There is a “hybrid” option in which a shipping company (such as FedEx or DHL Globalmail, or various others) acts as a mail integration partner. These companies will pick the packages up on their own trucks but then move the parcels to the USPS who make the final delivery to the consumer. This set up works only in a business to consumer model and generally requires a minimum daily amount of parcels (typically 250 per day).
  • TIME. Is packing up customer orders in cartons, maintaining space for storage, and printing shipping labels the best use of your time? As a small business owner you should be asking yourself constantly throughout the day – Is what I am doing right now helping to make my business more successful? Managing your social media presence, marketing, or selling are all important priorities. Chances are you could make better use of your time than doing your own order fulfillment
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