Shipping costs continue to be a major cost component in a company’s overall supply chain costs. Furthermore, shipping rules and regulations continue to increase in complexity, and costs continue to increase every year. Oftentimes, companies either absorb these costs or pass them on to distributors who are struggling to manage expenses while building a business. In addition, shipping policies and costs may directly impact a company’s sales and its ability to recruit and retain distributors.
Over the years, we have helped many companies improve their shipping policies and offers and lowered their costs. As a first step in the process, we generally ask companies a series of questions to help them assess and further evaluate their shipping policies and costs. Questions we ask include:
- How did they develop their current shipping policies and procedures?
- Just as they offer distributors a selection of products at varying price points, do they offer a range of shipping options at different price points as well?
- Is shipping viewed as an additional product offering by the company?
- How do they price standard shipping and do they charge a premium for express or time-guaranteed deliveries?
- Are they losing distributors due to shipping costs associated with monthly order requirements?
- How do their distributors feel about the company’s shipping policies and charges?
- Do they offer a promotional free shipping option for distributors? If so, which shipping option is free?
- Are they taking advantage of the many marketing opportunities associated with shipping a package to a distributor?
- What actions are they pursuing to mitigate the ever increasing costs of small parcel shipments?
- Is shipping a profit center for their company?
Not surprisingly, companies often struggle with answering these questions. Nearly all companies dedicate time and resources to critical activities, such as product development, sales and marketing and other core activities, but far fewer devote the required resources and energy to developing creative shipping policies and pricing to support and enhance distributor recruitment and sales activities and reduce costs.
The Cost of Shipping
Studies by Forrester Research Inc. and other leading research organizations state that perceived high shipping costs is the leading reason customers elect not to complete a purchase. Whether it is an ecommerce customer visiting an electronic store or a distributor attempting to join an organization and make a purchase, the perceived high shipping costs can negatively impact the outcome. Creative ways to reduce costs in this area may drive sales.
In one case, a California-based company recognized that its shipping policies were negatively impacting its sales and customer satisfaction. In addition, the shipping department was a cost center and reduced the overall profitability of the organization. The company identified that the lack in shipping choices for ordered products was its primary and fundamental problem. Shipping is not a one-size-fits-all solution because some customers may be willing to pay for expedited delivery, while others may be willing to wait for their product and pay the lower delivery cost. Fortunately, this company now offers various shipping options, and its customers who are willing to wait for their product pay a low-cost shipping option, while customers who want a quicker delivery pay a premium.
What was the impact to the company by changing their shipping policies? The company immediately saw an increase in overall sales. Previously, the more price-sensitive customers had elected not to purchase their products due to high shipping costs. Today, that trend has reversed. In addition, the company elected to charge a premium for expedited and time-guaranteed deliveries. By charging a premium for enhanced delivery, the company’s shipping department earns a profit. Furthermore, by now offering a lower cost “super saver” economy shipping option, the company makes the economy shipping option the base level offering for promotions, such as free shipping, thereby further increasing the profitability of its shipping department.
While the extended delivery time may not be appropriate for time-sensitive sign-up and party plan orders, automatic monthly orders are excellent candidates for such shipping services. Distributors typically know the approximate date when an automatic order will be processed each month. Distributors are accustomed to the extended delivery times, which negate the need for extensive package tracking. Automatic orders typically receive discounts, further justifying a lower-cost economy shipping option.
Generally, a lower-cost shipping option involves using the U.S. Postal Service (USPS) for delivery. The USPS provides service to every business and residence in the United States six days a week. Unlike top-tier carriers such as UPS and FedEx, the USPS does not apply surcharges for residential deliveries, rural deliveries or fuel costs. The USPS provides package tracking via USPS Delivery Confirmation™. Companies should consider offering distributors a selection of shipping options and make the “super saver” economy offering the base level of its delivery service options. For the economy shipping option, companies should commit to an estimated delivery time of 4–10 days from the order date. Distributors should tell their customers about the delivery method, estimated delivery time and how to track the package. They should also sell time-definite deliveries and expedited services.
Companies should take advantage of the many touch points in the process, as there are a myriad of marketing opportunities associated with shipping a package to a distributor. Forms, such as packing slips, invoices and email notifications, may be customized to include a marketing message from the company. Packages may be printed to include the company’s brand and message, and inserts may be added to the package to make additional offers to the distributor. The shipping process offers many opportunities for a company to touch a distributor with a positive and beneficial message or offer.
Shipping costs continually increase, and companies need to explore ways to mitigate these costs. The companies we have worked with over the years have developed creative solutions to reduce costs. One company employed a sophisticated program of zone-skipping parcels to specific destinations across the country. For example, perhaps you are an East Coast-based company and have a number of distributors located in the Western United States. A 7-pound package destined for a distributor based in Los Angeles would be entered into the carrier’s system at the origin point (in this case an East Coast location) and would be rated as a Zone 8 delivery. The published list price for a 7-pound, Zone 8 residential ground delivery would be $11.05. If this package is transported across country and entered into the carrier’s system at the destination point (in this case, Los Angeles), it would be rated as a Zone 2 delivery. The same 7-pound residential ground delivery would be $8.01, a savings of $3.04 per package, or 27 percent! For a significant shipper, carriers will discuss options for unique zone skipping programs. Such programs potentially offer substantial cost savings for shippers and should be thoroughly evaluated as part of any parcel shipping cost reduction effort.
If companies incorporate some or all of these recommendations into their shipping policies and procedures, they will begin to see a decrease in shipping costs and an increase in sales and profits. Shipping will become a profit center for the company. Furthermore, customer satisfaction will increase as distributors enjoy more cost-effective shipping options (including free shipping) and a range of choices that better suit a customer’s needs. More distributors, more sales and greater profits should be a goal for all direct selling organizations. How about yours?
Mich Bayley is the founder and President and CEO of SPExpress, a third-party logistics (3PL) company that provides companies with warehousing, distribution, order-fulfillment and transportation services.
Jeff Bourgoyne is a consultant with a practice focused on the direct selling industry. For more information, visit www. spexpress.com.