Even before the pandemic, many people have already been joining the online shopping craze. Thanks to it, over half a million small businesses are started every month, most of them employing e-commerce strategies to gain fame. Social media marketing, in particular, is a popular investment among small business owners, with 61% of them using it.
Moreover, half of the new businesses in the U.S. are home-based, the most common structure of which being sole proprietorship. As such, retailers have discovered the potential of using their own homes as a base for their startup, enabling them to save money on leasing a separate space.
Besides, if the products you’re selling aren’t too bulky or valuable, your home will do perfectly well in handling them. You can always move into a bigger facility when your business grows, and possibly, after the eradication of the COVID-19 virus.
But no matter where your online business is based, there’s one big challenge you’d always face: Budgeting for shipping.
60% of customers prefer to buy with free shipping, and 54% of potential customers will consider canceling an order if the shipping fee is too high. How will you motivate customers to complete an order then if eliminating the extra fee is infeasible?
Look for the Best Shipping Software
There are several shipping software tools available out there, each of them boasting unique features and benefits for your business. Some offer their services for free if you ship at least 50 orders per month, some allow you to deliver a product that can’t be shipped to certain areas, and some offer discounts from well-known carriers, like USPS, UPS, and DHL.
But what is the best shipping software? If you need a customized solution that’ll allow you to fulfill each and every order, go for a software that offers such, along with a competitive rate, worldwide carrier integration, and exceptional tracking features. These qualities are all imperative if you’re looking to open your shop to international customers.
A shipping software tool is an essential investment, because even if you have a striking website, a user-friendly interface, and excellent customer service, all of those will mean nothing if you can’t deliver products in a timely manner. Because at the end of the day, it’s the shipping and delivery speed that your customers will remember.
Shipping software exists to help businesses streamline and coordinate their outgoing shipments to their customers. Generally speaking, they offer comparative carrier pricing on the shipments, editing in bulk, and labeling shipments with essential information. These characteristics alone already make your parcels more credible and legitimate, as opposed to shipping them all personally.
How to Budget for Shipping
Before using specific shipping software, it’s important to determine your budget for shipping first and to know how much other businesses like yours usually spend. This will help you work out if you’re setting a realistic budget.
According to a report by Shippo, retailers that ship smaller packages or have high order values (like jewelry, medicines, and electronics) spend under 10% of their average order value (AOV) for shipping. On the other hand, sellers of bulkier products, like books and grocery items, spend 18%.
To start off your budget plan, account for the inbound freight cost from your supplier to your warehouse (or in this case, your home). Note that inbound freight costs count as the cost of goods sold because you spend them before making your products available for sale.
You can use domestic parcel carriers like USPS, DHL, FedEx, or UPS, then get discounts through your shipping software. If you’re shipping internationally, you’ll incur additional costs including customs and drayage fees, so estimate what your final costs might be through online shipping calculators.
Once you’ve estimated your inbound costs, divide the total costs by the number of units ordered. The result would be your inbound shipping cost per unit. It will be the cost you’ll record as the cost of sales.
Next, project your initial investment costs, which include the purchase of warehouse equipment. If you’re operating from home, chances are you’re using only a few shelving units and a package scale, so those would be the ones you’d factor in. Note, however, that initial investment costs shouldn’t be confused with business startup costs or organizational costs. Those are the money spent before the business launches, whereas initial investment is the money spent to commence only the warehouse operations.
After estimating your inbound freight costs and initial investment, calculate your monthly shipping and fulfillment costs. Once you get your figures, consider other factors, such as domestic and international shipping, or outsourcing your fulfillment and shipping.
Estimating a realistic shipping and fulfillment budget can be a long and complicated process, which is why technology has come up with streamlining solutions. But still, it’s essential to calculate your spending before putting your money on anything. So make sure to choose a shipping software that guarantees you lower costs and more satisfied customers.