Regardless of if you’re a small business practicing self-fulfillment or have partnered with a logistics company to relieve some of the shipping burden, you know how important a lean yet well-oiled fulfillment strategy is to your brand. Consumers have high expectations—studies show that Amazon has had an undeniable impact on the consumer’s expectation for quick, free delivery—and sometimes they outweigh your ability to, quite literally, deliver.
The key is to find a delicate balance between trimming your fulfillment budget and keeping shipping costs acceptable to your target audience. For most of us, that means getting a little bit creative with how we fulfill, where we fulfill and even what we fulfill. On top of all this, fulfillment costs directly coordinate with your business’s success. When your sales increase, so do your fulfillment costs. So, adopting a budget-friendly approach early on is extremely important.
Of course, we’d recommend starting any reorganization or trimming by giving your shipping and fulfillment approach a little bit of a shakedown. While it’s notoriously hard to know exactly how much you should be setting aside for fulfillment—your budget should be tailored to the type of business, whether you require any special material handling, have special packaging needs and other considerations—you should still be sure to evaluate your current budget and goals before making any adjustments.
Even though it’s often overlooked in budgeting, shipping costs businesses a lot of money—it can account for as much as 25 percent of your overall costs. At the end of the day, you can always do better. And when you shave off some of that budget-sucking fulfillment overhead, you can pass the savings on to your customers.
Trim Down Packaging Costs
Fulfillment should cover end-to-end logistics—receiving, processing, storing, shipping and final delivery. Cost-wise, all of these steps are calculated differently, but one thing unites them along their journey: packaging. For example, boxes cost more to store in the warehouse than envelopes, and heavier packaging weighs down your load, making shipping and freight more expensive. If you need to rein things in at every rung of the fulfillment ladder, start with your packaging costs. There are two main metrics to focus on here: your cargo’s size and weight and how you can eliminate damage to prevent higher costs.
1. Prevent Mistakes — It may seem counterintuitive, but it’s actually a good idea to spend a little bit of money up front in order to prevent goods from becoming damaged, lost or mis-delivered along the way. Let’s say, for example, that you skimp on your packaging and wind up with broken goods that you have to replace—not to mention the cost of refunding the customer. Starting with quality-made packaging, clearly placed barcode labels and verified addresses will help eliminate risk.
2. Choose Parcels Wisely — The simplest thing you can do to reduce fulfillment costs is to reduce the actual cost of the package itself, especially if you practice self-fulfillment. You may remember when Amazon swapped out cardboard boxes for bubble envelopes last year in an effort to lower packaging fees and curb their environmental impact. This is a lesson for all of us: Boxes aren’t a one-size-fits-all solution. In fact, much of the time, you’re paying for empty space when you throw everything in a box. Spend some time exploring different types of shipping envelopes instead.
3. Think About Weight — One of the main reasons why cardboard boxes cost more to ship than flat envelopes is because they increase your shipment’s dimensional weight . This metric identifies packages that are large yet lightweight—think of a small kitchen utensil, for example, shipped in an oversized cardboard box (yes, we’re thinking about Amazon). A parcel that’s too big could double, triple or even quadruple your shipping costs for that item. So, don’t just think about how much a parcel weighs, make sure to consider how much space it takes up, too.
4. Buy in Bulk — Depending on the variety of products you ship and whether or not your inventory changes rapidly, buying packaging in bulk may be a good way to save money. But it also opens up the doors for potential over-spending and over-warehousing. Make sure you have a reliable prediction model in place before you make any big packaging orders and take into account the fact that storing large quantities of packaging comes at a cost, too.
5. Leverage Your Labels — One of the things we often overlook when budgeting for packaging is the label. It costs you and your employees valuable time to hand-write labels and can cause confusion and issues if labels are not printed clearly and accurately. Small businesses especially can benefit from investing in a thermal label printer to replace handwriting; USPS actually recommends this because it makes labeling more professional and prevents labels from falling off the package. A thermal label printer can also create branded, custom labels for a more professional look.
Invest in Technology
Everyone knows that robots do the majority of the picking and packing these days, but you don’t have to go full-on automated to get the most bang for your buck in the fulfillment category. The key is to invest in technology that helps you make the smartest possible decisions—primarily with regard to when and how to ship. Because, let’s face it, a system that relies on algorithms and big data to make wise decisions is probably going to help eliminate some human error.
6. Upgrade Your Barcoding System — Using a powerful, easy-to-use barcode software is a smart way to create custom barcode labels whenever you need them. As previously mentioned, clear and well-designed barcode labels can help eliminate costly shipping mistakes, but they can also curb data entry errors and tracking issues. Barcode technology also helps ensure that all your goods are accurately stored and tracked, allowing you to give updates to the customer along the route.
7. Prioritize New Equipment — Whether it’s something as small as a tape dispenser or as large as a palletizer, you can’t let equipment hold you back. We’re not suggesting that you upgrade every time a brand-new packaging solution comes onto the scene—which seems like every day these days—but instead noting the importance of moving along with technology to meet the changing demands of the landscape.
8. Trust in Automation (Sometimes) — Automated software and equipment is nothing short of pervasive in fulfillment, especially in the modern warehouse. There are many scenarios where you can leverage this to lower your costs, like if you choose a packaging software that tells you exactly what size parcel to use for your exact item or a system that integrates into your e-commerce platform to help you manage your inventory. But there are some parts of your fulfillment strategy that still require the human touch, like negotiating, bartering and strategizing with partners. In other words, leave the big thinking to the humans…at least for now!
9. Use Handheld and Mobile Devices — In contemporary warehouses, companies are already figuring out ways to eliminate handheld devices during the picking, packing and shipping process so that employees can work hands-free. Did we mention that things seem to move at lightning-speed in this industry? But for small- and medium-sized businesses, investing in handheld scanning devices is still a worthy effort. These units can help you keep your inventory well-organized without relying on outsourced labor or a fulfillment center, which you may not be quite ready for.
10. Go Digital — Small- and medium-sized businesses have so many more tools at their disposal than they did even 10 years ago, but the ever-changing digital landscape makes these tools hard to navigate. One thing’s for sure, though: The internet is your friend when you want to lower shipping costs. Buying postage online through the U.S. Postal Service or your preferred private shipper can save you some dough. For example, the USPS offers discounts on its Click-N-Ship program to encourage individuals and businesses to buy online.
Focus on the Customer
We mentioned before that consumers demand fast, affordable shipping. Unfortunately, it doesn’t make fiscal sense in a lot of scenarios to offer free shipping. But here’s the thing: You can’t offer both fast and free without raising shipping costs. So, which is more important? Interestingly, these days, consumers actually prioritize fast shipping over free shipping. If you can leverage your budget to get the product there faster with a reasonable shipping fee, there’s a good chance customers will be satisfied. This is just one example of how you can cut the budget while still meeting customer expectations.
11. Offer More Ways to Ship — Adopting an omnichannel fulfillment approach—shipping to and from the store or shipping to a delivery hub—can help you shave off some shipping costs. This is especially important for brick-and-click businesses who have retail locations. By shipping to and from the store, retailers can seriously lower shipping costs while also keeping them aligned with the consumer’s expectations. This also helps contribute to increased online sales because it allows you to ship cheaper while simultaneously bringing more customers into your store.
12. Partner with a Fulfillment Center — Let’s not forget that while shipping your products is costly, so too is storing them. In the age of e-commerce, small- and medium-sized businesses are finding that using a fulfillment center may be a cost-effective option. Amazon launched its Australian fulfillment service late last month, allowing those who sell on the marketplace to store their goods in a local fulfillment center. Amazon then handles all picking, packing and shipping for its companies. Of course, the storage comes at a cost, but it usually lowers shipping and overhead costs while improving your delivery speed and reliability.
13. Reevaluate Your Return Policy —Don’t forget to consider the cost of returns in your shipping budget. While it may seem good for your bottom line to charge return shipping, it actually may be worthwhile to offer easy, free returns. That’s because customers demand it, and also because it helps prevent chargebacks. If you’re in an incredibly competitive space, remember that a consumer might choose another business over yours if he or she prefers their return policy. With that in mind, you can still lower return shipping costs by limiting your free return window.
14. Think About Drop – Shipping — Of course, drop-shipping is only going to work with customers who don’t make their own goods. But if you sell items that pretty much never need to pass through the hands of your business, then this is the method for you. Drop-shipping is a fulfillment method that relies on a third-party to handle and ship the product, effectively eliminating costs associated with storage, packing, shipping, tracking and handling. With that being said, know that you won’t get as high of margins this way and you might run into some costly challenges, like supplier errors that wind up being your responsibility.
15. Offer Flat-Rate Shipping — For many companies, offering free shipping isn’t a possibility. Whether that be because your prices are already rock-bottom or because you have a specialty item that requires special handling, sometimes shipping for free is off the table. As we mentioned before, consumers are beginning to prioritize fast shipping over free shipping, and they’re all about ease. Flat-rate shipping lets you defer some fulfillment costs but still gives consumers an easy, standardized experience.