How you manage small business shipping, fulfillment, and returns can make or break your business.
In the Amazon Prime age, consumers are demanding products faster than ever. Plus, they have high expectations as to how their product arrives and what kind of “unboxing” experience they have.
To top it off, customers are requesting more transparency in the supply chain — putting fulfillment processes in the spotlight.
And, of course, consumers rely on the comfort that they can easily return a product if they are unsatisfied with it.
We know shipping is a vital component of any small business, but with all the options available, it can be overwhelming to know which route to take.
Good news: we’re here to give you the pros and cons, and answer your what ifs for all of your options, surrounding topics like:
The cost of ecommerce shipping,
Common return policies and processes,
How to determine what to charge your customers,
Packaging and branding best practices,
Creating a shipping strategy, and
Popular shipping tools.
Before you set up shipping rates and methods in your shopping cart, you need to understand how your shipping and fulfillment costs are calculated.
Shipping costs are calculated based on:
Service and speed.
Dimension and weight.
Thanks to industry giants — like Amazon — the vast majority of consumers expect a shorter delivery time and many shipping options. The caveat? They want it to be free.
As a rule of thumb, the more you expedite a shipping service, the higher the shipping rate will be. But, expedited services aren’t the only factor affecting your total cost.
Carriers offer a multitude of services based on many factors, so there is no one-size-fits-all solution.
Mapping the right service to the right request is crucial for cost-effective shipping.
Here are the main questions you’ll need to ask yourself when it comes to shipping a product:
When does the package need to arrive?
Is a guaranteed delivery or delivery commitment required?
Is tracking required?
Is the recipient address commercial or residential?
Is signature confirmation or any other service add-on required?
Are you shipping alcohol, other specialized products, or any hazardous materials?
Understanding your products’ shipping requirements will give you a clearer picture of how to estimate your shipping costs.
Just like expedited shipping, larger and heavier parcels also add to cost.
Carriers and services may have different restrictions, rating structures, and requirements — but they all calculate shipping cost based on weight and dimension.
Without a multi-carrier rate calculator, comparing rates can be very tedious and annoying.
But that doesn’t mean it has to be. Let’s break it down:
FedEx, USPS, and UPS charge based on dimensional weight (DIM) for their services.
Dimensional weight is based on the package size rather than its actual weight. Basically, you’ll be charged more for large light parcels and less for smaller, heavier parcels.
To determine the best rate, always make sure you enter your package dimensions. You can calculated DIM by following this equation: (Length x Width x Height) / Divisor.
Spoiler alert: the higher the divisor is, the lower the rate will be.
Here are the Dimensional Weight formulas for UPS, FedEx, and United States Postal Service (USPS):
All major carriers also offer some kind of standardized, flat rate shipping.
With this option, you’ll select a carrier-provided, standard packaging. You’ll pay the same rate, regardless of weight and destination (as long as its domestic).
For a quick lay of the land:
USPS and UPS flat rate boxes generally allow up to 70 lbs.
FedEx One Rate boxes go up to 50 lbs.
Then, there’s cubic pricing.
The way this works is if you ship a small, heavy parcel, it will not be charged at the same rate as a larger parcel of the same weight. USPS offers cubic pricing for Priority Mail shipments.
For items under 20 lbs, this is how to determine an eligible cubic rate:
(Length x Width x Height) / 1728 = Cubic Feet
This amount then falls into 5 categories ranging from 0.1 to 0.5 cubic feet.
If you qualify for full cubic pricing, click here to see the rates.
The final factor that impacts shipping cost is the distance between the shipper’s address and the recipient address.
Carriers base their domestic rates on zones.
Finding the zones specific to your ship-from location for each carrier can be difficult. This is where using a multi-carrier rate calculator will save you a lot of time and hassle.
If you’re looking to ship to international destinations, here are just a few things to keep in mind:
Confirm product shippability. There are certain products that are forbidden from entering some countries. For instance, it is illegal to ship playing cards to Brazil. And you can’t ship collectible stamps to France.
Additional taxes, duties, and documentation. While these don’t exactly count as carrier fees, shipping internationally will introduce additional charges and requirements like Value Added Tax, duties and tariffs, and customs declarations.
Update your shipping policy and pricing. Selling internationally is more expensive, so make sure that you’ve taken the appropriate steps to charge and estimate for delivery for your international customers.
For additional international information, check out ShipStation’s guide.
Just like you prefer high-frequency, loyal customers, so do carrier companies.
Shipping at a higher volume can lead to volume-based negotiated rates with these carriers.
When you’re getting started, establish a relationship with your carrier account manager, as this can expose your business to greater benefits — like shipping discounts.
Most online retailers use multiple carriers to match the best carrier, service, and rates to fit their business needs — so don’t be shy to research different options.
Shipping software can help make this process easier with all carriers and rates readily available on one platform.
Packaging: Carriers will frequently offer complimentary packaging. But also consider insulation and cushioning, inserts, custom boxes, and envelopes. We’ll cover packaging and branding a little later, but be sure to incorporate it into your cost calculations.
Insurance: Most service levels from the main carriers have a default insurance value:
FedEx and UPS generally have a default value of $100, with some exceptions.
USPS Priority Mail Express shipments include up to $100 of insurance.
Priority Mail shipments may include up to $50.
Third-party insurance: Should you need more coverage, third-party insurance providers like Shipsurance offer competitive rates over carrier charges. Typically, carriers charge between $0.75–0.85 per $100 value, with a minimum cost of roughly $2.50. Shipsurance, however, only charges $0.55 per $100, and includes no minimum cost.
Even the most popular and highly rated products on earth get returned.
Returns are an inevitable part of an online business. But, it’s how you manage returns that make or break for a successful one.
Did you know that a majority of customers look at your returns policy before making a purchase?
A purchase decision is a risk-reward decision. Buying online involves more risk, because you don’t physically get to hold the product or inspect it.
Having a customer-focused returns policy reduces this risk for the customer. When you offer a great returns policy and experience, shoppers are more likely to become repeat customers.
ShipStation users who give their customers access to ShipStation’s Branded Returns Portal saw a 16% increase in average order volume (AOV). And customers were 29% more likely to shop again from the merchant.
A quick note for merchants selling internationally:
International returns may be more expensive and time-consuming, and you could incur another round of duties and tariffs.
If you sell to international customers, make sure your returns policy has explicit, clear, and transparent communication on how you handle returns.
Depending on the item value, you may simply want to offer a refund or send a replacement without requesting that the item be returned.
Now that you know what goes into the cost of shipping, you have a decision to make: what will you charge your customers for shipping?
Every business wants to save on margins while staying competitive and attractive to customers.
The right choice depends on your business needs, and you may select different methods for different scenarios.
Whether you like it or not, we have the era of Amazon Prime free 2-day shipping to thank for this phenomenon.
There are ample studies and surveys that stress shipping costs are among the top factors driving shopping cart abandonment. But we understand you have to protect your profit margins.
While shorter delivery times are becoming more popular, many customers are still willing to wait longer when offered free shipping.
This means you can select more cost-effective shipping services. Studies also show customers are willing to add products to their shopping cart to get free shipping when there is a minimum price that must be met.
For instance, “Free shipping for orders over $75.” This means you can increase your sales and average basket size if you set a free shipping threshold.
If the parcel is under 16 ounces, USPS First Class Mail offers the best rates. Beyond that, USPS Priority Mail will frequently offer the best rates for parcels up to 10 lbs.
“Amazon has changed the game around consumer expectations for both delivery times as well as costs. Brands should test out pricing strategies that include the ability to support some sort of free shipping tier to drive real growth. Consumers will often pay a few extra dollars for a product that can be here sooner and has “free shipping” (even if the true cost of that shipping was just actually baked into the product).” — Adam Grohs, Co-Founder/CEO, Particular.
If you’re not able to offer free shipping, flat rate shipping is a good alternative.
With a simple preparation and analysis of your average shipping costs, you can offer a set amount for different service levels.
This works well if your parcels are generally similar in size and shipping rate.
The shipping rate may fluctuate slightly, but it evens out in the end if you have consistent shipping rates for your parcels.
This is especially true if you can use services like USPS Priority Flat Rate in a cost-effective way.
This option may be particularly appealing for oversized items, specialized products, and B2B businesses.
BigCommerce merchants can set up real-time shipping quotes. This means you, the merchant, have less risk of under or overcharging your customers for shipping, resulting in more consumer trust.
Another important part of the shipping and fulfillment process is packaging.
We mentioned it in the section about the cost of shipping, but here again is an opportunity to look at the shipping process not just as a cost center. Remember, this is where loyal and repeat customers are born and bred.
When you sell on marketplaces like Amazon, your packaging must adhere to certain criteria: unbranded or carrier-branded packaging, no inserts, and more.
But when you sell from your store, you can make your mark. Especially in ecommerce, since your packaging is such a physical touchpoint for your customer. Reinforce your brand and deliver on your customers’ expectations.
A recent survey found that 40% of customers regularly post interesting packaging or unboxing videos on social media — spreading brand awareness like wildfire.
Create custom shipping boxes with Arka or add an extra touch like branded tissue paper from companies like noissue. Customize where you can with logos on shipping labels, packing slips, and more to create a memorable unboxing experience.
You can be as creative as you want. We’ve seen merchants add stickers, handwritten notes, and other items to orders. Branding your shipping is an essential part of making an online purchase tangible.
“Fulfillment matters. As ad costs continue to go up, it becomes increasingly important each day to thrill and wow your customers. This means shipping quickly. This means adding things into your fulfillment kit that your customer never expected, e.g., a branded koozie, a handwritten note, a get-started guide, and much more. This all can lead to better retention. Furthermore, if you look at brands that grow faster, they often focus on what the outside and inside materials look like. At Hunt A Killer, for example, we brand the outside of the box just like Freshly, Blue Apron, and several other brands. Having just an extra touch of branding can make you more memorable for your customers. Fulfillment is not a place where you want to cut corners.” — Eric Carlson, Co-Founder, SweatPants Agency
At this point, we’ve covered some of the main components of your shipping process: what goes into your shipping costs, what you should charge your customers, and how to approach shipping and packaging from a customer experience perspective.
You’re well on your way toward becoming a shipping expert.
If we bookend the fulfillment process, it really boils down to two things: your orders from wherever you sell to your shipping however you ship.
While merchants find success selling on their own website or a single primary channel, what can really move the needle is implementing a multi-channel strategy.
When we looked at numbers from users selling on multiple channels, we found that a simple rule holds true: the more channels you add, the more you sell.
Most marketplaces place stringent requirements and criteria on their sellers, so you’ll want to ask yourself, “Can I manage their requirements?”
Online marketplaces can play an important role in your business. But, make sure you stay on top of your shipping strategy to effectively manage multi-channel order sources.
Just like diversifying your order sources, expanding your portfolio of available shipping services is important.
The key to finding the best shipping solution to serve your specific business needs is to mix and match your carriers.
Each carrier has unique strengths and weaknesses, and selecting the best shipping method should factor in far more than just the lowest rate.
More guaranteed delivery times and better carrier-provided insurance can help save you money in the event of failed or damaged deliveries.
Taking it a step further, when you’re negotiating discounted rates, consider shipping 10-30% of your parcels through a secondary carrier. Doing so will give you another avenue to negotiate deals, giving you the opportunity to benefit from more discounts.
For many small business owners, you’re managing every step of your fulfillment process.
This control has many benefits in how you manage the bottom line and your customer experiences. But this control can also be an intensive process.
If you’re looking to expand your shipping and fulfillment management, there are two options you should consider: third-party logistics (3PL) and dropshipping.
Outsourcing your warehousing and fulfillment process can be a great option for your business.
Let’s start with 3PLs — sure, you will relinquish some control, and you’ll definitely incur additional costs, but you can have a third-party logistics provider store your product and then pick, pack, and ship your orders on your behalf.
Amazon is an industry standard for this.
FBA works for orders through Amazon as well as through different selling channels, like your BigCommerce storefront.
Once the order has shipped, Amazon will send you the tracking number and shipment status.
Third-party logistics can be used for all of your products or just a portion of them. Learn more on when to outsource your shipping with partners like ShipBob.
Then, there’s option #2. Rather than owning and housing your own inventory, you may simply send your orders to a manufacturer or supplier that fulfills orders as they come in. This is called dropshipping.
Dropshipping has gained popularity in recent years since it gives you the ability to sell a product without owning or ever even touching the inventory.
You don’t need to stock, package, or ship the product, and you get a cut of the profits for selling.
With this low-risk opportunity, however, comes low rewards. The related costs can lower your profit margins, so keep an eye on the cost of acquisition for your sales.
There’s no one-size-fits-all solution to shipping, and you don’t have to exclusively use a third-party fulfillment company or do everything in-house.
Researching the options available to your business will help you decide the best way to get your products to your customers’ doorsteps.
What if I told you that integrating a shipping solution could lower costs, improve shipping margins, and grow your bottom line?
Businesses big and small should focus on creating easy shipping workflows to save time on operations. Here are a few ways shipping software can accomplish this:
Access to one dashboard where you can compare rates, print labels, manage orders, print shipping labels in bulk, and reconcile shipping bills.
Set shipping rules to automatically select the cheapest rate, fastest method, and more.
When you use a shipping software, you are able to offer your shoppers a better shipping experience to improve conversion and build brand loyalty.
How does this affect brand loyalty? Shipping software can give your customers direct line of sight to the true cost of shipping by displaying accurate, real-time rates at checkout. Plus, you can offer multiple shipping options to customers, so they can choose the method that works best for them.
In the end, most time is saved with the right shipping software.
You need a software with robust integrations on both the selling channel as well as carrier side, strong automation features for maximum efficiency, and support for the right tools like thermal printers, scales, and barcode scanners mentioned above.
We’ve covered costs of shipping, managing returns, and shipping technology, but what if I told you there are still more ways you can save your bottom dollar?
Here are some easy-to-follow tips for creating a highly efficient and low-cost shipping and fulfillment strategy.
We mentioned the importance of researching the costs and factors associated with different carriers and services earlier in this chapter — but, we’re here to reiterate how impactful it can be to your upfront cost.
Just like purchasing a car, you visit many dealerships, do extensive online research, and even wait until a seasonal sale to complete your purchase.
Look at your shipping solution similarly.
Do online research (like reading this guide) to understand the shipping options available, connect with carriers and establish relationships, and negotiate contracted discounts or implement a hybrid shipping strategy using both in-house and 3PL or dropshipping services.
This is a piece of your ecommerce strategy that you’ll want to plan from the start.
Using a shipping software will not only save you time, but money.
By automating shipping, you can always guarantee the best rate, and you’ll free up human resources — so you can spend more time working on your marketing and online strategies.
Not ready to dive into free shipping? We understand.
As a small business, it’s essential that you set yourself up for success — not lost margins.
A great cost-effective way to offer free shipping is by coupling it with a minimum order value.
You can perform A/B testing to understand what value threshold moves the needle for your customer base. Maybe it’s free shipping for orders over $50 or $100.
Not only will you save on shipping costs by implementing an order minimum threshold, but you’ll also learn more about your customers and what drives their conversion.
It’s hard to swallow when an order that only contains one product costs the same to ship as an order that contains five.
Depending on the average order value and items per order — you may consider taking advantage of flat rate shipping.
The best part? You’ll never have to worry about buying boxes or going to the post office. When ordered online, USPS flat rate boxes come in packages of 10 and 25 — and these shipments can be auto-scheduled online.
Not only will your customers be excited to hear you have an initiative to give back to the planet — but reducing your shipping material and footprint can mean big savings for your business.
There are many ways you can give back to the planet and to your wallet.
Use a shipping software to automate shipping management and orders for supplies — reducing your total supply inventory to only what you need.
Reuse shipping material from returned orders — if it’s still in good condition — or find a local recycling center that accepts or distributes recycled shipping materials.
Encourage customers to recycle shipping materials.
We’ve walked you through everything you need to know to get started with efficient ecommerce shipping for your business.
Focus on creating a cost-effective and customer-centric fulfillment experience that can drive loyalty and repeat purchases.
Don’t think of shipping as a cost center for your business.
Look at it as an extension of your brand and customer experience.
Do it right, and you may even transform shipping into a competitive advantage to grow and scale your business.