Online retailers are scrambling to keep up with rising shipping rates. Unfortunately, it’s not getting less expensive. Earlier this year, all three major shipping providers, FedEx, UPS, and the U.S. Postal Service, raised their shipping rates. FedEx and UPS also changed policies regarding fuel surcharges in an attempt to benefit their bottom lines.
Raises in shipping costs affect online businesses in a couple of ways. First, higher shipping rates are typically passed on to the customer and often result in a rise in abandoned cart rates. Second, Amazon has set the bar high when it comes to free shipping. More and more customers expect free shipping options. That’s a big expense for online store owners to absorb to stay competitive.
One way to combat the rise in shipping costs, and to stay competitive, is to make an effort to lower expenses in other areas.
Reduce the variable costs of doing business to offset some of the costs that you have no control over. To understand this, we first need to look at the difference between fixed and variable costs.
Fixed Costs Vs. Variable Costs
Fixed costs are the costs involved in running a business that must be paid regardless of how many products you sell. These costs include expenses such as the rent paid for your company’s office space or warehouse and payroll.
Variable costs are the costs that fluctuate based on how much you sell. As your sales increase, so do variable costs. As your sales decrease, variable costs do as well. These costs include things like storage fees, packaging supplies, and listing fees.
While shipping can be described as a variable cost because it does fluctuate based on your sales volume, it is also a permanent cost of doing business for ecommerce companies.
Ways to Lower Ecommerce Variable Costs
To counteract the increasing costs of shipping, there are some ways to lower variable costs. Here are a few key ways to do it:
1. Streamline The Supply Chain Process
One of the most effective ways to cut costs is by streamlining supply chain and distribution processes. If you are not already, employ Just-in-Time inventory practices, integrated supply chain methods, and even consider dropshipping as your order fulfillment process so that you don’t pay for products that haven’t sold.
2. Audit Inventory More Frequently
When trying to cut costs, it’s extremely important to keep a close eye on your inventory management. By auditing more frequently, you will be able to identify which products need to be discounted to move out faster, and which products to discontinue. More frequent auditing will also help catch any discrepancies faster so that you are not paying for unneeded storage space.
3. Create Reorder Alerts
Along the same lines as auditing inventory more often, setting up reorder alerts will help ensure that your stock supply is always up to date. This will also prevent overselling which can cost you not only the loss of sales and dissatisfied customers, but also the fees incurred when processing the customers’ payments. Online payment companies will charge for those transactions, even though you didn’t actually sell anything.
4. Get Rid of Excess Inventory
Getting rid of slow-moving products will help you cut storage costs. Some of the ways that you can do that are by employing bundling (bundle slow-movers with top-sellers to get them off the shelves), discounting the products you want to move, or even donating them to charity and receiving a tax write-off.
5. Lower Payment Processing Costs
Contrary to what many ecommerce business owners may think, payment processing costs aren’t always fixed. Some of the rates are negotiable, and it’s worth it to see if your online payment partners will lower any of their rates. Look for any fees that you don’t understand on bank statements and contact your payment providers to see what they can do about them. It may seem like a minor charge, but if you are selling in high volumes those minor fees can become major ones very quickly.
6. Shipping Discounts
Most of the major carriers offer various programs for online retailers. Check eligibility requirements for those programs because you can save as much as 32% on shipping costs. There are also trade organizations that receive shipping discounts. Check with all shipping carriers to see if your organization is eligible. Another way to receive shipping discounts is through a shipping platform. If you aren’t using an ecommerce shipping software, it may be worth the added cost since they offer heavily discounted shipping rates for multiple carriers.
Final Thoughts on Combating Shipping Costs
For online businesses like yours, shipping costs are here to stay. And unfortunately, raises in rates are completely out of your control. However, by practicing some of the methods above to cut your variable costs, you may be able to offset those expenses.