How to Reduce Shipping Costs for a Small Business

How to Reduce Shipping Costs for a Small Business

One of the most costly components of running a small business is the shipping costs. As an entrepreneur, you’ve surely grappled with soaring shipping expenses, and cart abandonment issues that are par for the course. While big corporations generally enjoy major shipping discounts, small businesses are usually stuck struggling with exorbitant shipping rates – which are hard to swallow, especially when your venture is still in its infancy and not in a stable financial position. 

But it’s not all doom and gloom; we’ve actually got some good news for small business owners who are seeking to ship domestically and/or internationally: It is possible. Indeed, there are several strategies that exist to help ease the burden of shipping costs for small businesses like yours. We’ve compiled a list of tried-and-true tactics that can make shipping costs far more manageable, so you can shift your focus to growing your business, and away from logistical headaches. Keep reading to learn more!

Understanding the Components of Shipping Costs

Before we begin outlining our advice for reducing shipping costs for a small business, it’s crucial to understand the components that influence shipping costs in the first place. Shipping costs are broken down into four key components that comprise the total bill: packaging materials, labor, courier fees and import/export fees.

Packaging materials

Believe it or not, cardboard boxes and bubble wrap come at a cost, too. They can actually end up being a significant chunk of your overall shipping costs. The size and weight of your packages of course play a role here; the larger the box and the more packaging material required, the more expensive the parcel will be.

Labor 

Packing and preparing your products for shipment requires some degree of labor. Of course, this will depend on the size of your business, and whether you’ve partnered with a third-party logistics company. In most cases, warehouse staff will need to carefully wrap each individual item, and the labor costs can certainly contribute to the final tally – unless you are doing all the picking and packing yourself.

Courier fees

Courier services are where shipping rates come into play. Different shipping options come with varying price tags, and as you would expect, expedited services can quickly inflate your shipping costs. That’s why it’s very important to compare the different options out there, and select the courier service that meets your shipping needs. 

Beyond these factors, there are other things that contribute to a high shipping rate, including the value of the shipment, fuel surcharges and the destination of a given package. For instance, the declared value of a shipment can impact insurance costs, and carriers may therefore charge higher fees to ship more valuable items. Meanwhile, fuel surcharges are often applied to compensate for fluctuations in fuel prices. As the cost of fuel goes up, carriers may charge customers more. This is where the distance to the destination comes into play, because the distance traveled and the mode of transportation directly affect fuel charges. 

Import/export fees (for international shipping) 

If you’re planning on taking your business global, you’ll quickly realize that it comes at a steep shipping cost. Not only will you need to pay courier fees, but you’ll also be required to pay custom duties, taxes and other import/export fees that could catch you off guard. These fees vary vastly by country and product type, so it’s critical to get an understanding of what these costs could amount to before shipping internationally. 

Why High Shipping Costs are a Concern for Small Businesses

High shipping costs are a  concern for all businesses – but especially those that are on the smaller end of the spectrum. Online businesses are all too familiar with cart abandonment, which is when a shopper fills their cart and abandons it at checkout, once they see the total price. In these cases, the total price is often higher than they anticipated – due, in large part, to costly shipping fees that can be a major turn-off.

Studies consistently demonstrate the impact of shipping costs on consumer behavior. According to one survey by Statistica, 54% of online shoppers in the United States pointed to high shipping costs as a reason to abandon their carts. The psychological barrier of additional charges can be a deal-breaker that causes people to reconsider their purchase decisions.

Beyond impacting immediate sales, high shipping rates also do damage to a company’s overall customer loyalty and brand perception. Small businesses can find themselves caught in a cycle where cart abandonment diminishes profitability and hinders growth and long-term success. 

Strategies to Reduce Shipping Costs

With all that said, savvy entrepreneurs can strategically overcome high shipping costs. Here’s how: 

Reducing Package Weight

You’d be surprised how much a package’s weight impacts shipping costs. Opting for lightweight materials (like poly mailers or padded envelopes) rather than heavy cardboard boxes can be a real game-changer. Reducing the weight of a given package directly lowers shipping costs, particularly for long-distance or international shipping. 

It’s useful to create custom containers that perfectly fit your products. Not only will this enhance the unboxing experience for your customers, but it’s also a smart financial move. Custom containers can substantially decrease weight and unused space, ensuring you’re not paying more than necessary to ship packages. In addition to reducing weight, creating custom shipping containers also streamlines the shipping process as it could potentially qualify your packages for cheaper shipping rates. 

The best way to determine the right package size is to measure wisely. You must measure your products precisely, including their dimensions and weight. We recommend experimenting with different packaging sizes, and aim to strike a balance between protection and minimizing excess space. A well-fitted package will safeguard your products and profit margins concurrently. It’s a real win-win.

Using Flat-Rate Shipping

Flat-rate shipping is a great option for small businesses, as the shipping fee is the same regardless of the package’s weight or destination. This approach is ideal for businesses that are seeking to forgo variable shipping costs and opt for more stable, budget-friendly fixed costs.

There are several advantages of flat-rate shipping, not the least of which is predictability. Flat-rate shipping allows businesses to smartly forecast costs and budget accordingly. With a fixed cost per package, there are zero surprises. This sense of stability is especially useful for small businesses that desire some financial stability.

Flat-rate shipping also simplifies things for customers. Knowing the shipping cost upfront eliminates any uncertainty associated with variable shipping rates, thus enhancing transparency and reducing cart abandonment rates. Plus, businesses can leverage flat-rate shipping as a marketing and promotional tool. Indeed, customers value straightforward and affordable shipping options, making flat-rate shipping a strong selling point. 

Staying Updated on Rate Changes

Shipping rates are constantly in flux, and as a small business owner, it’s hugely helpful to stay informed about rate changes implemented by shipping carriers. This proactive strategy can lead to significant cost savings in the long run.

Carriers adjust their fees based on various factors. By staying informed, you can adjust your budget accordingly, and mitigate financial hits. You can also ensure your pricing remains competitive, and you’re not missing out on an opportunity to pay less for shipping. Carriers also could offer new services or modify existing ones, so staying in the know will allow you to choose the services that best suit your business needs.

If you’re always armed with updated shipping rates, you’re in a strong position to negotiate shipping contracts with carriers. Understanding the market rates will empower you to secure more favorable terms.

To stay informed on shipping rates, we highly recommend checking carrier websites. They typically feature the latest rate information, as well as service offerings and any changes to their terms and conditions. It’s also helpful to regularly read industry publications, including newsletters, as they can provide insider insights into market trends, rate changes and industry best practices. Many shipping software platforms also integrate carrier rates and provide real-time information, and there are lots of online industry forums and professional networks that can be useful to partake in, too.

Offering Local Delivery or Pickup Options

Especially if you’re just starting out in the eCommerce realm, integrating local delivery or pickup options is a savvy strategy that can considerably trim down shipping costs. For one, local pickup or delivery minimizes the need for long-distance shipping, and sidesteps the steep costs associated with extensive transportation. Carriers typically classify regions into shipping zones, with closer zones costing less.

If your business is operating in a concentrated local area, offering same-day or next-day shipping is a great selling point. This will enhance customer satisfaction, while also allowing you to manage your delivery logistics more efficiently. At the end of the day, the shorter the distance is between your business and your customer base, the lower your shipping costs will be. In short, an effective way to reduce shipping costs for small businesses is to grow your local customer base.

Making the Most of USPS Shipping

If we look at the United States Postal Service (USPS) as a popular carrier, we can see that carriers offer different methods to pay less for shipping. In the case of USPS, there are several options to consider, including: 

First-Class Package Service 

This option is ideal for lightweight packages under 16 ounces. First-Class Package Service is cost-effective, and delivers within 1-3 business days at a lower rate than Priority Mail.

Flat Rate and Regional Rate Packaging 

Using USPS Flat Rate boxes or Regional Rate boxes can offer shipping benefits. As you’d expect with Flat Rate packaging, you pay a fixed rate regardless of the weight of the package. For this reason, Flat Rate boxes are a great option for heavier items. Meanwhile, Regional Rate boxes offer tiered pricing based on the destination, which offers potential savings for smaller distances.

USPS Cubic Pricing 

Cubic Pricing is an excellent option for small businesses shipping small – but dense – items. This shipping option is based on the package’s volume (cubic inches) rather than weight. If your package is under 20 pounds and fits certain size criteria, you can save significantly with Cubic Pricing. 

Leveraging Stalco Shipping

Partnering with a trusted third party logistics company is a great way to reduce shipping costs for small businesses. Believe it or not, using a fulfillment center has cost-saving perks that can significantly bolster your bottom line. Fulfillment centers help businesses save money in two key ways: economies of scale, and negotiated shipping discounts. 

Stalco, for instance, offers a slew of cost-saving shipping solutions that can help merchants substantially save on shipping costs in Canada and the United States. At Stalco, we pride ourselves on being a full-service fulfillment and logistics company with a suite of unique services that satisfy our clients and help them scale their businesses. When it comes to logistics, we believe there is no one-size-fits-all solution, which is why we offer an array of customizable services, ranging from picking and packing, kitting, inventory management, systems integration and order tracking, as well as returns processing.

Given our close relationships with Canadian shipping services, we guarantee our clients the lowest freight rates in North America, and we offer same-day shipments from Canada to the U.S. on all orders received by 9:00 a.m. EST. We are experts in duty elimination, helping our clients save up to 40% on product costs using our free Duty Drawback service. Plus, our warehouse is a Health Canada Site Licensed facility for storage, shipping and labeling. Our staff are well-versed in all regulations, protocols and procedures, and we have a wide variety of Health Canada licensed products. 

Check out some of our case studies, which showcase how Stalco has managed to help various eCommerce businesses flourish and expand. 

Conclusion

As a small business owner, the cost of shipping can be steep – and daunting. But now that you’ve read through this article, you should have a strong arsenal of tips and tricks to reduce shipping costs. Whether it’s by partnering with a third-party logistics company such as Stalco, creating customized lightweight packaging or researching the different services offered by carriers, there are certainly things you can do to lessen the financial burden of shipping packages. We encourage you to implement the strategies outlined in this post, as we sincerely believe they will help you improve your business’s bottom line and long-term success!