Contact Us
    January 24, 2023

    How to Reduce Shipping Costs if You're a Small Business

    For a small business to thrive, owners continually look for ways to lower costs without compromising quality and customer satisfaction. Maintaining this balance requires smart supply chain decisions and efficient in-house operations. Shipping options require just as much attention, or the ever-rising costs will chip away at the bottom line. 

    Although a warehouse owner can feel like their small business is at the mercy of shipping companies, there is more they can do besides picking the cheapest carrier or choosing ground instead of overnight. With the right tools and systems for inventory management and order fulfillment, they can optimize shipping to get product to customers in the most economical way possible.

    How are Shipping Costs Calculated?

    Shipping rates are typically calculated based on the size and weight of a package, and how far it needs to travel. And often, especially when fuel costs are high, companies will also tack on a fuel surcharge.

    The heavier and bigger a package, the more expensive it is to ship. Carriers use a mathematical formula to determine the dimensional weight (or DIM weight) of a package. This measures all length, width, and height of a box to get its cubic size, then divides this amount by a dimensional factor set by the carrier. Shippers charge based on whichever is greater, the DIM weight or actual weight. Using this method, a very large but mostly empty container that weighs less than a pound could end up costing more to send than a much smaller but heavier box. Yes, weight is important, but carriers are also concerned about how much space the package takes up.

    This is an important distinction when it comes to packing on the warehouse floor. Using whichever box is on hand, or stocking only large boxes and using a lot of light-weight filler or air packs might seem like a good idea. But right-sizing the box and limiting filler can actually save more. Infoplus provides a unique feature called cartonization, which determines the exact right-sized packaging to accommodate the components of the order, so the packer doesn’t need to guess or spend time measuring.

    The other factor that determines shipping cost is distance. Distance is calculated by zones, with Zone 1 being the place of origin. Destinations can be within Zone 1 or are numbered Zones 2 through 8 (in the United States) based on the number of miles from Zone 1.  

    5 Options for Lowering Small Business Shipping Costs

    In today’s marketplace, customers don’t only expect fast shipping—they expect it to be free too. Sure, a business can bury the cost in its product pricing, but that is not always effective. Shipping costs fluctuate, and a higher price risks the customer shopping elsewhere. Slower delivery can be cheaper, but 2-day or next-day has become so commonplace that delays will probably lose customers unless the item is something specialized or unique.

    If weight, size, and distance are constants, how can there be any variability in the price of shipping? There are ways a small business owner can tap into their own warehouse management practices—even when it comes to these “constants”—to save money. We’ve come up with the following five tips to reduce the cost of shipping.

    1. Automate Your Carrier Shopping

    If every package that leaves a warehouse isn’t identical in DIM weight and destination, the “best” carrier could theoretically be different for every order. So small businesses have to make a choice based on price. 

    This might sound simple, but it’s not. Two carriers might differ greatly in rates depending on where they draw their zone borders. For example, an address might be in Zone 1 according to UPS but Zone 2 for FedEx. And special services such as cold-pack or signature requirements might vary from carrier to carrier. 

    It is also important to remember that rates aren’t everything. A track record of good service and fast delivery is essential too. The customer experience is everything, especially for a small business, including how the product arrives on the customer’s doorstep. Customers will be unhappy if their packages arrive late or damaged. 

    But keeping track of all of the different shippers’ rates and delivery success (or failure), can be a full-time job. Even if they choose well, small businesses can eventually find themselves stuck with a carrier that keeps raising prices while their quality of service slips. 

    Luckily, Infoplus automates carrier shopping by finding the best company to handle a shipment based on up-to-date rate and performance information. In fact, it allows owners to find the best option on a package-by-package basis. The system can drill down to find that package A is cheaper with FedEx, package B is cheaper with a local courier, and so forth. The software also integrates with the carrier’s platform to produce the right shipping labels and documentation.

    2. Use Cartonization to Optimize Package Size and Filler Content

    One way to reduce small business shipping costs is to make sure that packing materials weigh as little as possible. Another way is to take advantage of the free packaging that some carriers provide. But customizing each package with cartonization software can be an even bigger cost-saver.

    For example, the cartonization module we’ve built into Infoplus can assess an order and automatically assign an appropriately sized shipping carton and packing materials. Not only does this cut down on wasted space that raises the DIM weight, but using the right size packaging can reduce shifting and breakage in transit. The result of cartonization is a package that is put together to ship in the safest and most economical way possible.

    3. Invest in the Right Packing and Shipping Equipment

    A carrier’s rate is not the only thing affecting the total shipping cost for small businesses. The time spent on shipping tasks, including picking, packing, and cartonization, also has an impact. Small businesses can invest in equipment that makes the process more efficient. 

    DIM weight scales and good-quality label printers will ensure accurate shipping information. This will cut down on returns for mis-shipments. Having the right strapping and wrapping machines and pallets will make unit load formation easier. Being able to ship a pallet instead of individual loose boxes can cut costs.

    The Infoplus Mobile Floor App can scan a barcode to easily record dimensions to produce a shipping label. It can also integrate the business’s WMS with carriers.

    4. Optimize Warehouse Operations for Efficiency

    Not only will efficient processes in the warehouse make order fulfillment faster and more accurate, they can also cut costs of shipping in the following ways:

    • More efficiency at every step in the fulfillment process means getting orders out the door quicker. Faster fulfillment—including everything from put-away to warehouse layout to pick paths—means avoiding rush service fees to make a promised delivery date.
    • Ensuring accurate picking and tightening up quality control will reduce returns. Returns have their own set of costs—the last thing a small business needs is to pay for shipping twice.
    • Inventory management software can help keep tabs on the entire supply chain. An alert can trigger automatic replenishment of products and materials so inventory never gets too low. This saves money on two fronts: Fewer rush fees paid to vendors for product, and for rush deliveries to customers.

    5. Consider a Fulfillment Center and 3PL

    Shipping companies base rates partly on the distance traveled to 8 numbered zones. Zone 1 is local, within a 50-mile radius. Zone 2 is between 50 and 150 miles away, and so forth, with Zone 8 defined as shipments over 1800 miles from the source. 

    Let’s say a mom-and-pop store in Salt Lake City has a lot of online customers in Miami. Their shipping rates will include the price of crossing several zones. It would obviously be cheaper if they shipped within Zone 1. They could open a location in Florida, but as a small business, it is unlikely they would do that simply to save on shipping costs. What they can do, however, is find a 3PL or fulfillment center in Florida, or anywhere where their sales volume makes it more cost-effective to ship from. 

    Granted, partnering with a 3PL is a big step, and the costs associated with it may not make the move feasible. However, for certain companies, it can be a smart choice. Fulfillment centers can handle many of the operations and still give the company all of the reports and transparency they need to manage its business and make strategic decisions.

    Reduce the Cost of Shipping for a Better Bottom Line

    Shipping costs are unavoidable for small businesses wanting to participate in eCommerce. But that doesn’t mean they can’t be managed. Ways to save can be found by looking within the organization.

    Use warehouse management software to its full potential with cartonization, rate shopping, and improving efficiency. It will be noticed in the bottom line. Contact Infoplus for a demo and see how easy it is to start trimming your shipping costs.

    Keep Up With Us

    Want the latest content delivered direct to your inbox? You've got it - sign up below!