NEW YORK (TheStreet) -- E-commerce merchants who've embarked on a new business venture typically find themselves at a tipping point sooner rather than later.
That boutique store you set up a Web site for has grown exponentially, and your orders are exceeding all expectations.
Thus far, you've been in control of every aspect pertaining to your operation, but as your inventory leaves your care, your products are put in the hands of strangers. As a result, shipping has the potential to become your company's greatest liability.
According to Marketing Land, an online trade publication, the majority of online retailers are seeing double-digit increases in sales. The reason: Greater care is being taken to ensure a positive "unboxing event."
Your Choice of Packaging Matters
Think of that as another opportunity to extend and solidify your brand's identity -- it's all about making a lasting impression, and some of the most exciting and successful companies are able to make packaging into art.
It's also a way for you to differentiate your business from its competitors and corner a larger share of the market. When you spend a lot of your time designing the look and feel of your products, the last thing you want to do is present them in a sloppy manner once they've reached their destination.
Distributors such as TrueShipSupply, for example, offer a variety of product packaging options for budding e-commerce stores. A quick glance around that Web site reveals a number of appealing designs that should impress your online target audience.
A Change in Consumer Expectations
In the time it takes for an item to be delivered, there is usually a fair amount of anticipation. If what the buyer receives is not up to a certain standard, it's unlikely that he or she will return as a repeat customer.
Such things may have been more difficult to rectify in years gone by. Savvy consumers nowadays, however, have come to expect good service and security.
Understanding that the relationship between your business and your customer is built on trust is the first step in comprehending the role that shipping and fulfillment plays in the overall shopping experience.
The Three Stages of Shipping and Fulfillment
Let's assume that you're new to the idea of mass shipping. You wish to know whether now is the right time to upgrade your capacity to cope with an increasingly high sales volume.
There are three stages during the lifecycle of a relatively young e-commerce enterprise when decisions about shipping and fulfillment abound. They include the following:
If your business lacks the resources needed to enable large-scale distribution, you may find it difficult to progress. That is when outsourcing to established carriers is generally considered a viable approach.
By now, you should have enough leads to secure dedicated third-party distribution services to compartmentalize the process -- provided it's cost-effective to do so and there's enough scope to make it feasible over the long term
If you're at the point where you're considering bringing things back in-house, you'll need to think about setting up your own warehouses in strategic geographic locations that will help you serve your growing national and international customers.
Ultimately, it's going to help if you've set aside time to develop a strategy or business plan that outlines the milestones you hope to achieve and when you'll need to have access to the options mentioned above.
Evaluating Your Shipping Options
Assuming you're at the point when your sales are exceeding your capabilities, it may be time to start looking into outsourcing with National Fulfillment Services or a similar company that offers business-to-business and business-to-customer services.
The benefit of siding with a fulfillment service is its ability to handle sophisticated distribution management and to complete reporting and everything from post-sales support to the installation of customer contact centers.
NFSRV may be a good choice because its practices are scalable and can be customized to suit the needs of your business whether you're a small e-commerce merchant or a national retailer. Regardless, you should aim to address the following:
- Twenty-four hour distribution time frames. More consumers are demanding next-day delivery, and a growing number of businesses have taken notice. It doesn't take much for users to abandon their cart once they realize their item won't arrive soon enough.
- Order status and tracking. Having the reassurance that things are under control is a powerful motivator for customers navigating the buying decision process and moving through the sales funnel.
- Access to real-time inventory information. Businesses like to know their inventory levels at all times to ensure that customers aren't turned away because an item was out of stock.
Just remember that cost-effectiveness will be both yours and your customer's top priority. If you can't find a distributor who is willing to be at least somewhat flexible on those points, take it as a sign you'll need to continue to investigate.
Of course, there are a range of small, courier options for you to choose from, as well. Crunch the numbers and budget for additional costs, including "pick-and-pack" fees to better leverage your position when searching for the ideal distributer.
Entering Into Third-Party Shipping Arrangements
The distributor you choose can make or break your business, and when 65% of buyers admit to shopping-cart abandonment because of exorbitant prices or unsatisfactory shipping options, it's a decision you will need to consider very carefully.
While that statistic doesn't account for problems with delivery delays, shipping errors, inaccurate tracking information and receipt of damaged goods, it does represent a big decline in sales.
That said, the subject is a complex one that involves many moving parts. Fortunately, it's become much more affordable for many e-retailers to take advantage of what emerging services and technologies have to offer.
The Benefits of Warehouse Distribution
As you might expect, a fulfillment warehouse will move your inventory and the distribution process out of your business to one or more of your partner's warehouses. In that way, things that used to be time intensive can be automated.
Success, however, will depend on the distributor's level of involvement and integration with your site's shopping cart. For instance, when an order is placed, your distributor will be sent the details of the purchase. After that, the item will be picked, packed and shipped on your behalf.
There are additional advantages to that arrangement, such as shorter delivery times and cheaper shipping rates as labor costs are reduced.
On the flip side, there are also some disadvantages. Here's what you need to know:
- A reduction in branding initiatives. If you've previously hand-packed all of your orders for that personal touch, warehouse-fulfillment services may negate your efforts because of operations constraints that prohibit continuing that level of commitment.
- A decrease in profit margins. While shipping rates may be eased for the most part, you will have to watch for hidden storage and operational fees. Talk to you distributor and make sure you're aware of what you're paying for.
In general, the pros will often outweigh the cons if your business is at the stage when it just isn't viable to forgo warehouse distribution. The situation will undoubtedly vary on a case-by-case basis, but you should never ignore the demands of your customers.
Keeping Your Customers' Interests in Mind
There's nothing worse than having to navigate the checkout process, only to find shipping costs were not built into the final price. That causes a big drop in the perceived value of the product in the minds of buyers.
Price is one of the biggest hurdles to securing purchase confirmations, but it is something that online retailers need to address proactively. At the very least, you need to be upfront about it and remember your customers are always seeking to buy at the lowest price and in the most convenience way possible.
According to a recent survey from comScore (SCOR) - Get Report about the buying habits of online shoppers, 83% said they were willing to wait if it meant they would receive free shipping, and 82% said they'd confirm the purchase only if free shipping on return policies were available.
Strategies When Offering Free Shipping
Shippers such as DHL, FedEx (FDX) - Get Report, United Parcel Service (UPS) - Get Report and the United State Postal Service have realized free shipping is a bitter pill for e-commerce merchants because it reduces profit margins, but for sellers, the best way to view the situation is that it is a necessary evil. In actuality, it carries the advantage of driving sales assuming prices are strategically created.
But to implement this feature effectively, you may need to:
- Pass the cost onto your customers and increase the prices of your products
- Bite the bullet and pay for the cost of shipping out of your own pocket, or
- Compromise and share the added financial burden with customers.
Alternatively, you could opt to offer free shipping only on orders over a specific threshold to encourage bulk ordering, offset any losses resulting from sales under the minimum and give customers an incentive to buy.
That, however, doesn't go far enough to address the fact that consumers want to choose their method of shipping as well as the rates they pay. That all pertains to the distributors you have approached.
Setting Up Your Business Account
After a time you may wish to hold a business account with your chosen distributor or distributors. There are a number of benefits to doing so, including discounts, superior tracking on expenses and greater versatility of online-shipping, and fulfillment-management tools.
By setting up an account with the following companies, you'll be able to take full advantage of what services they have to offer:
- USPS Business Gateway. Provides access to the entire line of tools extended to businesses that are designed to help with postage label printing, tracking and more.
- UPS Business Solutions. Grants comprehensive package tracking, shipment management protocols, as well as access to billing and pick-up schedules.
- FedEx Business Center. Provides online-management integration and functionality where all shipments and packages are concerned.
While these represent only a small cross-section of the carriers in the U.S., they are all well respected, have established reputations for quality assurance and will suffice for most start-up ecommerce merchants.
Common Mistakes Made by e-Retailers
Now that we've walked you through a few of the operational nuances that are inherent within shipping and fulfillment practices, we'll look at the pitfalls that often compromise the profits of expanding e-retailers.
Below are the most commonly made mistakes that entrepreneurs make:
- Basing business decisions on inaccurate data. Many start-ups are unable to gauge the accuracy of data captured via analytics and struggle to supply the information needed for fulfillment services to work at optimal efficiency.
- Failing to predict spikes in demand. Often your distributor will average out the total volume based on your sales figures, but if you aren't aware of any circumstances that could lead to a large influx of orders at a particular time, the delivery channel will fail to keep pace.
- Sub-optimizing warehouse networks. The decision to centralize distribution or branch out into multiple geographic locations is one that affects shipping and freight times, which can cause your overhead costs to increase and your margins to dwindle.
- Ignoring drop-shipping as an alternative. For those who hold inventory of large or heavy products, bundling can be an issue. Such items, however, can be shipped directly from the manufacturer, eliminating the need to stock them on-hand.
Understanding your business in terms of what is and isn't feasible to ship is half the battle. Identify those areas where profits are suffering and capitalize on those where your margins are strongest. Then, you'll soon optimize the shipping and fulfilment process.
Facing Your Challenges Head On
It will be up to you to make the final call about when the best time to seek shipping and fulfillment services is, but make it a point to develop practical strategies for dealing with the transition.
Rest assured, it will take time to get things moving and find a method that works for you and your business. And remember to constantly re-evaluate and reassess your procedures and position within the marketplace.
Lastly, be sure to put the needs of your customers first and focus on providing the best fulfillment service at the best price possible. If you can do that, everything else should fall into place.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.