Measuring Shipping Cost Per Order: Why It Matters for E-Commerce Operations

In the world of e-commerce, the cost of shipping is a crucial factor that significantly impacts the overall business operations and profitability. Therefore, it’s essential for every online retailer to measure and understand shipping cost per order. In this article, we’ll highlight the importance of accurately measuring shipping costs, how to calculate them, and what strategies businesses can employ to reduce shipping costs and increase profitability.

The Importance of Accurately Measuring Shipping Cost Per Order

Measuring shipping costs may seem like a small detail, but it has a significant impact on the overall operation and profitability of an e-commerce business. Accurate measurement of shipping costs allows retailers to understand their expenditure on shipping — from packaging to postage and handling fees, including the hidden costs like time spent packaging, labeling and picking orders.

This data enables businesses to set appropriate shipping rates and budgets to maintain profitability without negatively impacting the overall customer experience. Additionally, a comprehensive understanding of shipping costs helps optimize fulfillment processes, allowing e-commerce retailers to make informed decisions about the right carriers, shipping rates, packaging materials, and even the products they choose to offer.

Another important aspect of accurately measuring shipping costs is the ability to identify areas for cost-saving. By analyzing shipping data, businesses can identify inefficiencies in their fulfillment processes and make necessary adjustments to reduce costs. For example, they may find that certain carriers or shipping methods are more expensive than others, or that certain products require more expensive packaging materials. By making these adjustments, businesses can reduce their overall shipping costs and increase profitability.

Furthermore, accurate measurement of shipping costs can also help businesses improve their customer service. By providing customers with transparent and accurate shipping rates, businesses can build trust and loyalty with their customers. Customers are more likely to return to a business that provides them with a positive shipping experience, including timely delivery and accurate tracking information. This can lead to increased sales and revenue for the business in the long run.

How Shipping Costs Impact E-Commerce Profit Margins

The impact of shipping costs on an e-commerce business’ profitability is significant. High shipping costs lower profit margins, which, in turn, can lead to reduced customer retention and even a decline in sales. Studies show that high shipping costs are the main reason for customers abandoning their carts, and customers today are even more conscientious of shipping costs than before due to the competitive nature of the e-commerce landscape.

Therefore, retailers who do not manage their shipping costs effectively face the risk of losing customers to their competitors. Alternatively, businesses that find a balance between the cost and quality of their shipping services can significantly affect their profit margins and thus establish their position in the market. Simply put, measuring shipping cost per order helps improve profitability, which, in turn, enables e-commerce businesses to grow and succeed.

One way e-commerce businesses can manage their shipping costs is by offering free shipping. While this may seem counterintuitive, studies have shown that customers are more likely to make a purchase if free shipping is offered, even if the cost of the product is slightly higher. This is because customers perceive free shipping as a discount and are more likely to complete their purchase, leading to increased sales and higher profit margins.

Another way to manage shipping costs is by optimizing packaging. By using the right size and weight of packaging, businesses can reduce shipping costs and improve efficiency. Additionally, using eco-friendly packaging can also appeal to customers who are environmentally conscious, leading to increased customer loyalty and retention.

Understanding the Metrics: Average Shipping Cost Per Order vs. Actual Shipping Cost Per Order

There are two main metrics to consider when measuring shipping costs: average and actual cost per order. Average shipping cost per order calculates the overall shipping cost by dividing the total shipping expenses by the number of orders shipped over a period of time. An actual shipping cost per order, on the other hand, calculates the precise cost of shipping a single order independently.

While both metrics provide useful insights, it’s essential to employ actual shipping costs per order because businesses can identify pricing inaccuracies and truly evaluate their shipping expenses. Using this metric enables businesses to detect shipping inconsistencies, helping them make informed decisions about pricing and optimize their overall e-commerce operations.

Another benefit of using actual shipping cost per order is that it allows businesses to accurately calculate their profit margins. By knowing the exact cost of shipping each order, businesses can factor this into their pricing strategy and ensure that they are making a profit on each sale. This information can also be used to negotiate better shipping rates with carriers, as businesses can provide concrete data on their shipping expenses.

Furthermore, actual shipping cost per order can help businesses identify areas where they can improve their shipping processes. For example, if a particular product consistently incurs higher shipping costs than others, businesses can investigate why this is the case and make changes to their packaging or shipping methods to reduce costs. This can lead to more efficient and cost-effective shipping practices, ultimately benefiting both the business and its customers.

Factors That Affect Shipping Costs for E-Commerce Businesses

Several factors contribute to shipping costs, including the size and weight of the product, the distance to the delivery address, the shipping speed or courier type, the packaging material, and destination taxes and duties. In other words, smaller, lighter, and more standard packages might cost less to ship than larger, heavier, or more customized products.

For accurate shipping cost per order measurement, e-commerce businesses must carefully track these factors to identify which factors contribute the most to high shipping costs. By doing this, they can adjust their products, their pricing, and the shipping logistics to balance shipping costs and relationship with customers.

How to Calculate Shipping Costs for Your E-Commerce Business

There are several steps e-commerce retailers can use when calculating shipping costs accurately. First, gather the necessary data related to the factors that impact shipping costs. Second, determine the shipping method by which packages will be carried to your customers — considering factors like the package size, distance, and speed of delivery. Third, obtain the cost of shipping from the carrier and calculate the overall shipping cost per order using the actual shipping cost per order metric.

Online retailers can use a managed shipping software solution like Shiprocket, Shipstation to manage and optimize their shipping operations based on data. When used effectively, these tools can help reduce shipping costs and improve process efficiency, resulting in better customer service and business growth.

The Role of Technology in Measuring and Managing Shipping Costs

Thanks to technology, there are various solutions to managing shipping costs today. E-commerce platforms, inventory management software, and shipping software provide seamless management of shipping activities, so businesses don’t have to worry about the complexity of shipping.

Shipping tools like Shippo, Wix.com, and Easyship, for example, integrate with e-commerce platforms and accounting software, allowing businesses to calculate and optimize shipping costs, create shipping labels, track shipments, and even manage international taxes and duties. These technologies save time, reduce shipping costs, and streamline operations, allowing e-commerce businesses to focus on more critical activities like customer service and marketing.

Strategies for Reducing Shipping Costs and Increasing Profitability

Reducing shipping costs is a key consideration in improving profitability. Successful e-commerce businesses achieve this by evaluating their shipping methods, their choice of carrier, and the size and weight of their products. One common strategy is to offer free shipping over a certain purchase threshold, encouraging customers to buy more at once. Additionally, optimizing the packaging, focusing on reducing the weight and size of packaging, and reducing returns can also save on shipping costs.

The Importance of Offering Competitive Shipping Rates to Customers

Customers no longer look at shipping as an additional cost but rather, as a service provided by e-commerce businesses. Offering competitive shipping rates will help businesses stay competitive, and reduce cart abandonment rates while attracting and retaining more customers. With businesses today forced to ship to the extreme corners of the world, offering shipping rates that match customer expectations and market trends is a fundamental consideration.

How Measuring Shipping Costs Can Improve Operational Efficiency and Customer Satisfaction

Efficient shipping operations require e-commerce businesses to carefully measure shipping costs per order to optimize operations continually. Measurement of shipping costs allows businesses to make data-driven decisions instead of relying on intuition to make critical decisions about shipping logistics. For example, businesses can save time and resources by selecting carriers based on costs, packaging, delivery speed, customer satisfaction, and many other factors that impact customer satisfaction levels.

Case Study: How One E-Commerce Business Optimized their Shipping Costs and Increased Revenue

One of the best ways to understand the importance of measuring shipping costs is through case studies. The following is an example of a company that optimized its shipping costs.

A jewelry company in the UK was struggling with increasing shipping costs and a low conversion rate. After using shipping software to track their shipping costs over a year, the company found that its shipping costs were much higher than anticipated. The company then adjusted its pricing to cover its shipping, analyzed its shipping speeds, and optimized its packaging. By making these changes, the company lowered its shipping costs by 20% and increased conversions by 10%.

The Future of E-Commerce Shipping: Trends and Innovations to Watch Out For

As e-commerce continues to grow, the importance of efficient and cost-effective shipping operations will continue to increase. To remain competitive, businesses need to stay up to date with the latest trends and innovations in e-commerce shipping. These trends include same-day delivery, drone delivery, and even automated delivery vehicles. Additionally, optimizing the last-mile delivery, optimizing packaging, and sustainability are becoming increasingly critical considerations in the shipping industry.

Best Practices for Measuring and Managing Shipping Costs in Your E-Commerce Business

To ensure the proper management of shipping costs, e-commerce businesses must consider the following best practices:

• Track shipping costs accurately using data
• Use actual shipping cost per order to assess pricing accurately
• Optimize packaging materials and product size to cut on shipping costs
• Use efficient shipping software that fits your business need
• Provide competitive shipping rates for customers
• Ensure the most efficient delivery method for packages
• Stay up to date with the latest trends and innovations in e-commerce shipping.

Conclusion

In summary, measuring shipping costs per order should be a crucial consideration for all e-commerce businesses. By calculating and managing shipping costs accurately, businesses can better optimize fulfillment processes, reduce shipping costs, and improve overall profitability while keeping their customers happy. By investing in shipping technology, optimizing packaging, and offering competitive shipping rates, businesses can tailor their shipping experience and remain competitive in today’s e-commerce landscape.