To be successful as an ecommerce seller, you have to do a lot of things right, and one of them is order fulfillment. Given the competition, as well as the potential costs, errors, and headaches involved, it’s a part of the business that can actually drown you if you’re not careful.
I could cover a lot relative to this topic, but I wanted to focus on three things you need to know to make sure you’re not over-stretching or over-complicating your order fulfillment operations.
Free shipping is more important than fast shipping
There’s a lot of buzz out there these days about fast shipping. And it’s obvious why, as it’s a key selling point of Amazon. But, as on online merchant selling on your own web store, here’s an important thing to know: shipping doesn’t have to be fast to appease most online shoppers.
It’s something that’s shown over and over again in study after study, which is that consumers are willing to wait if the shipping is free. In their Pulse of the Online Shopper study from last year, UPS reported that the average customer is willing to wait up to seven days to receive a package if the shipping is free. Seven days!
Now, don’t get me wrong, fast shipping has its place, and it’s important to make sure you’re giving your customers the option to get their packages fast, if needed. But, that said, most people just want it cheap, and you, as an online merchant, don’t have to break the bank trying to get it to them for cheap in just one or two days.
We all know free shipping isn’t actually free. In addition to the actual shipping costs, there are also packaging costs, warehousing costs, order fulfillment costs, etc. Those costs need to be made up for somehow, and there are a variety of ways to do that, including increasing the product price, requiring that order values reach a certain threshold to qualify for free shipping, and only offering free shipping with higher-margin products.
How you figure out your free shipping offer is up to you, but just remember that most consumers are quite patient if the price is right.
Shipping two units is actually cheaper than shipping one unit
How is it cheaper to ship two units instead of one unit, you ask? Well, to clarify, I’m not saying the shipping costs are actually less. What I mean is, when you sell multiple units as part of the same order, your expenses as a percentage should go down.
Here’s an example….
— Let’s say you sell two of the same product.
— You sell them for $40 each and your margin is $20 each.
— You charge your customer a flat rate of $5 for shipping.
— Your shipping cost for one unit is $10.
— When two units are shipped in the same box, your shipping cost is $12.
As you can see, if you sold just one unit, your margin would be $15 after accounting for the shipping cost. With two units, even though your shipping weight doubled, your shipping cost would actually only go up slightly. As a result, your margin is now $33, which works out to $16.50 per unit.
This is a very basic example, and, of course, packaging and order fulfillment expenses need to be taken into account. However, those added expenses are generally minimal.
This economic model is why Amazon allows for low-cost, “add-on items” to be added to a cart only when other, more expensive items are already in the customer’s cart. Those add-on items are too cost-prohibitive to ship by themselves. But, because there is minimal added cost to include those items in a larger order, the economics work out.
Too many customer choices can be a problem
Sure, it’s nice to give customers options. However, if you ask the people responsible for your order fulfillment, they probably don’t feel the same way.
I’ll give you an example. I recently worked with a merchant that had a successful a crowdfund campaign. He wanted us to provide the fulfillment for his backer orders. At first, it seemed like a very straightforward job, as he really only had one product that he was trying to fund.
In talking with him, I discovered that he offered that product in six different colors. He had a pledge reward in which backers could get three different units, and pick their colors. He had the same with a 5- and 10-pack. In addition, as a bonus, he wanted to give away shirts that came in two different designs, two different colors, and five different sizes. And he had two different posters.
I came to find out that, even though it seemed straightforward at first, and even though he only had one main product, he wound up with several dozen order variations. Of course, it’s possible to pick and pack the right units for dozens of different order variations, it’s just not as fast or efficient.
Whether your customers are regular consumers, businesses, or both, it’s nice to provide flexibility and give them choices. And, as I touched on above, having larger orders typically means higher margins. That said, however, it’s also important to strike a balance, and ensure that you’re not overcomplicating things from an inventory management and order fulfillment standpoint, especially if the added complication isn’t paying its dividends.
Steve Bulger is VP of Sales, Marketing, Customer Service for eFulfillment Service, Inc.