4 Overlooked Costs of Shipping & Delivery (Spoiler: They’re Killing Your Margins)
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Apr 1, 2020
Thinking through your business, there are a number of costs you anticipate – product development, supply chain, salaries and wages, marketing, etc.
You optimize your whole business model around these expected costs and dial them in closely, adjust them as needed, and do your best to account for new costs as your business expands and scales.
But as well as you plan for the expected costs, there will always be surprises.
Planning for surprises sounds like an oxymoron doesn’t it? But trust us, you can do it. Identifying high risk areas, building contingency plans and optimizing as needed will allow you to curb surprise costs and boost profitability.
A major area for surprise costs is shipping and delivery, both to reach the customer, and for the customer to reach you with returns and claims. And carrier costs, which are a crucial part of your shipping and delivery budget, are just one small piece of the logistics puzzle.
Here are a few additional and consistently overlooked costs to consider when thinking about shipping and delivery.
1. Poor return policy
Despite all of its benefits, shopping online is inherently risky. Wrong size, wrong color, wrong everything – a lot of things need to go right before that order sticks.
We often think that returns only affect businesses once a product has been delivered, but nearly 70% of customers will review your return policy before making a purchase. Which means your returns policy is not only a huge customer retention driver, but should be front and center in your customer acquisition and conversion strategy. If your returns policy isn’t dialed in carefully, it will end up costing you on the front and backend.
Your returns policy needs to be:
- Easy to find
- Easy to understand
- Hassle-free for your customers
If your returns policy isn’t easy to find, is hard to understand or a pain for customers to use, it’s very likely they’ll shop somewhere else. And if you’re lucky enough to convert someone with a poor return policy, just one bad return experience and that customer is probably gone for good – and there’s no cost more surprising than customer churn.
But it’s not all bad news! On the flip side, 73% of customers state that a positive returns experience makes them more likely to buy again – increasing brand loyalty and boosting LTV by facilitating repeat purchases.
*Purple uses their returns center to differentiate, educate and provide a premium returns experience for their customers.The bottom line:
Knowing that winning a new customer costs 5x-25x as much as retaining an existing one, it’s always a good idea to do everything you can to keep current customers happy, and avoid the costs of poor transparency and spotty policies.
2. Prepaid labels and out-of-stock inventory
In an attempt to offer great customer service, many online retailers have resorted to pre-printing return labels with every order. But adding that $.25 “benefit” on the front end can cause major issues on the backend.
Outside of the fact that you’re paying an additional $.25 – $.40 per order, when your customers use a prepaid label, you lose all visibility into why they’re returning the product. Was it too small? Too big? Broken? This is vital information for optimizing your business and increasing profits.
Losing return data is especially important for brands selling seasonal or perishable goods – with no visibility into what’s being returned or when you can expect it, it makes it impossible to guarantee if those goods will be available. Imagine a customer buys the final stock of your top-selling summer sandal in late August. Weeks later at the end of September, it arrives unexpectedly in the warehouse to be restocked, but you’ve updated your site to promote fall styles, and now you can only sell this item on clearance. This isn’t just a bummer, it’s a costly bummer.
Make sure your process allows customers to initiate their returns online and requires them to print their own return label. Now you will have the necessary data, visibility and timing required to intelligently plan the logistics of the return.The bottom line:
Stop wasting money on pre-paid labels and losing profit on out-stock-items by taking control of your returns process. Returnly is one of our favorite solutions that will give your customers the convenience they want, while giving you the transparency and insight you need.
3. Support costs
When you work as hard as you do to drive online purchases, it’s easy to feel like you’ve won once an order’s been placed and the item’s shipped. But unfortunately, you haven’t won until that order sticks.
Like we mentioned above, shopping online requires a lot of trust, and until the item arrives safely in their hands, your customers will feel anxious. So what do they do? Call, email, text and chat your support team about order statuses, delivery locations and timelines until the package arrives. And if that package doesn’t arrive? Arrives late? Arrives damaged? Bring on more of the same. In the end, your support team ends up spending precious time and energy on non-revenue generating activities.
A few ways that you’re losing money on support costs:
- Responding to “where’s my order?” calls, emails, chats etc.
- Resolving returns/ exchanges inquiries manually
- Managing customer claims about lost, stolen, and damaged packages
Add this on top of the cost of the return label, the shipping costs to send a replacement, and those margins aren’t looking as appealing as when the customer made the purchase just a few days ago.
Senita Athletics reduced their non-revenue generating support costs by 78% – see howThe bottom line:
Save yourself time and money (not to mention, headaches 🤕) by planning out your customers’ post-purchase experience just as meticulously as you planned out their pre-purchase experience. Provide your customers with resources so they can track their packages effortlessly, equip them with tools to navigate the returns journey and make filing claims a breeze.
4. Delivery failures
What about when delivery doesn’t go according to plan?
Between 1 and 5% of packages never arrive at their destination. That may seem like a negligible figure until you calculate 3% of the nearly 100 billion (billion with a B) packages that were shipped last year. That’s ~3 billion packages that simply never show up! Furthermore that number doesn’t account for stolen or damaged packages, so we might as well add a few hundred million more delivery failures to the calculation.
Do you know the worst part about delivery failures? They’re almost entirely out of your control. You did your part to carefully prepare, package and label the item before handing it over to the carrier, and now all you can do is cross your fingers that the item arrives safely. 🤞
Direct costs of delivery failures:
- Time spent on support calls
- Cost of giving away a second item
- Cost of paying shipping out of pocket
- Lost customer lifetime value if 1, 2 and 3 aren’t executed well
Tally up the support calls, the cost of the second item, and paying shipping out of pocket to remedy a tense customer relationship… pretty soon you’re completely upside down on that sale, and that’s before factoring in the cost of churned customers.
The fact is that 94% of customers blame the retailer if a delivery goes bad, and 84% of customers won’t return to that retailer after a bad delivery experience. With so much at stake, you can’t afford to leave shipping and delivery to chance.
So what can you do? Save your margins by mitigating risk.
Solutions like Route give customers the option to protect their shipments through delivery, visually track them in real time, and automatically request Route to issue replacements or refunds when bad luck falls their way. All at no cost to the merchant.
The bottom line:
At the end of the day, if the customer doesn’t receive what they bought, nothing else matters to them. The post-purchase experience will make or break the sales you worked so hard to make.