Six Ways Online Retailers Can Reduce Shipping Costs

How to profit from your deliveries despite the economic downturn? It's a tough e-commerce climate right now, no doubt about that. Inflation, plummeting sales and consumer spending, risk-averse venture capitalists, rising delivery costs — and carriers will only be increasing shipping fees because many of them are venture capital-financed, not to mention higher fuel surcharges.

"The market is now compelled to tackle substantial questions about how to go forward."

World Economic Forum

Here's one of them. What are the effective ways to reduce shipping costs and boost profits when running an e-commerce business? In the 'new normal', profiting from deliveries suddenly sounds like a pretty good idea. It's a prefect opportunity to experiment with your delivery strategy and implement these proven tactics to cut shipping costs — with successful real-life examples for taking informed business decisions.

Table of contents

• Re-negotiate your delivery contracts;
• Bring forward the delivery experience;
• Implement a free shipping threshold;
• A/B test your delivery configuration;
• Set up automated booking rules;
• Reduce the cost of packaging.

Re-negotiate your delivery contracts

Apart from the obvious — charging for deliveries — start by demanding lower shipping rates or shipping discounts from the carrier companies to improve your net shipping costs.

Many believed that the order volumes we’ve seen during COVID-19 are here to stay, and shipping carriers who depend on external capital have certainly promised their investors better forecasts than what they are currently delivering. 

Though as long as carriers can show volume growth, they can probably raise more money. Turn it to your advantage. Demand to pay less for your deliveries. If your delivery partners don’t agree, redirect your volume to someone else. 

For a shipping carrier looking for investors, it's better to show growth than to become a little less profitable in the short term. In other words, they will agree to be paid less as long as they get higher shipping volume.

Bring forward the delivery experience

Traditionally, online shopping focuses on the sale of products at the exclusion of the delivery experience that comes with it.

Delivery experience means the delivery interaction between your online store and consumers throughout the entire shopping journey — from product consideration until the moment they receive the order. 

Today, delivery offer commonly belongs to the checkout page — something consumers reach nearly at the end. That shows a lack of e-commerce delivery strategy and way too often results in high shopping cart abandonment. Shipping costs and methods are the make-it-or-break-it elements of the buyer decision process. 

If online retailers want to achieve sustainable growth, especially amid the current economic outlook, reduce shipping costs and start profiting from deliveries, this needs to change. Make the delivery offer as important as the product — display available shipping methods and costs at the product page or inside the mini-cart, for instance — and turn everything that happens after the purchase into a key business advantage.

Successful shipping strategy example: Adlibris

Since its launch in 1997, Swedish e-commerce pure-play giant Adlibris has earned the position of the Nordic's largest bookstore. Staying on top of the game in a competitive landscape is part of the dexterity that has gained Adlibris their impressive client base. 

Challenge

Early on, Adlibris had only been integrated with two major carriers, the delivery offer at checkout wasn't displayed in a consumer-oriented way, and there were no available data insights that would've made any real business impact. The delivery experience was at disadvantage.

It became clear that small tweaks in the offering — such as adding a home delivery option and improving the look and feel of the checkout page — could work wonders for customer satisfaction and repeat purchases. 

Results

Adlibris teamed up with Ingrid and implemented the Delivery Checkout to optimize shopping experience for every consumer — including delivery times, price and available carriers — while the number of integrated carriers had been continuously growing ever since.

Importantly, Adlibris saw a 10% net delivery cost decrease over 2018 and 2020. Impressive, isn't it? Delivery checkout optimization really does work wonders for reducing shipping costs.

Implement a free shipping threshold

For many e-commerce companies, offering free shipping seems like a must in order to stay competitive. Naturally though it becomes way too expensive for retailers.

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Here's a fix to reduce international shipping costs, equally to domestic rates. Set a free delivery threshold depending on the shopping cart value, combined with a fixed delivery rate across all products — if they are fairly similar in dimensions — or groups of products. 

For many businesses, though, setting up a free shipping threshold can be challenging, especially without any data insights. If you’re using a delivery platform like Ingrid, you could easily A/B test your delivery offering.

If not, there’s a workaround. Based on your Average Order Value (AOV), for example, you could have flat rate shipping for orders under 50 EUR to get the delivery costs back and provide free delivery for orders over 50 EUR.

If your typical order size is 30 EUR, this strategy may be beneficial. It encourages your consumers to swap delivery fees for additional items in their carts. Speaking from experience, experimenting with the free shipping threshold usually brings merchants great results in terms of increasing the shipping revenue without damaging the overall conversion rate.

Successful shipping strategy example: Syster P

Syster P offers timeless jewellery for every occasion, and their approach is truly personal — they want every customer to feel special and taken care of. The attention to detail and quality doesn't only apply to Syster P's products but to the whole shopping journey — including the delivery experience.

Challenge

At some point, free shipping to Norway became challenging for Syster P, mainly due to high international shipping costs. When customers placed orders for lower-priced products, the cost of handling and transporting the order was too high to remain profitable. To make an informed decision regarding shipping costs, the idea was to test whether free shipping increases conversion or stays the same when customers have to pay for delivery by themselves.

Results

With Ingrid, Syster P was able to set up a split test where 50% of all visitors were offered free shipping regardless of the order value, while the other 50% were offered free shipping for orders over 500 NOK. Eventually, they've recorded a 18% increase in the AOV within the group that was offered free shipping over 500 NOK — without the decrease in the conversion rate.

"Ingrid’s A/B Testing has helped us make an important decision regarding our shipping options, based on real data insights."

Hanna Holmberg, Creative Project Manager at Syster P

Instead of just removing the free shipping option completely, pricing experimentation made it possible to set the optimal free shipping threshold and analyze how it affects consumer behavior and sales. Now, let's move on to see how A/B testing works exactly.

A/B test your delivery methods and shipping fees

How much can you charge for deliveries to keep them profitable? What about offering free shipping? Tough questions, especially without any data insights. Not if there's a way to experiment with your delivery configuration and consumer preferences.

Find our what your customers prefer — and how it affects the bottom line — by A/B testing your delivery options. In simple terms, checkout A/B testing — also known as split testing — is a method of determining which version of the delivery checkout resonates more with the target audience.

Your web visitors are shown two or more versions at the same time, which helps you check which checkout configuration they prefer and which option impacts your business metrics the most. It's a data-based method of understanding consumer behaviour and validating the assumptions before making important business decisions.

Successful shipping strategy example: NA-KD

Born in 2015 in Sweden, NA-KD — currently one of Europe's top 20 fastest-growing companies— has been taking over the fashion world proving that clothing can be affordable and on-trend.

Challenge

Such rapid growth, however, means quite a few challenges — especially when it comes to the delivery experience. Before implementing any business decisions, NA-KD wanted to make sure that free shipping actually influences high conversion. On top of that, the team was looking to experiment with different carrier services and their checkout order to see how customers would react to them.

Results

Thanks to Ingrid’s A/B Testing feature, NA-KD was able to soft launch new delivery methods, experiment with the free shipping threshold and collect valuable data insights. The results of the A/B test run for one of NA-KD markets proved that raising the free shipping threshold can make deliveries profitable without damaging conversion rates — with an 82% increase in shipping revenue.

“Thanks to the A/B Testing feature we were able to prove that we can raise the free shipping threshold without damaging the overall conversion."

Olivia Friberg, Last Mile Coordinator at NA-KD

Set up automated booking rules

Another way to lower shipping costs would be to set up automated rules and scenarios in your transport management system (TMS).

TMS stands for a technology that helps businesses plan, execute and optimize the shipment of goods, both incoming and outgoing. More often than not, it allows online retailers to book transportation, print labels and freight documents, as well as monitor carrier performance. What's typically missing in these systems are features that can further improve and automate certain shipping stages.

Features like smart booking rules help merchants automate certain scenarios for booking shipments, based on their business goals. In Ingrid Transport, for example, you can set up 'if-this-then-that' rules to always book the cheapest carrier option and reduce the shipping cost.

Decrease your less obvious cost per packaging — like shipping labels

Following months of hard work — a joint effort of Adlibris and Ingrid — Adlibris warehouses now print a smaller shipping label generated via Ingrid Transport. 

Reduction in the amount of material used to produce parcel labels — especially on the scale of Adlibris's shipping volume — presents one way of reducing packaging costs and making packing supplies more sustainable long-term. Smaller parcel labels use less material, ink, and adhesive. They also take up less space in storage and burn less fuel when transported.

As a result, Adlibris has recorded a 5 ton reduction in the amount of paper and a 300K SEK cost decrease.

With such a high volume of orders, even a small change creates a big impact in terms of sustainability and better margins. One small label for a parcel, one giant leap for sustainability and lower shipping costs.

Join forward-thinking retailers in the delivery-first era

Financial times are tough, and the last-mile leg of the supply chain presents one of the leading challenges within the retail and logistics industry. It makes up 53% of all shipping expenses for online retailers, and consumer expectations as to delivery convenience are on the rise. Not only it's time to start saving on shipping costs in online retail but also start making profit on deliveries.

Book a demo to see how Ingrid Delivery Platform will improve the delivery experience for your customers and help you save money on shipping.