Every
retailer knows that customer conversion is critical. It costs you money
to attract customers to your store and you want to do whatever it takes
to have them make a purchase. Free Shipping is one of the well-known
ways to make one`s purchasing experience smoother. Total price becomes
a sum of product price and your shipping expenses.
Free
shipping is a great conversion tool but applying it to tens of
thousands of your products requires per product cost information.
While
product wholesale costs are usually more or less accurate, shipping
costs are either vendor’s estimates or educated guesses. Here are some
real life examples:
| Product | Retail | Expected
shipping | Actual
shipping | Shipping
off by | Error/
Retail |
| Treadmill | $1,099 | $250 | $135 | $115 | 10.50% |
| Exercise bike | $599 | $45 | $90 | ($45) | -7.50% |
| Platform bed | $599 | $180 | $110 | $70 | 11.70% |
| Jogging stroller | $299 | $58 | $32 | $26 | 8.70% |
| Espresso Machine | $499 | $32 | $54 | ($22) | -4.40% |
And
these are “core” products that generate most of the revenue for one of
the retailer I worked with. Needless to say errors for “long tail”
products are even more significant. It is very typical to have a few
high selling SKUs subsidizing thousands of less frequently sold
products.
Four most common sources of errors:
- Commercial
carrier pricing varies significantly. Discounts can range from 60% to
85% of the base price. On the $1,000 base price shipment (a 150 lbs box
shipped from Dallas to San Francisco) vendor`s shipping cost estimate
may be $400 while your discounted rate may be $150 – a $250 delta.
- Wrong
shipping method assigned. A 90 lbs recumbent bike had FedEx Ground as a
default shipping method. Due to improper packaging our damage rate was
about 25% leaving with no other option but to ship LTL.
- UPS/FedEx
shipping price is calculated based on weight only (dimensions are
ignored). While weight is frequently sufficient to determine shipping
cost for parcel carriers – volumous products trigger DIM Weight
(dimensional weight). An espresso machine can be 30 lbs but charged as
55 lbs because of the box size.
- Rates change every year.
Shippers increase fuel surcharges, do inflation adjustments and other
rate changes. Costs calculated 2 years ago will likely be different
from your actual costs.
Are the errors expected? Yes!
Unavoidable? In no way! There is a relatively simple way to keep costs
accurate and make sure your Free Shipping doesn`t eat your margins.
- Negotiate the best with UPS/ FedEx and a couple of commercial carriers.
- Convert
vendors to ship on your accounts. In cases when it`s not feasible
(efficient) – set up a feed to get actual shipping costs on the PO
level.
- Recalculate expected shipping costs for your entire
catalogue. (We have a tool that connects to the major shippers and
returns per product shipping cost based on your criteria and discounts).
- Once a month update your expected costs with actuals.
If it sounds difficult – give us a call and we`d be happy to help you keep your Free Shipping free.
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For more articles on E-Commerce fulfillment issues check out my blog - www.optimalogica.com
Maxim Mironov
E-Commerce Fulfillment expert
650 270 0154
max@optimalogica.com
http://www.optimalogica.com