How to Make Free Shipping Profitable, Part 3
You might not be familiar with or using all the services that your carrier offers in determining how best to ship your orders. By picking the best service for each type of order, you can cut down on your shipping spend and make free shipping less of a burden. In the third part of this series, I will be discussing the most effective ways you can lower your shipping costs by exploring all your service options. (Here are part one and part two of this multipart series.)
1. Take advantage of "hybrid" shipping services.
Hybrid services like Surepost by UPS and Smartpost by FedEx can help cut your costs in half if you qualify for their weight and size restrictions. They are an economical but slower service, ideal for packages weighing between two pounds to 10 pounds. These packages often don’t fit into USPS First Class Packages or Priority Mail Flat Rate Boxes, and are expensive when delivered via standard shipping. Aside from the lower prices, it allows private carriers to deliver to PO boxes and charge no extra fees for Saturday and residential deliveries.
Hybrid service is an excellent example of how competitors work together to increase value by operating in their area of expertise. Private carriers are very efficient in sorting and moving packages across long distances. However, they don’t have the extensive last-mile infrastructure of the USPS. Without as much mail volume as USPS, it becomes expensive to do final delivery to customers. Last-mile delivery accounts for up to 28 percent of shipping costs, making it the most expensive component of e-commerce shipping.
So in hybrid services, carriers work together and use USPS for their last-mile delivery. USPS is required by law to deliver to all U.S. postal addresses in all jurisdictions, regardless of geography and density. This collaboration makes last-mile delivery more efficient, making it possible for hybrid players to charge less.
FedEx SmartPost is a popular example of an hybrid shipping service.
UPS also offers similar service for domestic and international orders through Mail Innovations and UPS Surepost.
- Up to 50 percent less shipping costs compared to nonhybrid products for two-pound to 10-pound packages.
- No surcharges for residential deliveries or special territories.
- Low rates for non-time-sensitive packages (e.g., if you offer free economy shipping).
- Slower than standard shipping, and it lacks a guaranteed delivery date.
- Availability is limited. Due to hybrid’s lower margins compared to standard shipping, carriers only offer this service to select merchants that meet the minimum daily volume requirements.
2. Use online shipping tools from the carriers.
With online shipping, you can print your shipping labels directly from your location and have your packages ready before reaching the post office. Many shippers skip the post office altogether, opting to print labels directly in warehouses and arrange carrier pickups daily.
Also, online shipping offers discounted rates compared to the over-the-counter rates at the post office. It can be done via USPS’s website or through authorized USPS postage providers such as Endicia, Pitney Bowes and Stamps.com.
Carriers reward the do-it-yourself mentality! If you pay for and print labels online and drop the packages off to the carrier, you can save big compared to doing all this directly at the carrier’s store.
Consider comparing rates between multiple carriers to ensure you’re paying the best price possible to deliver your goods. There are solutions that help you compare the best shipping labels for your orders automatically, like ShipStation, ShipWorks and Cahoot.
- Online shipping makes it easier for merchants to compare and select the right service for the desired delivery window and price.
- If you use USPS, you can have your package picked up directly from your location for free — no more making trips to the post office.
- Email notifications on delivery updates instead of checking tracking numbers one by one on the carrier's website.
- Single carrier native software solutions are time consuming for shipping large numbers of packages. There are better multicarrier shipping software solutions available for comparing rates and generating labels quickly.
- If you have sufficient shipping volume, consider negotiating directly with the carriers for even better rates. (Read part one of our series to learn more on negotiating with carriers.)
3. Consider a regional carrier or regional rates.
Some carriers specialize in particular regions. Their specialization allows them to provide excellent service within their turf. Some can provide same-day or next-day delivery options for shipments that usually take a couple of days through national carriers like FedEx and UPS.
These regional carriers charge less because they mainly use ground transportation for delivery, unlike national carriers that need to maintain air services and delivery to sparsely populated areas. Their delivery networks are typically limited, but many of them cover multiple states and offer fast deliveries as well. Examples of such regional carriers include:
Regional carriers are typically more flexible in accommodating special requests. Since they have a smaller base of customers and fewer packages to handle, it's not uncommon for them to provide later pickup times and earlier deliveries.
- You can save about 10 percent to 40 percent on your shipping costs compared to UPS and FedEx.
- They serve as good options for same-day or next-day delivery when compared to national carriers.
- The service windows are more flexible with earlier pickups and later deliveries when compared to the national carriers.
- The consistency of service over a longer time may vary depending on the maturity and financial state of the often-smaller regional carrier.
- The services are only available in a geographically bound area. You'll have to rely on national carriers or other regional carriers for other areas, adding complexity to your fulfillment.
- You might lose out on volume-based discounts with FedEx or UPS. Carefully compare the impact of regional carriers on your negotiated shipping volume.
4. Test local couriers for same-day delivery.
National carriers like FedEx, UPS, and DHL offer same-day and one-day guaranteed delivery, which expands the entire country. However, these services can cost upwards of $50 or more per package, making them cost prohibitive. A possible solution is leveraging local couriers like Deliv, Postmates, and Roadie. These couriers specialize in same-day delivery and charge much less for local deliveries. These services can help reduce costs if you decide to offer free same-day shipping on your merchandise in some areas.
Courier services enable an “on-demand economy” where customers seek instant gratification from the convenience of their home. It has grown beyond food ordering ride hailing; now anything available locally can be ordered on demand.
Availability of affordable local couriers makes a great case for adopting instant courier delivery from your store, especially for e-commerce sellers catering to urban customers with a fulfillment center in the area.
- It's the fastest way to deliver products to your customers.
- Lower costs compared to national carriers.
- Sellers must be ready, willing and able to pick, pack and ship the orders throughout the day for the hours listed on the app.
- Service depends on the availability of couriers in your area, and may be impacted during busy hours (e.g., peak meal hours for Postmates).
5. Avoid residential address surcharges.
UPS and FedEx add a surcharge for all shipments to residential addresses. FedEx defines a residential delivery as delivery to a location that's a home, including a business operating out of a home. UPS also adopts a similar definition of residential addresses. FedEx provides a helpful example list of addresses, as seen below.
Carriers impose a residential fee surcharge because, to them, it's more expensive to execute.
It’s essential to choose the right shipping method to avoid surcharges. For example, FedEx Ground is cheaper than FedEx Home Delivery, but when shipped to residential addresses will incur a surcharge of $4. However, FedEx Home Delivery is 35 cents cheaper compared to FedEx Ground plus surcharge. Imagine, with 2,000 incorrect labels per month, you’d be missing out on ~$700 worth of savings!
Analyzing your historical shipments and carrier invoices will help you understand how much residential surcharges you've been paying so you can act accordingly. These surcharges may not seem like much, but when shipping high-volume packages and utilizing the wrong service, they can quickly add up.
One solution may be to separate your deliveries for residential and commercial addresses and select service methods accordingly. Many multicarrier shipping software like ShippingEasy, Shippo, etc., offer pre-emptive address verification and correction, in addition to address type classification before you purchase the labels to ensure maximum savings.
- You save several cents per order, which can amount to sizable savings on your total volume.
- You can leverage the address type of the customer to define personalized messaging for your targeted advertisements.
- In the absence of shipping software doing it for you, you'll end up spending much time correcting and sorting addresses for large volumes.
- If you don’t have large enough volume for both types of addresses, the time spent on sorting manually may not be worth saving a few dollars.
Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer network where merchants collaborate to increase their sales and margins by offering profitable one-day and two-day free shipping to customers nationwide without spending a penny more than the economical ground shipping.
Related story: How to Make Free Shipping Profitable, Part 2
Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer order fulfillment network where merchants collaborate to increase their sales and margins by offering profitable one-day and two-day free shipping to customers nationwide without spending a penny more than the economical ground shipping.
Manish is an innovator, thought leader, and a highly sought after speaker for all facets of e-commerce. Manish has founded multiple industry-leading companies starting from his dorm room at the University of Bridgeport, CT. Manish’s specialties include e-commerce strategy, business methods innovation, supply chain and logistics optimization, and he holds 10 U.S. patents. He has been featured in The New York Times, Internet Retailer, and many other leading publications. Manish’s mission in life is to positively impact millions of lives through technology and leave the planet in a better state than when he arrived.
Manish is a 40 Under 40 Competition Winner and holds an Honorary Doctorate, the highest honor from his alma mater, University of Bridgeport, CT.