How business shipping costs can affect your bottom line.

SBGA can help your business save on shipping costs

More and more businesses are going online these days. Easy online transactions, improved delivery systems, and attractive price discounts make them a great choice for both retailers and customers. Since the retailer does not need to pay rent, security, and utility costs, it can offer goods and services to customers at a much lower price.
One of the key things to consider for online stores is the delivery service. Quick and low-cost delivery to your customers will allow your business to do far better in terms of sales and revenue generation. When customers order a product online, they expect it to be delivered within 24 – 48 hours. Delays are considered a sign of poor quality service. Delivery costs are also an important factor under consideration when purchasing online.
In this blog post, we will review how the business shipping costs affect the bottom line for your business.

Importance of delivery service
Whether you run an online food restaurant, electronics store, or fashion business, you need a good shipping and delivery service to ensure customers keep coming back to buy from you. The delivery service often gets neglected by stores but it is crucial to running your online store successfully.
Online customers choose to buy from one retailer or another based on their overall customer experience. The delivery cost and time the customer has to face in order to receive their ordered product is important. Offering a product at the lowest price or best quality is no longer a guarantee that you will get the sale. You also need to advertise quick shipping times and deliver results.

A negative experience in delivery can leave your customers quite unhappy and dissatisfied with the product itself. One major complaint that online shoppers have is with the delivery cost, time or condition of the product that they receive due to damage during transit. In order to ensure a positive overall experience for your clients, you need to have an effective shipping strategy.
Delivery Statistics
During a recent eCommerce survey, 66% of online customers said that they preferred to buy goods from one eStore compared to another due to better delivery services. 93% of customers said that a positive delivery service would encourage them to shop with a retailer again.

The delivery cost also impacts the buying behavior in online customers. A different survey about delivery costs showed that 95% of online customers said that shipping prices impact their shopping decisions while 64% said that shipping costs are a big influence on their buying decision.
Another 36% noted that they have or would abandon their shopping carts during checkout once they become aware that the business shipping costs are quite high. 62% preferred home delivery while 30% preferred click and collect service to pick up their product from a designated store.
Customers hate it when shipping costs are applied to the purchase at the end, during the ordering process. One way to avoid this shock is to let customers know the usual delivery cost in advance.
A separate survey showed that customer satisfaction was 10% higher for people who received free delivery for their purchase. On average, roughly 47 products are purchased when they are advertised as ‘free delivery’ compared to 34 products when there is a shipping cost.
Competing with Large Retailers
New and SME businesses often have to compete with large, established retailers in the market. These large retailers have plenty of resources at their disposal. They are always looking to gain a competitive advantage and limit the operations of smaller businesses by offering competitive prices.
When it comes to price reduction, you can only go so far before you start losing money on your operations. Big retailers often have the same wholesale suppliers that small retailers use and you can’t cut prices beyond a certain point. Business shipping costs are an area where businesses can improve their offering to customers.

As an online retailer, you must find ways to reduce your delivery costs through more efficient shipping services. Some businesses have solved this problem by relying on third-party delivery services while others have built their own teams of delivery drivers.
Free Shipping Opportunities
Some retailers offer free shipping for customers who order a minimum purchase of $30 or $50. This can be a good way to encourage customers to buy from you by incentivizing large purchases. The cost of the delivery is usually covered in the product costs.

The benefit of this approach is that the advertisement for ‘free delivery’ for your product can immediately attract a number of customers to buy from your business. The downside is that you may have to sell your products at a slightly higher cost to cover the delivery costs and customers may find your products slightly expensive during price comparisons.
Retailers have also started offering free shipping during holidays and special seasons when consumers are looking to buy large amounts of products and services. Customers usually see offers of free shipping as a better deal when compared to an equal or even better savings deal for products that have a shipping cost.
Customer Perception of Shipping Rates
A large number of customers do not like paying for shipping costs and consider it an extra burden on their wallet. Market surveys show that customers even go as far as paying more for the same products that have free shipping on them than products that may cost less even after adding up the delivery charges.

This is because customers judge a product based on its advertised price and not the final cost of receiving it. A product that is priced at $15 in the market and costs $5 in delivery charges remains a product worth $15 in the customer’s mind. They perceive the $5 delivery cost as an extra charge and do not like the idea of getting a product worth $15 at the total cost of $20.
On the other hand, if the same product was advertised at $20 with $0 delivery charge the customer would feel that their product is still worth $20 when they receive it.
Most customers are not aware of the real price of shipping. Delivery costs have changed the way many businesses operate. Delivery costs of materials and components used in assembly are now being passed on to the customer as a part of the item’s price instead of being charged separately. When the shipping cost rises in the country or around the world, the product price also goes up.
Companies and businesses that offer discounted or free shipping are seen positively by customers. This is because customers see the discounted delivery as part of their customer service.
The bottom line is that customers do not prefer to pay for shipping costs in addition to the actual product. Most buyers are likely to spend more on products than they are to spend on shipping if they believe the shipping is free. Smart business must take customer behavior into account when trying to figure out the cost of shipping.
Types of Free Shipping for Customers to Consider
There is no business that actually ships its products and services to the customer for free. The cost is always covered and hidden in the cost of the items that are being purchased.
You need to remember that you can advertise your free shipping options to your customers in 5 ways and boost your business sales.
1. Minimum Purchase Free Shipping
The free shipping advertisement is guaranteed to get you more customers browsing your eStore. You can offer it to customers who purchase a minimum amount of products or services from your store. Generally, an order is eligible for free shipping when it’s somewhere around $30 while most stores give a free delivery option when customers place a minimum order of $50 at their store. You could set up a free delivery for less depending on your industry area of operations.
2. Free Shipping for Specific Items
Online retailers commonly offer free delivery on certain types of products to encourage sales. These products are easy to ship and generally have a high-profit margin. Good examples are electronic devices and high-end fashion accessories that cost hundreds of dollars. A $5 delivery fee generally doesn’t matter when shipping these expensive items to customers.
3. Free Shipping Based on Location
If the area of operations for your business is limited, you could offer free delivery services to customers without incurring any costs. For example, there are plenty of eStores that only ship products to their local town area and neighborhood. The cost of delivery in such cases is negligible and you can offer free delivery service without costing your business anything extra.
On the other hand, if your online business delivers products to every state or city in the country or even beyond borders, then you may need to charge different shipping prices for each customer based on their location and actual delivery costs.
4. Free Shipping during Certain Times
As discussed previously, you can offer free shipping services to customers based on certain seasons, like holidays or Valentine’s Day, when there is a high demand for certain products. Free delivery service will help attract customers to your business and may give you more orders as competition is high for getting customers.
5. Free Shipping for Loyalty Programs
It is easier to retain existing customers than it is to acquire new ones. If you offer lower business shipping costs to existing customers, such as free delivery on future orders, they are likely to continue ordering from you instead of going to another online retailer. It is a good way to build long-term customer relationships and loyalty by offering better value to your customers.
In-House Team or Third Party Delivery Service
Online retailers must decide whether to use an in-house delivery team or go with a third-party contractor for their needs. Both options offer pros and cons that must be considered.
An in-house team gives you more control over the delivery process. It allows you to track the deliveries more accurately and provides opportunities for marketing and specific area coverage. For an active business with lots of orders round the clock, such as a restaurant, the in-house team is a better choice,
A third party contractor may not give you as much control over the delivery process but it can significantly increase your area of coverage. FedEx, UPS and other private shipping firms possess market knowledge and expertise that is very difficult to acquire on your own. Using a third party service will also allow you to focus on your core business and hand over delivery to your partner.
The cost of a third party contractor varies. Generally, they cost less when you have infrequent sale orders but cost more when you have plenty of customer orders on a daily basis. This is because third-party contractors charge their customers on a per-order basis.
The standard practice for small businesses is to rely on third-party delivery services in the beginning, as the business is trying to get established. Once the business has stabilized, they move to create their own internal delivery service.
Summary
As our dependence on eCommerce and online stores continues to rise, the demand for affordable and even free shipping services will increase as well. The cost of delivery is a key factor to consider for businesses that want to create sustainable business models.
Online businesses can only go so far when it comes to decreasing their product prices and efficient delivery models, especially free delivery is integral to getting customers.
A good strategy is to include a portion of your delivery cost in the price of products that you offer. This allows businesses to offer their products to customers by marketing them as ‘free delivery’, which creates a positive perception in the minds of their customers.

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