If you are reading this guide, you may have a general idea of what your gross profit margin is and possibly how much it fluctuates month to month. However, promotions, shipping changes, and order behavior can all influence fluctuations in order profitability. If you haven’t analyzed these variable fluctuations at a deeper level, it is almost certain that you can improve your gross profit margin. This is especially true for ecommerce companies as they often deal with thousands (or millions!) of individual orders and shipments each month.
If you are not data-inclined - don't fear! Our Shopify app and WooCommerce Plugin makes it easy to identify trends to improve order profitability without being a data scientist. We hate to watch shops flush money down the toilet and are on a mission to help reduce costs and increase profitability. In fact, we guarantee we can help improve your gross profit margin with at least 2x ROI of the cost of our software…how cool is that? Ok, sales pitch over. Let’s find some ways to reduce your shipping costs.
In this guide we will show you how to identify opportunities for shipping improvements by analyzing combined order and shipping data.
This may sound obvious, but ecommerce stores often overlook finding ways to reduce packaging and shipment weight - especially orders that have multiple products in a shipment. Reducing weight for popular shipment combinations can drastically reduce overall shipping costs. For example, did you know USPS will automatically upgrade a shipment from ‘First Class’ to ‘Priority’ if the weight is over 16oz? USPS Priority has very similar service levels and delivery times to First Class, but costs 2-5x more! In this case, if you keep package weight under 16oz, you can realize significant savings. We often see ecommerce stores that have popular multi-product orders that end up slightly above the 16oz USPS First Class cutoff.
With OrderMetrics.io you can eliminate this cost waste by identifying which orders this happens to and then reduce their packaging weight. Fedex ,UPS, and DHL use something called ‘dimensional weight’ to calculate a package's weight. Please see each carrier's respective guides to learn how to optimize packaging for these shipments.
You may be surprised at what other opportunities you can find if you combine order data with your shipping data and analyze the results. The ‘insights’ functionality of our software makes it easy to find common order combinations and see which shipping method they are sent. By identifying these orders, you can look into reducing packaging weight that would change the shipping method they are sent, thus significantly reducing costs.
All shipping carriers are not created equal and all orders deserve to be shipped via their optimal carrier. It is common for businesses to be content with their existing shipping carrier(s) and not identify orders which could be shipped more efficiently with a different provider. Using multiple shipping carriers for the right order combinations can offer bigly (or is it big-league?) cost savings. We recommend testing out multiple carriers for commonly ordered products/product combinations and identifying the method that meets your cost and delivery time needs.
For example, did you know that most Fedex Express shipments are routed through a sorting facility in Memphis, TN?- even if a shipment is being shipped from and to an address in California. Although these packages are guaranteed to arrive within 2 days, other methods such as Fedex Ground or USPS First Class can arrive within 1 or 2 days, depending on the shipment and delivery location, at a fraction of the cost!
Fedex express planes flying to their Memphish hub
Services such as Shippo are a great way to automatically calculate optimal shipping carriers on the checkout page. However, these services require pre-determined packaging dimensions and weights, which cannot always be predicted in advance. This is why it is important to look at post-shipment data and verify orders are being sent via their optimal carrier and shipping method. After identifying common product combinations and which shipping methods they are sent, you can make changes to what you charge the customer, change the shipping method you choose to send these orders, or make changes to product and shipment packaging. Our Shopify app and WooCommerce Plugin helps you do this.
At Order Metrics, we have seen many companies who outsource their fulfillment and shipping operations to 3rd party warehouses such as ShipWire and Whiplash. 3rd party fulfillment centers can be a very convenient option for eCommerce store owners, especially as they scale their business. However as convenient as 3rd party warehouses are, it is important to realize that you are at the mercy of their operations and their incentives are not always aligned with your business. For example, they do not have much incentive to optimize packaging weights and box sizes, which increase shipping costs. Additionally, if your shipping costs are billed directly by your fulfillment partner, they may upcharge you over the true shipment costs - even if they claim to be giving you ‘bulk volume’ discounted shipping rates. If they do bill you the actual rates, there can be shipping billing errors that may not be realized on your fulfillment partner’s bill. With that said, it is up to you to make sure orders are packaged efficiently and shipments are billed properly.
“OK - I get why this is important, but what can I do?”
One solution is to use OrderMetrics.io to discover popular order combinations and ask your fulfilment partner to reduce weight or package dimensions that would allow those orders to be sent via a lower cost shipping method.
Another solution is to connect your store and fulfillment/shipping data to OrderMetrics.io and email us to benchmark your fulfillment costs against similar businesses to yours. Additionally, our software will help you easily find billing mistakes. If your warehouse is hesitant or makes it difficult to get this data, you could ask to be billed directly by the shipping carrier and setup your own shipping accounts.
Finally, you can always change your 3rd party fulfillment service. We are happy to recommend fulfillment services that offer quality customer support, transparent billing, and high service levels.