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Saving on Transportation Costs: When to Keep or Pass on to the Customer

by Mike DeFabis on 2015-06-23 16:17:24

When shipping products direct to consumer, one of the biggest expenses is your transportation cost.  If you are like most ecommerce companies, you are constantly analyzing your transportation spend and looking for ways to lower your transportation costs.  Whether you renegotiated your carrier contract for lower rates, switched to a different shipping provider or opened a new fulfillment center to lower your average zone, knowing when to pass those cost savings on to the customer or when to keep those for yourself is always a difficult challenge.  This blog will help give you some ideas on when to keep those cost savings for yourself and when to pass on to the customer to hopefully earn a few more sales.free_shipping_truck

  1. Know the Cost to Fulfill an Order

Knowing your costs to fulfill an order can help you understand the total cost to get that product out the door.  Take into account your labor, material, storage and equipment costs to come up with an average cost per order.  Ideally you would like to be able to cover this cost in your outbound shipping charges to your customer. 

  1. Research your Competition

Find out what your competitors are charging for shipping and how you compare.  If you are in a very price sensitive market, a slight increase or decrease in shipping costs could dramatically affect your sales.  If you are in an industry where “free shipping” is a necessity,  try lowering the cost of your product to see if extra sales can be gained that way.  As we all know there is no such thing as “free shipping”. Be sure there is enough of a margin in the product to be able to offer this.

  1. Test through Promotion

If you are not sure how a decrease in shipping costs might affect your sales, run a promotion.  If you are getting to the point where your shipping and fulfillment costs are low enough to offer “free shipping”, run a week long promotion to see what happens to sales.  You could do something similar for discounted shipping or even discounted products. 

Knowing when to keep cost savings for yourself or pass along to your customer is always a difficult decision.  Make sure you research the market and know the effects of a lower shipping cost or product cost.  Being able to offer costs below your competition could mean a dramatic increase in sales and an even bigger impact to the bottom line.

For more information on how IDS can help you lower your transportation costs, Contact Us Today!

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