For ecommerce retailers, margin matters. But while margins on some operating expenses, like the cost of goods sold and warehousing, can be cut and dried, others, like parcel shipping costs, can be hard to monitor and manage.
Doing so becomes even harder when you have to figure in the constant rate changes from carriers (click here to read our 2023 UPS and FedEx GRI Comparison Report) and the problems associated with complex and disconnected shipping data. Taking this all together, it’s easy to see the challenge in measuring the full impact of shipping costs on a company’s margins.
To address this challenge, companies need to be honest about how they are currently accounting for parcel shipping costs and their impact on profits. This is easier said than done, however. Do any of these approaches sound familiar to you?
- We get an estimated cost when we ship from our shipping system, mark it up a little, and then invoice the customer, HOPING that our actual costs aren’t higher than we’ve estimated.
- We give shipping away for free and HOPE that our costs don’t eat our margin on the shipment so we lose money on the order.
- We charge a flat rate for shipping and HOPE to come out close to even on shipping when we reconcile our costs at the end of the year.
- We charge for shipping up until a certain order size and then give it away. We HOPE that our margin on the order covers the cost of shipping.
- We compete for sales on many platforms, and our strategy for how shipping gets billed varies. There is a lot of data, and we HOPE to find time to analyze it at some point in the year and make changes.
- We don’t care about shipping costs. We make so much money on most orders that shipping has no meaningful impact on our bottom line.
Hoping you’re charging enough for shipping (or simply not caring) is not a reliable strategy for managing profit margins. No matter which approach you take, it’s still necessary to validate that the way you manage your parcel costs is maintaining the margin levels your business needs to remain profitable.
This is the power of a data-driven approach. Think about it . . . if you calculated that your profit margin was 10% lower than it could be due to unnecessary shipping costs, you would want to know!
A lack of awareness of how their shipping costs are impacting profitability is the reality for most companies. In an era when parcel rates and many operating costs continue to rise, now is the time to take back that control.
Click here to learn how TransImpact’s Business Intelligence tools can provide the visibility your company needs to reduce your shipping costs and improve the profit margins of your ecommerce business.