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36
OPERATIONS

Shape Up Your Shipping
 

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"Free Shipping!" As customers, we all like to get free shipping when we place an order. But as business owners, we know shipping costs can quickly eat up profits. So it's time to find ways to reduce shipping costs.

In my publishing business, we ship a lot of stuff -- books, which are heavy. Shipping costs directly affects our profit margins -- and our customers' satisfaction.

Some of these costs -- such as shipping from the printer to the distributor -- are figured into the price of the book itself. But how do you set the charge of shipping and handling when you're fulfilling a customer's order?

Here's the cardinal rule: try to break even. Don't try to make money on your shipping and handling -- it's not competitive, and it's not fair. Equally important, try not to lose (too much) money. That's not easy.

Why?

Recognize the hidden costs of every package you send. Besides the actual freight costs levied by the shipping company, you have the cost of packing materials (which can be expensive), the cost of pick-up or of getting the package to the shipper, and the cost of staff time packing and processing orders. That's not even mentioning the time it to deal with shipping companies when there's a problem or when customers have special needs. That's why you charge for shipping AND handling.

Establishing shipping charges becomes even more problematic because rates vary depending on weight and distance. That means every order may have a different cost, yet you can't expect consumers to wade through complicated shipping charts.

Before you choose a shipping company, do some comparison shopping. You may be surprised.

For instance, I compared rates to ship one of our books from our offices in Palo Alto, Calif. to Manhattan. I assumed we used our packaging, dropped off the shipment, the package weighed 2.3 pounds, and it was not going to a residential address. I did not figure in any discounts. Here are the comparisons for ground, 2 day, and overnight (afternoon) delivery options:

FedEx:
Ground: $ 5.46 (1-5 business days);
2 day: $14.28
Express: $30.53

UPS:
Ground: $ 7.64 (5 days -- guaranteed delivery date);
2 day: $15.29
Express: $33.16

United States Postal Service:
Parcel post: $6.32 (8 days)
Priority (2 days) $8.55;
Express: $21.05 (not all locations served overnight)

Here's what you can do to reduce shipping costs and hassles:

  • Establish a primary relationship: You're going to use all the main shipping companies from time-to-time, but by choosing one primary company, you'll have more leverage in negotiating discounts and vastly reduce hassles.
  • Use the shipping company's software and online processing: Still filling out all those forms by hand? Stop! Both UPS and FedEx have free, easy-to-use software and online processing. This stores the addresses you send to, prepares shipping labels, figures charges, makes it a snap to track shipments, and even places the order for pick-up.
  • Ask to have a sales representative assigned to you and meet them in person: We're not a big customer, yet we have our own account rep from FedEx. They helped us negotiate a modest discount and suggest less expensive options. Talk to them at least once a year.
  • If you make sales from an Internet site, devise a simple way to charge for shipping: Customers are not willing to wade through a complicated formula; set one charge per item/order regardless of distance.
  • Use discounted or free shipping as an incentive: Remember, customers like free shipping, so offer free or steeply discounted shipping when customers make large purchases.
  • International shipping is a hassle: That doesn't mean you shouldn't do it, just recognize itís going to take more time and money and charge accordingly. We've found the US Postal Service to be much cheaper than other options, but that means we have to send a staff person to the post office and fill out lots of forms. So make certain international buyers understand the costs before processing their orders and get pre-payment by credit card!

Small businesses are big consumers of shipping services, and all the companies will be happy to talk to you. Spend a little time now to save a lot of money.

Copyright Rhonda Abrams, 2003

Rhonda Abrams is the author of The Successful Business Plan: Secrets & Strategies and the president of The Planning Shop, publisher of books and tools for business planning. Register for her free business tips newsletter at www.RhondaOnline.com.

Last updated: Sep 1, 2003




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