Shipping and Fulfillment: Choosing the Right Methods

Shipping-Choosing-the-right-methods

We’re living in a digital economy. Though still only a small portion of the total retail market, the effect that e-commerce has had on the way people buy and sell around the world has wide-reaching implications that affect the lives of everybody taking part in the economy, online or offline.

The growth of e-commerce has been so rapid for two reasons: access and convenience. Access because it gives businesses the ability to offer their products and services to consumers regardless of distance or geopolitical boundaries, and convenience because it empowers consumers to shop from anywhere and have products delivered directly to their doorstep.

This is why cross-border commerce is reshaping the retail landscape and why being able to ship your products in a timely and effective manner is so integral to the success of e-commerce. However, the logistics of shipping and fulfillment can be a challenge for small businesses, so we’re going to take this opportunity to break it down for you.

Shipping 101

For the most part, you have full control of your customer’s experience. Making sure they have a good experience browsing your web store and ordering your products is an important part of running a successful business, but it doesn’t end there. It’s just as important to ensure a good customer experience when it comes to delivery, but it can also be more difficult.

Whether you’re drop-shipping or using a courier, chances are some or all of your shipping and fulfillment isn’t directly under your control. The most extreme example of this, drop-shipping, is when you don’t even keep your own inventory but instead, once an order has been placed, contact the wholesaler and have them ship the goods directly from their warehouse to the purchaser. Read our article about drop-shipping to learn more about this method.

For the purposes of this article, we’re going to assume you are managing your shipping and fulfillment in-house.

The Basics Elements of Shipping

  • Packaging: As e-commerce grows, so do the standards which consumers hold it to. Packaging and presentation are just as important as any other element of the customer experience. Packaging is an extension of your brand – if your products look good when they arrive at the customer’s door, they’re going to want to come back for more.
  • Tracking and insurance: It depends on your courier, but tracking and insurance is typically inexpensive and can provide you with a great deal of security as well as the ability to offer package tracking services to your customers. Lost or damaged packages are not only bad for the customer experience, but can also be a hefty unexpected expense, especially for small businesses with slim profit margins.
  • Customers and tariffs: If you’re selling across borders, you’ll need to fill out the appropriate customs documentation, available online or at your local post office. Fill these forms accurately to ensure that packages don’t get stuck at customers, which can cause them to arrive late or not at all. Keep in mind that there may be additional tariffs, taxes or duties to be paid by the customer at the time of delivery, so try to make your customers aware of that before purchase so they don’t blame you for any additional fees.

Developing a Shipping Strategy

There are many finer details to developing your shipping strategy, but we’re going to look at the two key choices you’ll have to make before any others: your shipping method and your pricing structure.

You have the choice of three distinct shipping and fulfillment methods. The first is drop-shipping, a common method for new and small business which has its advantages but completely outsources that side of your business, leaving you with no control over your customer’s delivery experience. The second is the opposite, where you handle all inventory and delivery duties internally, which comes with a couple of distinct advantages:

  • Branding and customisation: You have complete control over how your product is branded, packaged and presented, giving you the ability to lend a personised touch which will be seen as added value by your customers and encourage them to come back for more.
  • Keep expenses in-house: You’re responsible for hiring and paying the staff that handles and packages your product, meaning that no share of the profit, however small, is going to a third-party fulfillment company.

However, this also means that you’ll be paying for more man-hours to ensure that your products get packaged and shipped in a timely manner, which many small businesses may not be able to afford.

The third shipping method, using a fulfillment warehouse, lies somewhere in the middle. Essentially, you rent space in their warehouse to store your inventory and pay them to ship the orders on your behalf. This doesn’t allow you the same level of personalisation as keeping your inventory in-house, but does have some advantages:

  • Lower costs: Because fulfillment warehouses ship large quantities for multiple merchants, they can benefit from economies of scale. They’re often integrated with several major logistics companies, so they can fulfill orders at a lower cost and have access to a wider range of shipping options.
  • Shorter delivery times: Fulfillment warehouses are streamlined shipping professionals, with carefully developed schedules and routes and often centrally located, depending on where your customer base is. They specialise in getting your orders delivered in the most timely and efficient way.

Pricing

The number one cause of shopping cart abandonment is high shipping and handling fees, so keep that in mind when choosing which of the following pricing structures is best for your business:

  • Offer free shipping: This is the best way to increase your conversion rate and encourage repeat customers, and adding the words “free shipping” to your marketing materials also allow you to get a leg up on the competition. That being said, many small businesses operate on such slim profit margins that they can’t afford to offer this perk, particularly those that are selling across borders.
  • Charge shipping at cost: By integrating a real-time shipping calculator into your checkout page you can charge customers exactly what it costs you to ship the product. This ensures that you don’t take a loss when shipping larger products and also appears transparent to customers, which can help build trust.
  • Charge a flat rate: The third option is to calculate the average cost of shipping on your orders and base a flat rate around that. This simplifies your calculations and is easy for the customer to understand, but it’s important to choose at flat rate that covers your shipping costs but is still low enough that it won’t turn customers away.

The value of these two choices will depend on the nature of your business as well as the demographic you’re marketing to, so do your research, gather data, and test different methods to see whether they’re sustainable and what effect they have on your conversion rate.

However, there’s still one missing piece to this puzzles: reverse logistics. Returns and exchanges are one of the keys to building loyalty and lowering your churn rate, so much so that Zappos has built their return policy directly into their marketing materials. Visit the DalPay Blog in the coming weeks for our article How To Develop a Solid Returns Policy, and follow us on Facebook and Twitter for the latest news and advice from around the industry.

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Drop-Shipping: Outsourcing your Shipping and Fulfillment

Drop-shippingSo you’ve decided to start an e-commerce business. You’ve read our articles about the Pros and Cons of Opening a Web Store, How to Choose the Right Payment Methods, and How to Market to Your Target Customers. But there’s still one more challenge to face when entering the online retail industry: shipping and fulfillment.

Navigating this aspect of selling goods over the internet can be complicated, so in order to dispel some of the confusion we’d like to explain some of the finer aspects of shipping and fulfillment. We’re going to begin by explaining a common and simple way for small merchants to taking care of their shipping needs in one fell swoop by outsourcing that aspect of their business. This method is called drop shipping.

Drop shipping makes it simple and affordable to run an online retail store. With drop shipping, once an order has been placed the retailer contacts the wholesaler and has them ship the goods directly to the purchaser. The benefits of drop-shipping include:

  • Lower costs: You don’t need to keep a stock of inventory and to process shipping information, which saves small business owners a sizable amount of labour and overhead costs.
  • Low risk: In order to keep an inventory of your products, you need to purchase those goods. But what happens if the products don’t sell? You have no way to recover the initial investment you made on them. With drop shipping, you don’t need to purchase the products until a customer has ordered them.
  • Testing the market: Since there’s no risk of lost investment on stocking goods, you can test out more new product offerings. If you find that there is no market for them, you can simply delist them without having any leftover stock to go to waste.
  • Higher selection: With drop shipping, you’re not limited to the total amount of stock that you can fit in your storage facility, so it is easier for you to offer a wider range of products for your customers.
  • No shipping issues: Even for a small business, handling the logistics of shipping and fulfillment, from packing boxes to buying insurance and contacting couriers, is a full time job. If your business is still small and you can’t yet afford to hire additional staff, drop shipping allows you to fulfill your orders and begin to grow.

But don’t start drop shipping just yet – while it’s an ideal solution for many small retailers, especially those just entering the e-commerce business,there are two major disadvantages that mean that, depending on the nature of your business, it may not be the right fit for you.

Drawback #1: Slim Profit Margins

The main drawbackto drop shipping is that absorbing less risk always comes at a cost and in this case that cost is a lower profit margin. In some cases, retailers may find that their wholesale drop ship costs are as high as their competitors’ prices, leaving them no room to make a profit.

There are two main reasons why drop shipping results in much slimmer profit margins. The first is that wholesalers themselves don’t make much of a profit on individual products, they make their money by selling in bulk to retailers. When you drop ship, you aren’t paying the bulk price, you’re paying the wholesaler’s much higher per-item price for each individual product sold.

The second reason is the drop-ship fee. This is the wholesaler’s handling charge for taking all of your shipping and inventory management off of your hands. They handle storage, packaging, labelling, tracking software and working with couriers. This is a perfectly normal industry practice – wholesalers who choose to offer drop shipping services need to recover those expenses and turn a profit somehow.

Market research, as usual, is the key to finding out whether you can drop ship for a profit. While pretty much any type of good could be shipped using this method, some products may be too expensive to make it worth your while. For instance, in industries where your competitors have huge economies of scale, the expenses associated with drop shipping might make it impossible for you to compete with their value.

Drawback #2: Customer Service

Outsourcing any aspect of your business is going to have a unique negative effect on your customer experience. Many consumers, in choosing which businesses to offer their loyalty to, are looking for a personalised experience. With drop shipping, customer service becomes more challenging since shipping and fulfillment is completely out of your hands.

When you handle your shipping in-house, you can ensure that every order is filled accurately, packaged adequately, and shipped out in a timely manner. When outsourcing your shipping, you are still the one who customers are going to blame if your product arrives broken or doesn’t arrive at all.

And that’s not the only way drop shipping can harm your customers’ loyalty. In general, consumers prefer to do business with companies that they feel have a hands-on, personalised approach. They want to feel like the products are coming directly from whom theypurchased. Outsourcing the delivery process can limityour ability to offer a personalised customer experience and discourage some of your customers from returning to your webstore.

In choosing a drop shipping provider, you should test their services by placing an order from them and seeing in what condition and timeframe your purchase arrives, and by calling their customer service to ensure that they are friendly, helpful, and that their order tracking services are adequate.

Despite its drawbacks, drop shipping is an excellent way for a small business to build a clientele, especially before you can afford the staff to do it yourself. But even as you grow, drop shipping can be still be a boon for your business, whether using it for all your fulfillment or to manage specific bulky or hard-to-store products while you keep your most popular goods in-house.

Next week we’re going to take a closer look at handling your shipping and fulfillment in-house, whether you’re just starting out or are ready to make the transition from drop shipping to managing your own inventory. Subscribe to the DalPay Blog for notification about this and other upcoming articles about online retail, and follow us on Facebook and Twitter for the latest news from around the e-commerce industry.

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