How To Reduce Your Shipping Costs For Your E-Commerce Store

Last updated: December 19th, 2018.

Shipping is one of the top 2-3 costs for most e-commerce companies, and it can be tricky to optimize it, and save money.

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 constand 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 certainly has cost me a lot, and is one of the reasons we started Order Metrics.

Let’s fix that.

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.

Why Should You Trust Us?

This was written by George Sylvain, co-founder of Social Print Studio, a successful e-commerce store that has been selling prints and profitable for 8 years. Additional help was provided by Hank Kronick, founder of Order Metrics and data analysis specialist.

We also reached out to the shipping experts at Shippo and included research from Thomas Marks, Shippo's marketing VP.

Tl;dr - The 5 Most Important Things

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.

Okay, now that's out of the way - read on for the full shipping-nerd details!

A guy adding unnecessary weight to a package before shipmentA guy adding unnecessary weight to a package before shipment

Weight vs Dimensional Weight

Okay, first some basics. There are 2 or 3 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:

  1. Weight - regular old weight, usually measured in pounds (lbs) (in the USA)
  2. 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.

Quick Tip

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.

One good way to think of this is, 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 - USPS

So, reducing weight - you might be thinking, that's 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 go full drug dealer and get the ultra sensitive 0.01g scale and weigh your inserts and stickers, to get under that 16oz cut off.

USPS 1st Class - The 16oz cutoff

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. (See our blog post on this!)

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.

5 Ideas On How To Reduce Weight

  • 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.
  • 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

Reducing Dimensional Weight

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.

Dimensional Weight equals volume over dimensional factor

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).

The Magic of 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.

try USPS media mail

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.

Key Takeaway

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.

Multiple Item Shipments

When a customer makes an order with multiple items at once, you could get slapped with a higher 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 & a poster.

The first step to fixing this to understand what items are commonly being purchased together. Order Metrics provides this report and if your shipping accounts are connected, you can also immediately see which combinations are costing the most to ship. If you aren't using Order Metrics, (shame!) 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.

For Best Results

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".

Shipment Consolidators

Up until now we have only dealt with the major shipping providers in the USA. However, 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.

Quick Tip - Use Consolidators

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.

3rd Party Fulfillment Centers

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 Order Metrics 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 & 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 Order Metrics 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.

Key Takeaways

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.

Post Shipping Analysis

You won’t always know your true shipping cost in advance of shipment as product weights can vary, maybe you sell customized items, so the only time you can really optimize & 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 Order Metrics 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:

Ordermetrics shipping screenshot Screenshot from Order Metrics - 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. Order Metrics 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!

Final Thoughts

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 Order Metrics, and 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!

About This Guide

The Order Metrics Profit & Growth guide is designed to help you unlock the most profit for your e-commerce business.

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 the other articles we have written back at our profit guide index.

Want to find even more ways to improve your bottom line?

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OrderMetrics - E-Commerce Profit Dashboard

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.

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