E-commerce shipping charges are killing your business!
It’s so easy to start an ecommerce business
Shopify.com has over 600,000 stores using their ecommerce shopping cart platform. You did not read that wrong. Over six hundred thousand. (Shopify Stats) And that’s just Shopify. Include the stores on BigCommerce, WooCommerce, Volusion, and others, and you’ve got millions of online stores on the web. Square and others are investing heavily into the ecommerce platform space as well, and the landscape is expanding beyond anything we’ve seen before.
What does all this mean?
Well, for one, it means it’s really easy to sell stuff online. You can get a store set up in minutes with pre-designed themes, and even a catalog of products to sell. Connect Stripe or some other payment app, and you’ve got a business. Great, right? Well, maybe.
But are you making money? Don’t answer yet!
Let’s talk about money.
You know that profits are income minus cost of goods. To illustrate, you buy a phone case for 1 dollar, sell it for 3, and you made 2 bucks. If you do that a bunch of times, you’re going to make a bunch of money. Easy.
Sure, there are other costs, like website hosting, SEO, payment fees, maybe some paid ads, but when you’re working out of your house, and pulling in margins of 67%, you’re still sitting pretty, even with those other costs.
Let’s just make sure there aren’t any other expenses we’re not thinking about, alright? How about shipping? I know what you’re thinking: How much could shipping possibly be? I mean, all these companies are offering free shipping, so it must be super cheap. Maybe it’ll take a few percentage points off of my net income, but come on, I can afford a few points on what I’m making.
The costs of logistics before shipping
Hate to be Debbie Downer here, but the truth is that shipping is literally your biggest expense after paying for your products, and sometimes even before. Let’s even assume you won’t have any other costs. (You will.) Are you paying for the storage of your products? Nah, your living room is big enough. Ok, no storage costs. What about the cost of packaging? Not a major expense there either, you say. You’re sending the items out in bubble envelopes, for a few cents each, so it’s ok. Alright, now you just need to take them to the post office to be mailed. You figure that a letter is only $0.55 to mail, so your cell phone case shouldn’t be more than, what? A dollar? Profits are still at a healthy 35% or so, right? That’s not bad.
Time for a reality check. Sorry!
Yeah, it doesn’t work that way. Don’t base your assumptions on the price of a stamp. In order to qualify for stamp rates, your item must go in a standard flat envelope. Unless you are selling sheets of paper, your products will not fit. The next cheapest form of postage at this point will be first class postage from USPS, which begins at $2.66 for a one ounce package going to a near address, and goes up to $5.53 for 15 ounces, with a distant destination. When you are shipping over a pound, the rates take off from there. Check out the charts here from Shippo’s excellent blog.
Whoops, your healthy 2 dollar margin is not only gone, you are now losing money with every sale you make!
Don’t panic. There are a number of things you can do to which will get you back into the black and start making money in a sustainable way. Let’s talk about some ideas.
3 ways to save your profits and make money in ecommerce
1. Charge for shipping
I’ve always had the impression that the Shipping & Handling charges were a scam. The company selling the products are making enough off of me! Now they want to charge me some bogus S&H charge?! Hmph! But in truth, shipping does cost money, and handling is a real expense. (More about that in another blog post.) Charging your customers $5 for shipping is smart, and if you are offering a great brand experience with quality products, it is a cost that makes sense to pass on to your customers. Let them in on your costs by having them enter their locations and showing them the real cost of shipping. (Shopify has options that allow you to do that.) This way, they will see that you aren’t scamming them. You are simply charging them your cost.
2. Offer special deals.
Create incentives for your customers to buy in bulk, or to add products to their order. Not only will you increase your sales income, but the cost of shipping will go down dramatically. Going back to the cell phone case example, if your cost is $1, and your cost of shipping and packaging is $4, and you sell for $3, you are at -$1. Add two more items for which you will offer a discount as an incentive, and your shipping costs might go up by a dollar, but your profits are back! At least you are making money now. Remember, the cost of sending two items in a single order is far less than the cost of sending them individually. Always take advantage of that to increase your net income.
Another example of a special deal is offering free shipping for orders over a certain amount. Figure out how much you would have to sell in order to cover a good chunk of the cost of the shipping, like we suggested in the example above, and allow the free shipping to kick in only at that point. A common offering on ecommerce stores is: “Free shipping for all orders over $49.” Or something to that effect.
Raise your prices
Instead of blowing out the competition with $3 cell phone cases, sell them for $6. You might not be as cheap as you would like, but now you can join the elite “Free shippers.” These are the companies who don’t charge for shipping. Customers often choose to purchase products, even if they cost a bit more, if they feel like they got a great deal on the free shipping. (Raising your prices can sometimes increase your sales anyway. More about that in another post.)
Do your research, or call us. We’re here to help!
Whatever you choose to do, it is important to keep in mind that shipping your products to your customers costs money. Do your research. Find out what the shipping costs will be by speaking to a qualified and knowledgeable expert who can help. (You can call us or email firstname.lastname@example.org, and we’ll be thrilled to offer some guidance any time! Also, our pricing page offers some great pricing info on other logistics costs.) They will be able to tell you what to look out for, how to calculate real costs for both shipping and fulfillment, and what you can do to keep your costs down and your margins way up!