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Start Your Business Startup Basics

A Small Business Guide to E-Commerce Shipping

A Small Business Guide to E-Commerce Shipping
Credit: aboikis/Shutterstock

In the days of mail-in catalog orders, companies could make the vague promise of "four to six weeks" for shipping, and there wasn't much customers could do about it but wait patiently. Today, even four to six days might be too long of a wait for customers who are used to next- or same-day delivery options.

Modern consumers are accustomed to instant gratification when they shop online or on their mobile device, and they expect the companies they patronize to send out their orders just as quickly. This puts a lot of pressure on e-tailers to streamline and optimize their shipping.

"All customers care about shipping," said Jarrett Streebin, CEO of shipping solutions provider EasyPost. "[Whether you're a] big or small retailer, shipping is a chance to impress or disappoint. That doesn't mean you have to spend a lot of money on it, but processing orders efficiently ... is crucial."

Whether you're just starting your business and don't know where to begin with shipping, or you just want to make your shipping operations more efficient, here are the most important things retail businesses need to know about the process.  [3 Big Challenges for Small E-Commerce Retailers]

There's a lot that happens between the time an item leaves your warehouse and the time it reaches the consumer. Getting a package from point A to point B requires numerous vendors, service providers and technologies, whether you're directly involved with them or not. Tom Caporaso, CEO of Clarus Commerce, a provider of e-commerce and subscription commerce solutions, outlined just a few of the major factors that can affect your shipping process:

  • Sales volume: What is the approximate number of daily, weekly, seasonal and annual sales you make?
  • Handling costs: What materials do you need to package your products — boxes, packing materials, labels, tape, etc. — and how much do they cost you?
  • Drop-off/pickup times and rates: How long does it take you to prepare orders for shipping?  Can you save money if you pack orders at night and drop them off the next morning?
  • Distance from each vendor: How much will you save if you have to drive across town during rush hour to drop off shipments?
  • Shipping speeds: How many orders are time-sensitive? Can you save money and satisfy customers by choosing the slowest delivery times?
  • Range and average weight of shipments: How much will customer order weights vary, and how much might that affect your costs?
  • Tracking ability: Can you (and your customers) monitor the progress of your shipments? 

Once you've determined the answers to these questions, you're ready to find vendors that suit your business's shipping needs and budget.

When you first start your business, you may have a small enough sales volume that you can just rely on FedEx or UPS to handle all your shipping needs. As you grow, however, you'll likely want to look into multistep and vendor shipping options to get your deliveries out faster.

"Small businesses should take the time to identify the right shipping mix for their business needs," added Amine Khechfe, co-founder of shipping solutions company Endicia. "FedEx and UPS are only a part of the shipping mix. While using just one carrier may seem like a simple solution, it may not be the most cost-effective one."

"You need to make sure you have a lot of choices," added Kevin Lathrop, president of shipping company Unishippers Global Logistics. "If you're signed up with one carrier to do all of your shipping, [your service] is going to lack. You really want to understand your options based on price and transit time."

Khechfe recommended that e-tailers consider the U.S. Postal Service (USPS) as an alternative to private carriers, especially if they regularly ship bulky products. Business owners should take surcharges into account for services like weekend or rural delivery, and use this information to determine the most economical options for meeting customer delivery expectations, he said.

Drop shippers and other third-party logistics (3PL) providers can also reduce shipping costs for small e-commerce businesses. Drop shipping — in which a retailer sends customer orders to a manufacturer or wholesaler that then ships the product out from its warehouse — is a particularly attractive option for businesses that want to boost their shipping volume without increasing the space needed to store their inventory. Similarly, 3PLs can leverage the combined inventory volume of a group of smaller merchants to offer better shipping alternatives, said Jose Li, CEO of shipping insights and analytics firm 71lbs.

Smaller online retailers won't have the resources to build warehouses or contract drop shippers all across the country, but building smart, strategic relationships and using technology can help these businesses find the right balance of price and convenience.

"The little guys have to act like the big guys," said Frank Poore, founder and CEO of online merchandising and fulfillment platform CommerceHub. "They have to do things systematically to minimize costs and transit times."

For instance, Poore said, depending on the package weight, your fastest, least-expensive delivery method might be to have a private carrier take it part of the way, and have USPS make the final delivery. He also suggested looking for suppliers and drop shippers in areas that are closest to your customer base, to minimize the distance between the origin and the destination.

Shipping has come a long way in recent years. Thanks to technology, businesses can now carefully monitor every step of the delivery process, and update their customers on a shipment at any given time. This not only benefits the customer, but ensures that you're not held liable for any errors that occur after your product leaves your business.

"One of the biggest challenges is knowledge of what has been happening all along the supply chain and being able to confirm it," said Hedgie Bartol, business development manager for the retail division of networked surveillance solutions company Axis Communications. "Traditionally ... if a customer reported the wrong-color product showing up, or something marked as damaged, you really could only take [his or her] word for it."

Now, Bartol said, businesses can use video surveillance, real-time scanning/tracking and other analytics tools across their entire supply chain, and can even add some intelligence behind the system that can offer object recognition, bar code readers and other tools. You can use this information to optimize your system and reduce discrepancies and inefficiencies that slow you down.

Providing tracking details for customers is crucial, as they want to know exactly where their purchases are, Streebin said. He advised focusing on getting your orders packed and shipped within 24 hours whenever possible, and sending out tracking numbers immediately.

Caporaso said e-tailers should evaluate their shipping strategy every six months to ensure that it's operating at peak efficiency and delivering the best possible value to customers at the lowest possible cost to the business. An ongoing program of data collection and analysis is an invaluable part of that effort, he said.

Packaging. Last year, FedEx and UPS switched to a dimensional pricing model, meaning that shipping costs are now determined by both the package weight and its size for ground shipments. Lathrop said that many businesses made a lot of adaptations to optimize their packaging for this reason, and if your business has not done so, now is the time to start thinking about it.

"You want to use the minimum amount of space you can," Lathrop said. "Package for safety and density, and put [your items] in an appropriate box for the load."

Lathrop also said that if you're shipping multiple items on a shrink-wrapped pallet, it's important to label each individual box in case the load is broken up before it reaches its final destination.

Return policies. Because they're unable to test or try on items they purchase on your site, Caporaso noted that e-commerce customers are more prone to returning their purchases than in-store shoppers are. Creating a customer-friendly return policy that includes free return shipping may cost more up front but could go a long way in creating customer loyalty. 

"You don't want to absorb more costs, much less encourage 'frivolous' returns, but offering free return shipping, especially to your best customers, will give them greater confidence, knowing that you stand behind your products," Caporaso said.

Customer expectations. Your customers' expectations should be at the core of every shipping decision and deal you make, Caporaso said. A carrier that saves you money in the short term but provides poor service will cost you customers, and therefore money, in the long term.

"It used to be that retailers could use shipping-and-handling charges to pad their margins, but e-commerce has changed all that," Caporaso said. "Online shoppers practically demand free shipping these days, and if they can't get that, they expect — at the very least — that their orders will show up on time and in excellent condition."

Regardless of whether you offer free shipping, you need to set and manage your customers' expectations. Your shipping policy should be easy to understand, and easy to access on your website. Caporaso also cautioned e-tailers not to promise more than they can deliver, especially during peak times like the holiday season. 

"Establish firm, achievable shipping deadlines, and stick to them," he said.

Nicole Fallon Taylor
Nicole Fallon Taylor

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the assistant editor. Reach her by email, or follow her on Twitter.