Amazon has created a world where customers expect their items to be received free and fast. How can an e-commerce brand compete with Amazon on package delivery speed and shipping costs?

In fact, free and reliable shipping are top priorities for online shoppers, so much so that customers are willing to add more items to their orders to qualify for free shipping. According to Dotcom's 2019 Consumer study 62 percent of respondents ranked free shipping as the top feature that influences them to become repeat customers.

As this trend continues, properly identifying the ideal free shipping threshold for your customer base is critical. Identifying this minimum is likely to boost average order value (AOV). Fortunately there are proven ways that e-commerce sellers can make and keep their promises to customers when it comes to shipping product quickly, and not lose money in the process.

Here's how you can right-size shipping costs to fit your business: 

Know the average order value.

When selling online you've got to know your numbers. That's why you must understand the importance of average order value, or the average amount customers spend in one purchase.

One way to do this is to work with an experienced partner in the shipping and logistics space, make data based decisions, and determine the threshold for offering free shipping on orders. A focus on boosting your average order value not only helps upsell to customers, it also manages expectations, and helps increase profits, give great service, and satisfy customers. 

Know the map.

There's no point in having great overnight and second-day shipping rates if the majority of your customers can receive their packages via ground service in one or two days. Analyze which states or regions you ship to most often.

The result is a "heat map" that visually displays common package destinations. Then you can work with the shipping carriers and partners to choose the shipping methods that best suit the needs of your customers and your bottom line.

Know the shipping options.

Not all ground services are created equal. The same goes for overnight services. Different shipping services between carriers, and even within carriers, offer different delivery times, tracking information, and of course, different costs.

For instance, UPS has several overnight shipping services. The Next Day Early service gets the package delivered on the next business day with an arrival time guaranteed by 8AM. That package delivery speed is impressive, but it comes at a high price. Packages shipped via UPS Next Day Air service arrive by 10AM at a lower price. UPS Next Day Saver arrive before the end of the next business day, and at an even lower price.

That's why it's critical to research your shipping methods carefully in order to determine which shipping method is appropriate for each package. 

Automate the process.

Once you know where your customers are, and you understand the available shipping options, it's time to automate. Data savvy third party logistics partners (3PLs) use software that make package-level decisions about what carriers and services to use depending on specific criteria. That means if you've promised customers that their package will be received within three days, the right shipping method can be chosen automatically so that you will deliver on that promise.

Package-level decisions are based on a "time-in-transit matrix." This mix of carriers and classes should be continually refined and updated as carriers make changes to their services, and as your sales expand.

Dig into the costs.

The delivery time of the different shipping methods you choose should be revisited and updated at least annually. Carriers are always offering new services and  changing features in existing services. And this doesn't include the General Rate Increase (GRI) which also occurs annually across each carrier from December through March. So that you can optimize your shipping spend, it's crucial that you have the clearest visibility into the cost of every package that you've shipped.

At Dotcom Distribution, we offer our clients a tool called FreightLogix, that gives insight into shipping spend and on-time delivery. This data can then be compared to other carriers costs for the same package weight, service, and ZIP code so that shipping spend can be forecast based on the new rates and anticipated package volume. 

You don't need to be a data scientist to understand and effectively use shipping data to make informed decisions. Most reporting tools are created for business users and have a built-in analytics and business intelligence engine to deliver necessary insights. Ultimately, a business review is about more than just one data point. Knowing your overall shipping spend is essential if you really want to improve the customer experience, keep shipping costs in check, and continue to offer free and fast shipping to your customers.