When you first start selling online, it can be enough of an accomplishment just to offer your products for sale, particularly if you started out in brick and mortar. But with such high customer expectations — no thanks to Amazon Prime — eventually you reach a point where shipping direct to consumer isn’t enough. Shipping quickly, within one to two business days, is the next logical frontier for any online business.
The benefits are myriad. Numerous studies show that customers prefer quick shipping and are often willing to increase their order size if it means qualifying for an upgraded tier. While It’s physically possible to ship a package 2 days domestically, it can also be extremely costly to do so. The last thing you want to do is give customers quick shipping at the expense of profitability.
In this article, we’re going to examine six steps necessary to preparing your business for a two-day shipping offering while minimising the cost of doing so.
Find the inventory level sweet spot
Holding onto inventory can eat up a sizable chunk of your business capital, so you never want to have too much of it — but you don’t want too little either. Keeping inventory levels plentiful to avoid backorders, so that orders can be processed as quickly as they come in, is the ideal mode of operations. That’s easier said than done.
Inventory and demand forecasting models can help your business land in the Goldilocks Zone of just the right amount of products sitting in your warehouse.
Strategically position your inventory
One of the simplest ways to reach 99% of your customers within 2 days can be achieved by strategically positioning inventory. This is usually done by one of two ways: either by relying on a third party distribution network, or building one yourself.
A distribution network sounds expensive – and it is – but it can be as simple as having one warehouse in Melbourne, one in Perth, and maybe another in Brisbane. Placing your inventory as close as possible to as many of your customers as possible means that you will pay less to ship packages to customers. As long as your sales volume is high enough, the savings from paying lower shipping costs outweigh the storage costs of leasing or owning an additional warehouse or two.
Negotiate rates with carriers
For larger businesses that can throw their weight around, it may be possible to approach a carrier directly and name your price. If your company already ships a high volume of products, you may have existing deals in place for bulk shipping costs.
If not, now is a good time to start negotiating! Do keep in mind that most businesses will probably not be able to match the pricing discount offered by 3PLs, which may present a reason to outsource some aspects of the outbound and last mile segments of your supply chain if you have not done so yet.
Set order minimums to protect your margins
A critical part of making two-day shipping work for your business is to set order minimums for customers that they need to hit to qualify for expedited shipping. (Most) of your customers will understand that it’s unprofitable and unsustainable to offer free or subsidized two-day shipping just for buying a toothbrush.
Make exceptions to the two-day rule
For most of your customers, two-day shipping will be doable without too much hassle; after all, the bulk of the country’s population lives in major urban centers. But there will always be some people – not many of them, but certainly a handful – who live in remote, harder-to-reach areas.
To include them in your standard 2 day shipping eligibility, something has to give. Either you pay an extraordinary amount of money to ship within that window, or you simply exclude their postcode from being able to qualify for fast shipping. No doubt they’ll understand why.
Factor in dimensional weight
The last factor you should keep in mind is dimensional weight. Knowing the dimensional weight cost of shipping with different carriers will help your business save money by choosing the most affordable option every time. Depending on how far you ship, how big the package is, and how heavy it is, the best carrier will change.
You can learn more about dimensional weight and how it’s calculated here.
As you expand your business’ capacity to reach more customers in two days, you’ll want to pay attention to the finer details of arranging fast shipping for them. By preparing ahead of time, the transition to two-day shipping stands to be a smooth one, which can only mean happier customers, more sales, and more potential to scale.
Jake Rheude is director of Marketing for Red Stag Fulfillment.