Difficult times call for… different measures.
You might be familiar with the 80/20 rule or, in other words, the Pareto principle. Following this logic, 80 percent of your turnover comes from 20 percent of your goods, 80 percent of all complaints from 20 percent of your customers, and so on.
Now, here’s an even better rule to follow: the 90/90 rule. Especially during difficult times like these.
The current state of online retail
Let’s face it: The current economic climate is tough. Rising interest rates, decreasing sales, risk-averse venture capitalists, bans on fakes, overstocking, high shipping rates…
Sooner or later, shipping companies will be forced to increase prices even more—especially since many of the rising stars in the industry are venture capital-financed.
It can feel like it’s been going on for a while now and you might be hoping that the turnaround is near.
The reality often is: even if we’re “90% done” as the industry, there’s somehow still 90% left to go.
It doesn’t mean, however, that there’s absolutely nothing to do about it when running an e-commerce business.
Start profiting from your delivery experience
Set a delivery pricing strategy
Salaries and product manufacturing costs are known as big expenditures for any merchants, but delivery rates also fall under the same category. In the last six months, those have been increasingly more important for merchants to keep an eye on.
In the “new normal”, profiting from e-commerce deliveries suddenly sounds like a pretty good idea. If you’re not sure where to start, consider your associated shipping costs and combine multiple delivery rates and methods to find the best fit for your company.
Now, one of the most popular delivery tactics is to offer free shipping on all orders. We’ve seen this time and time again— for many e-commerce companies, it still seems like a must in order to stay competitive. It doesn’t mean, however, that it’s the best solution for your e-commerce business.
(Not to mention that free shipping and free returns cause excessive and, often, unnecessary shopping.)
What I would advise is this:
Set a free delivery threshold depending on the shopping cart value, combined with a fixed delivery rate across all products (if they are fairly similar in dimensions), or groups of products.
For many businesses, though, setting up a free shipping threshold can be challenging, especially without any data insights.
If you’re using a delivery platform like Ingrid, you could easily A/B test your delivery offering. If not, there’s a workaround.
Based on your AOV, for example, you could charge a flat rate for orders under 50 EUR to get the delivery costs back and provide free delivery for orders over 50 EUR. If your typical order size is 30 EUR, this strategy may be beneficial. It encourages your consumers to swap delivery fees for additional items in their carts.
Speaking from experience, experimenting with the free shipping threshold usually brings merchants great results in terms of increasing the shipping revenue without damaging the overall conversion rate.
Whatever you decide, just don’t be afraid to start charging customers for deliveries. With rising transportation costs, the consumers will have to pay more for deliveries in the future I’m sure, which is a good and natural evolution as the market matures.
Improve your net delivery cost
Apart from charging for deliveries, you should also demand a better price from carrier companies.
Many believed that the order volumes we’ve seen during COVID-19 are here to stay, and the carriers who depend on external capital have certainly promised their investors better forecasts than what they are currently delivering.
But as long as the carriers can show volume growth, they can probably raise more money. So use it! Demand to pay less for your deliveries. And if they don’t agree, redirect your volume to someone else.
For a carrier looking for investors, it is better to show growth than to manage to become a little less unprofitable in the short term, in other words, they will agree to be paid less as long as they get higher volumes.
Take a closer look at your Transporation Management System
Transportation is said to account for up to 50% of the total logistics costs. With the current economic outlook, the emphasis on fleet management and associated costs is greater than ever before.
That’s precisely why Transportation Management Systems (TMS) play a crucial role in supply chains today. They enable planning, executing, and optimizing the movement of goods for merchants.
If you’re using one, though, it’s time to take a closer look at it. What value does it add? What are you being charged for, exactly?
When you think about it, tasks like generating labels or uploading EDI files are not very complex. The lower value should mean lower costs—if that’s not exactly the case, ask your TA system provider for a business case that justifies what you pay for it.
Don’t give away your tracking data for free
Isn’t it a little strange that carriers, payment providers, and other business partners communicate directly with your customers post-purchase?
After all, it is you who invested in converting the customer and should reasonably be in contact with them at all times.
Nevertheless, this “channel of communication” is also used by your delivery partners—usually promoting their own services (or even your competitor’s solutions).
It shouldn’t be like that. Tracking data is valuable and is already sold today between different actors in your tech stack. You should at least make sure that you also get paid in the end.
(Plus, it might be high time to reclaim the communication and offer branded tracking instead!)
Rethink your delivery strategy
Many of our clients have seen a huge uplift in their sales during COVID-19, though now the trend’s coming to an end. Pendulums have a tendency to swing back, and what we’re seeing now is that the surge we saw during COVID is actually settling and going back to levels that are more in line with the pre-COVID times.
Of course, it will turn upwards again, but you are not alone in feeling a bit stuck right now, and you can take advantage of it. Tough times are actually a good opportunity to experiment with your delivery strategy, and renegotiate one or several agreements, I think. At least the 20 percent that accounts for 80 percent of your costs.
About the Author
Anders Ekman, COO and Co-Founder at Ingrid. Entrepreneur with a degree from Stockholm School of Economics and 10+ years of experience in building digital companies. Anders is also co-founder of Join Raft and has a background in digital agencies.