Shipping is one of the top 3 costs for most e-commerce companies, and it can be tricky to optimize it to save money month over month.
The good news is there are fairly simple things you can do to reduce your shipping costs, and make more profit today!
From chatting with e-commerce clients around the globe, many teams (and executives) have come to the conclusion that shipping is a relatively fixed expense. This is almost certainly false. While shipping may not be the most exciting area of your business to investigate, the returns from diving in will make you happy.
You might think once you’ve setup your shipping, and compared rates, there’s nothing else you can do. But our experience has been that careful monitoring and constant adjustments can make a big dent in your shipping bills over time.
The “Set it and Forget It” approach usually means you are losing money. It has cost me a lot, and is one of the reasons we started OrderMetrics.
Let’s fix that.
These are the top 5 tips - the ‘difference-makers’ that can save you the most money. Just follow this checklist:
Cut package weight for USPS shipments. Cut package volume for FedEx/DHL/UPS.
Shift as much USPS Priority to USPS First Class as possible by getting weight under 16oz (where possible)
Figure out your most common items ordered together. Often these packages are less optimized for weight/size than single-item orders. Cut box size or weight or stuffing wherever possible. This is where you are likely getting killed on profitability.
Switch to a consolidator like APC for international shipments and cut your international shipping bill in half.
Monitor your bill like crazy - they are rarely accurate in practice and reflect all discounts and sizes you negotiated.
We are going to show you the top things that we have learned to improve and explain, in detail, what it takes to lower that shipping bill and put the money back in your pocket. In this section, we learn how to reduce shipping costs with proven methods and present real-world examples from successful e-commerce stores.
A guy adding unnecessary weight to a package before shipment
Okay, first some basics. There are two or three main areas you might find improvements in your shipping margin. The first one is to do with understanding the weight calculations used by the main shipping carriers to price your shipments. So here's a little lesson.
There are two types of weight when it comes to shipping:
Weight - regular old weight, usually measured in pounds or kilograms
Dimensional Weight, a volumetric measure used to standardize shipping charges
Understanding the difference between these and when to use them can make a difference to your bottom line. In practice, USPS uses weight for billing while almost all other services like FedEx, UPS and DHL use Dimensional Weight.
Shipping rates typically increase with each oz for USPS, and each pound of dimensional weight with the others.
Very simply, it's more important to cut your shipment weight with USPS and it's more important to cut the volume of the box when shipping with FedEx/UPS/DHL.
Have you ever received an Amazon package with a comically large box for a small item? These are almost guaranteed to have been sent USPS - where there's not much penalty for an increase in box size. Sending that via FedEx would cost about 20 times more.
Reducing weight may seem like a no-brainer. But there's more to this than meets the eye. There are specific weight cut-offs to watch out for with shipping providers and tricks with flat-rate boxes you can use.
Reducing your shipment's weight is especially valid for USPS shipping - USPS prices are entirely based on weight,compared to other carriers who charge based on Dimensional Weight. If you are shipping with USPS you are going to want to get a scale.
Get out the scale and weigh every single thing that goes into your packaging including the type of filling, tape, inserts, bubble wrap etc. There are times when it might even make sense to get the ultra sensitive 0.01g scale and weigh your inserts and stickers, to get under that 16oz cut off.
USPS will automatically upgrade a shipment from ‘First Class’ to ‘Priority’ if the weight is over 16oz. Keep packages under 16oz and you will save a lot.
Weight is even more important on your highest volume selling items that you ship via USPS. Here's why.
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 e-commerce stores that have popular multi-product orders that end up slightly above the 16oz USPS First Class cutoff.
These order combinations can be almost impossible to find unless you are analyzing the profitability on a per order basis.
We recommend doing anything you can to keep packages going First Class and not USPS Priority, given that delivery speed will be about the same and the cost is so much lower.
Change or remove inserts. Does that nice thank-you card with every order need to be in its own envelope?
Switch packaging tapes. If you are using that heavy wet brown tape from FedEx it might save you an ounce or two and get your package down into the previous price bracket.
Use a smaller or custom box. Depending on your order volumes it might make sense to switch from a standard size box to a custom size made especially for your product. We have found once you are buying more than a couple thousand standard boxes it might be about the same per-unit cost for the box, but the difference in shipping cost can make a difference. Check out Packlane or other companies for custom packaging.
Send two packages. Thomas Marks, VP Marketing @ Shippo recommends considering sending two different packages for one order, so you can benefit from the affordable service levels that support lightweight packages.
Industrial scale? Check out on-demand box making options like Packsize
If you ship a high volume of products with FedEx & UPS it’s possible that your dimensional weight is hurting your profit margin too.
Dimensional Weight is standardized pricing strategy used by major shipping carriers. It’s also known as volumetric weight and its calculated by this formula.
The dimensional factor is set by each carrier - FedEx's is 139 for 2018. You can go to the FedEx Dimensional Weight Calculator to check your packages.
This method allows FedEx to charge all the boxes as if they are the same density. With Dimensional Weight - larger boxes with light goods such as popcorn will be charged the same as equivalent size box filled with charcoal. The exception to this rule with FedEx is to use flat rate boxes (UPS doesn't provide flat-rate boxes).
Flat-rate boxes and envelopes from FedEx are exempt from their Dimensional Weight.
If you can squeeze your items into the FedEx flat-rate Envelopes that can provide you with even better pricing, so it's worth getting one and checking if you somehow can fit your products in one.
USPS also provides flat-rate boxes in small, medium and large - so if you have heavier items and can fit them into one of these box types, you might find it is cheaper than FedEx equivalents.
The best time to use a flat-rate box is if your items are heavy and small.
Understand dimensional weight, and create custom packaging that minimizes it by snuggly fitting your items. Alternatively, use FedEx or USPS flat-rate boxes, or switch items that are both lighter & larger to USPS Priority.
When a customer makes an order with multiple items at once, you could get slapped with a higher shipping bill than anticipated, if the package is of larger dimensions or higher weight than needed. This is especially common when you are shipping items of multiple size-types in one box, such as (for example) a book and a poster.
The first step to fixing this to understand what items are commonly being purchased together. OrderMetrics provides this report and if your shipping accounts are connected, you can also immediately see which combinations are costing the most to ship. There are other ways to discover which products are commonly purchased together, such as making a spreadsheet of your orders or simply counting combinations in your Shopify/Amazon dashboards.
Once you have your common items shipped together, you should find orders which have them and then locate each tracking number. Once you have a reasonable sample of tracking numbers - you need to go into your shipping bills and find the corresponding order. What are you being charged for these orders? Is it what you expected?
To resolve this, main two tools in your arsenal are still going to be reducing weight, or reducing the dimensional weight by fitting the product in a smaller box. But remember: thanks to Dimensional Weight that if you have a large, light box it might be cheaper to send it via USPS compared to FedEx.
If you can't reduce the weight or packaging size - you should look into charging more for shipping for these types of orders.
It doesn't always make sense to charge the customer as much as you are being charged if you make most of your profit on the item price, but even a small increase in shipping price charged for multiple-item orders could make a significant impact to your bank account at the end of the year.
Understand your popular order combinations, and optimize their packaging. Many stores we have seen are being hurt by not optimizing packaging for these as they are not "simple 1-product orders".
Up until now we have only dealt with the major shipping providers in the USA. But they are not the only game in town!
Did you know there are other reliable shipping providers that can offer you significantly better prices on certain types of shipment?
One example is APC, a company who will take all your international shipments and deliver them to the local last-mile postal services of other nations, for a much lower rate than FedEx and faster than USPS. Speaking from experience, APC can ship a small package (under 1lb) from California to the UK in under 2 weeks for about $3.Good luck finding that with FedEx!
These types of companies are known as shipping consolidators. Shipping consolidators mainly deal with international orders. The way they work is, you put all your international orders in a UPS box and ship it to the consolidator. The consolidator then works to get all the packages to their respective countries and handed off to the local post offices for that last-mile delivery. The top companies you should look into in this space are:
We had a lot of success with APC in the past at Social Print Studio - but you might find another works well for you. For example, Passport Shipping may not have as low rates but they have a few other advantages in customer support.
Whichever you choose, you're likely going to be getting a better deal than if you just shipped via FedEx. It can really help getting packages cheaply and quickly to remote locations as well, where the local post service doing the last-mile delivery may be more knowledgeable about finding houses and addresses than FedEx, saving you money on refunds and generating loyal customers.
Consolidators will get your international packages delivered for lower costs than FedEx or DHL. Even without a ton of volume, you can set up an account directly with them and take advantage of their services.
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 up-charge 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.
One solution is to use OrderMetrics to discover popular order combinations - and ask your fulfillment partner to reduce weight or package dimensions that would allow those orders to be sent via a lower cost shipping method.
For example if you sell a poster normally in a poster tube and a book normally in a media-mail box, what happens when a customer orders both at once and it's becoming a more popular combination? There's a strong chance the 3rd party fulfillment company will not be optimizing for price efficiency for you.
If your warehouse is hesitant or makes it difficult for you to get this, one option is to just pay them a visit and see in person what they are doing and then make recommendations based on what you find. Export a list of popular order combinations from OrderMetrics and ask to see each one's packaging.
Another good trick is to ask to be billed directly by the shipping carrier and setup your own shipping accounts. Additionally, you can always change or threaten to change your 3rd party fulfillment service.
Don't rely on 3rd party fulfillment to minimize cost. Go in person, visit them, bring a list of popular product combinations. Ask to see the true shipping bill.
You won’t always know your true shipping cost in advance of shipment. Product weights can vary, or maybe you sell customized items, so the only time you can really optimize and reduce costs is post-shipment. You need to get the data from your shipping carrier reports or bills, and sift through it to find the specific orders which can be optimized.
Sort through some orders by shipping margin or shipping costs, using OrderMetrics or a spreadsheet. If you are charging for shipping, you can easily spot the orders where you charged way too little (or way too much!) for shipping, as in this example:
Screenshot from OrderMetrics - you could also get from a spreadsheet
Here we can see we should have charged a lot more than $4.95 for this order - and our profitability suffered. OrderMetrics is designed to help you find & correct these exact kinds of problems, by surfacing the order details which led you to this.
Now it's time to follow the same steps above and see if this could be corrected by any of the tools at our disposal, such as raising shipping costs to this destination, or optimizing the packaging for this type of product. You may be surprised by how many opportunities you discover to reduce shipping costs once you start this analysis!
Shipping rates from USPS, FedEx & UPS are always changing, usually on an annual basis and there are probably 50-100 different surcharges and up-charges they can apply. Keeping track of all the options is challenging - which is why we think e-commerce businesses should use a service like Shippo or ShipStation to manage and compare costs. However there is no substitute yet for constantly monitoring your invoices and shipment costs.
Shipping cost management was one of the main reasons we built OrderMetrics. Once you connect it to your shipping accounts, you will always be able to monitor the costs without making complex spreadsheets or comparing invoices on one site to tracking numbers somewhere else.
We recommend checking your orders for unusual looking shipping charges or low shipping margins on a monthly basis to avoid losing money unnecessarily.
ABC - Always be comparing!
FedEx ships more than 14 million packages each business day, and rival carrier UPS ships 20 million packages and documents daily. Chances are, a large percentage of these packages contain products from e-commerce store owners like you.
Small businesses rely on UPS and FedEx because they have wide-ranging domestic and international reach and they dominate the market. But as a business owner, how can you rest assured that you’re getting the best shipping rates?
You may be enticed by introductory discounts which only last for a limited time (i.e. FedEx’s Advantage Program discounts on select Ground, Office, and Express services), or you might simply accept the rates you’re given without protest.
However, for a business that ships constantly and whose needs are ever-evolving, you don’t have to settle for the first offer. You can negotiate.
Let’s talk about how!
We've seen first hand the power of negotiating with FedEx & APC. Assuming you are shipping a decent volume of goods - there might be value to unlock in your business.
You’re probably accustomed to the logistics of your warehouse or inventory space, but getting the best shipping rates requires knowledge of a different set of logistics. Successful negotiation can put a significant amount of money back in your pocket, but only if you come prepared.
There are a few types of discounts you can receive:
Volume-based: These discounts are tied to the amount of packages you ship. The more you ship, the more you save. This is beneficial when business is thriving, but when shipments fluctuate, your savings follow suit.
Guaranteed: These rates stay the same. Regardless of how your volume fluctuates, you get the same rate. But in order to negotiate a guaranteed rate, you need a consistently high shipment volume prior to initiating talks.
FedEx Advantage Program: These rates stay the same. Regardless of how your volume fluctuates, you get the same rate. But in order to negotiate a guaranteed rate, you need a consistently high shipment volume prior to initiating talks.
Reduced Surcharges: FedEx & UPS charge things like "large item surcharges" or "home delivery surcharges". If your business only sells large items, or only delivers to homes, there could be opportunity to discuss lowering these.
In some cases, if you're not yet a full-fledged high-volume company, you can get a three month grace period to build sales and strengthen your data. But afterwards, you have to show and prove your numbers.
UPS and FedEx only want to offer discounts if those savings encourage more business. Thus, the stronger your data is, the more negotiating power you have. Come prepared to talk about the following:
The average weight per package shipped
The average delivery zone
The average number of inbound and outbound shipments per day
The percentage of minimum charge shipments
Your most common surcharges
Feel free to pull together any other information that you think is helpful. Ultimately, the carrier you’re negotiating with wants to make sure they’re getting something out of the deal. This negotiation is your chance to prove your worth. With those stakes in mind, consider if you might have some ‘x-factors’ such as brand partnerships that sweeten the deal for them.
The importance of data underscores the fact that you should use independent shipping software like Shippo or Shipstation. In addition to easily amassing and accessing data, you can use timesaving and revenue-building tools that make your shipping process more efficient (i.e. fulfillment management, inventory tracking, packing slip printing, etc.).
If you’re looking for precedent, that information is harder to find. Unlike USPS, neither UPS nor FedEx publishes its volume threshold rates. So, shipping rates are determined on a case-by-case basis. However, to give an idea of the volume numbers that entice major carriers, look to USPS’ listed rates.
For domestic Priority Mail Express shipments, the qualification threshold is 5,000 pieces per calendar year.The threshold bumps up to 50,000 per year for general Priority Mail.
The most common types of discount that we hear about are related to cutting surcharges. FedEx has a monstrous list of surcharges all with fairly absurd high starting points. We recommend you identify all the different surcharges in your contract agreement or the ones that most commonly occur on your invoice. Take that list to your account manager and pick one to focus on. For example, if you are only selling "Dangerous Goods" then a reduction in the FedEx Dangerous Good surcharge will make a big difference!
Great businesses are built on a foundation of great relationships, and negotiating your shipping rates is no different. Your account manager is your strategic partner, helping with everything from package tracking to bill reconciliation to tech support to identifying the best solutions for your business’s needs.
Communicate with them proactively – if you’re expecting a Q4 spike or a Q1 dip, give them a heads up so they can adjust your rates. And get to know them. The stronger the relationship, the better the rates.
Big businesses like FedEx have old-school account managers who can reward you as you build strong individual relationships. Get to know your shipping account managers!
Aside from prepping your data and cozying up to your account manager, it’s important to utilize proven negotiation tactics:
Read the fine print. Look for spending minimums that could potentially negate the savings you’ve negotiated. Also look for surcharges that cut into your savings.
Look out for guaranteed volume penalty clauses. These could hurt you if you fall below a certain threshold.
Make the carrier show their hand first. Don’t put all your cards on the table right away; see what they can do for you.
Communicate clearly. You want to be crystal clear about the negotiation’s timeframe so things don’t linger on.
Depending on what scale business you are, there could be significant value to unlock by going deeper into the specifics of contract negotiation with FedEx and UPS.
One good resource for this is Parcel Magazine. They cover in-depth details about pricing and contract negotiation that goes far beyond what the average small shipper needs to know about.
More FedEx info than you ever imagined
Once you’ve secured the best rates possible, don’t assume the work is done. Both FedEx and UPS utilize an automated billing system. It’s possible that your bill could include overcharges. Or worse, it may not reflect your negotiated rates.
It’s critical that you double-check your statements each month to ensure you’re paying for what you’ve agreed to.
We love a little tool called Refund Retriever. If any of your FedEx or UPS shipments are delivered late, or if they bill you twice, Refund Retriever will go out and get your money back. They only take a cut of what they save you, which can be a huge time saver and a no-brainer to set up. Their service can also help you identify negotiation opportunities.
One good way to do this well is to benchmark each month's bills against each other, and look for discrepancies.
If international shipping costs are usually 25% of your bill, but one month they jump to 35% - you might have discovered a billing error! This has happened to us, when our international billing discounts were removed accidentally.
Our total bill was still within plausible totals for a month, so it might have escaped our notice if we didn't pay careful attention to the details. We clawed ~$6,000 back from FedEx we would have never known about without careful monitoring.
In general, don’t begin negotiations with one carrier until you’ve used both. Ship packages with both FedEx and UPS and assess the experience. Who delivered packages the fastest, at the best rates, and to the areas that you serve most often? You wouldn’t want to lock in rates with UPS if FedEx could offer you a more compelling deal. Whatever you decide, conduct your due diligence to protect your bottom line and save money.
FedEx & UPS both are notoriously bad at billing. Discounts you agreed to sometimes don't show up on your bill. Surcharges can come out of nowhere. We recommend running analysis tools on your billing every month. Some things to look out for are duplicate bills, new surcharges, 3rd party people using your account, and mis-typed dimensions.
FedEx & UPS are a little like black boxes when it comes to pricing. However you can unlock levels of savings as you grow by agreeing benchmarks with your account manager, or presenting your case to try to get exceptions to quantity rules.
Often loyalty can be rewarded, so don't be afraid to play that card if it makes sense for your customers and product. And never forget to check your bill.
This year, businesses will spend upwards of $1.5 trillion on shipping, as reported by the Wall Street Journal. Most of that money goes toward getting the best products to customers’ front doors as quickly and efficiently as possible. But roughly 2% of that $1.5 trillion is spent on shipping errors.
For a company that brings in $1 million in revenue, that equates to $20,000 in shipping errors. A small business can accomplish a lot with $20,000 and most certainly can’t afford to throw it away. It could translate into better marketing, more product development and more. But spotting and correcting these costly errors requires a monthly step that most businesses skip – auditing shipping bills.
Most e-commerce businesses rely on automated billing when it comes to shipping. The assumption is that FedEx, UPS, or USPS is charging your business correctly every month, since your invoices are generated automatically.
However, automation still leaves room for mistakes. Some common issues include:
Late packages (which should result in discounted rates but often don’t)
General mistakes (i.e. incorrect flat rates)
Address correction charges
Unmonitored surcharges (i.e. Saturday delivery, return fees, large packages, etc.)
Dimensional (DIM) weight charges – if a package’s DIM weight is larger than the package’s actual weight, you could end up paying extra for technically nonexistent weight.
Some of these errors are the fault of the carrier; others are caused by mistakes on your end. Regardless of who is to blame, a thorough audit can find the problems and steer you towards a solution that helps recoup your funds or avoid expensive mistakes in the future.
The benefits of auditing your shipping invoices are simple:
You’ll save money. You could gain back up to 6% of your spend each week, and you could even save enough to negotiate a new contract that’s 10-25% cheaper.
You can recoup money you shouldn’t have spent. If your carrier has charged you incorrectly, you can get those funds back.
You can fix bad internal processes. For example, if there’s a recurring issue with your shipping costs (i.e. excessive Saturday deliveries), you could adjust your shipping policy to eliminate the expense.
You can budget accurately. Once you have a clearer understanding of how you’re spending your money, you can build a more effective budget.
There are two primary ways you can approach your shipping bill audit – an internal audit or a third-party audit. With an internal audit, you can use either a micro audit or a macro audit.
In a micro audit, you’ll go over each and every invoice with a fine tooth comb:
Look for duplicate invoices: You might see multiple bills with identical totals, identical invoice numbers, or vendors with the exact same business information. Weed these out to avoid paying the same charges multiple times.
Check for discounts and correct base rates: If you’ve worked out a special deal with your carrier, make sure it’s accurately reflected on your invoice. If you’re overpaying, you should contact your account manager and get everything straightened out immediately.
Double check classifications: Different businesses have different classifications based on size and product category. Make sure your classifications are listed correctly.
Ensure extra charges are correct: When your carrier has to deliver packages outside of its “normal” expectations, you’re charged for the effort. You might not be able to avoid a late or weekend delivery, but you can ensure you’ve been charged correctly for it.
Make sure you’re billed according to your state’s regulations and appropriate tax laws: Many states have different laws and fees; shipping rates are not one size fits all.
Double check the totals: This might seem silly, but make sure everything on the invoice adds up. It’s possible that charges reflected correctly on a bill could still be totaled incorrectly.
A micro audit might be your best bet to catch every single mistake, but it’s tedious, and not many business owners have the time or resources to be this thorough. A macro audit takes less time and still clues you in to big problems.
In a macro audit, you’re checking shipping costs on a monthly basis, but you’re taking a different approach. Here, you’ll group each type of shipment together and compare the trends.
For example, let’s say you ship out $100,000 of product every month, which breaks down to the following shipping charges:
$30,000 for USPS First Class
$20,000 for USPS Priority
$30,000 for FedEx Ground
$10,000 for FedEx Express
$10,000 for FedEx International
This categorization gives you a clear understanding of where your shipping money is going.
Now, imagine a month in which your FedEx International charges jump to $16,000. Without thorough analysis, you might see a $6,000 increase on your bill and shrug it off, thinking it’s so close to your normal spend that it’s not worth looking into. But thanks to your macro audit, you can easily spot where the increased charges are coming from.
This could mean you had a big month of international shipping – or it might be a billing error.
Spotting these types of errors, in both micro and macro audits, gives you a chance to dispute the mistakes and recoup the funds from your carrier.
If these audits seem boring or you can’t spare the resources to conduct them, consider installing auditing software or outsourcing the job to an auditing company. With this method, you have a trained eye that can check for errors, discrepancies, and service failures.
OrderMetrics can help with some of this auditing. If you have connected your shipping provider like Shippo or Shipstation to OrderMetrics, you can review your shipping costs per order as they are shipped. Simply sort your orders by cost of shipping, or by shipping margin, and see the details of your most expensive orders to ship.
Whether it’s from a person or AI, you’ve got a fresh set of eyes from someone who knows what to look for and isn’t personally invested in your business. And, you’ll have peace of mind that your audits are being handled with the utmost care.
Being fiscally responsible isn’t just about budgeting or driving more revenue; it’s about going over expenditures in great detail.
Considering that shipping is one of your biggest expenses, a monthly audit of your shipping bills is well worth the time and money invested.
The OrderMetrics Profit Guide is designed to help you unlock the most profit for your e-commerce business.
We've got a combined 16 years of e-commerce experience and have personally used every technique described in this guide and seen the results in practice.
This is not intended to be nonsense content marketing like you find on other company blogs.
These are real, tested techniques could help you grow your business and put some cash back in your pocket so you can invest in things that matter to you.
Check out Order Metrics - A profit management tool for growing ecommerce merchants. The best way to track and measure your e-commerce store performance across multiple storefronts , advertising providers and shipping providers. Customers report increasing their margin by 5-6 percentage points after using Order Metrics.