How Amazon’s two-day shipping is disrupting retail. The quest to offer fast, free delivery has triggered an arms race among the largest retailers.
Amazon is already making up most of the US ecommerce sales. However, they rely heavily on 3rd party sellers. These sellers experience major pain related to shipping cost and time. Fast shipping is now an expectation, but it is expensive for most sellers. Sellers often limit fast shipping to veru=y samll items or to local addresses. This limits their buy box opportunities.
Alongside life, liberty and the pursuit of happiness, you can now add another inalienable right: two-day shipping on practically everything . Amazon.com Inc. has made its Prime program the gold standard for all other online retailers, according to surveys of consumers. The $119-a-year Prime program—which now includes more than 100 million members world-wide—has triggered an arms race among the largest retailers, and turned many smaller sellers into remoras who cling for life to the bigger fish.
In the past year, Target Corp. , Walmart Inc. and many vendors on Google Express have all started offering “free” two-day delivery. (Different vendors have different requirements for no-fee shipping, whether it’s order size or loyalty-club membership.)
Optimizing Prime
Amazon’s shipping infrastructure isn’t used just by Amazon. As shoppers who read the fine print know, it’s also available to its retail partners through its Amazon Marketplace. Of the top 10,000 sellers on Amazon—collectively representing about half of Amazon’s Marketplace revenue—at least 90% have one product in the Fulfillment by Amazon program, says Juozas Kaziukėnas, chief executive of Marketplace Pulse, a business-intelligence firm focused on e-commerce. Almost 70% use it to stock and ship at least half of their products, he adds.
Competitors Great and Small
Amazon’s nominal competitor in online retail, Walmart, also offers a marketplace for third parties to sell their goods; the big difference is, it doesn’t assist them with fulfillment—and forbids them from using Amazon’s fulfillment services. Scale is essential. Mom-and-pop shops and even midsize retailers can no longer assume buyers will put up with getting their goods days later via the U.S. Postal Service. In response, startups are trying to aggregate enough retail customers that they can offer the all-important fixed rates for nationwide two-day shipping.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Simply put, “pick and pack” is the process of picking a customer’s order off of a shelf (or wherever it’s stored) and packing it in a box to be shipped to the customer. If you’re a new seller with just a few orders a day, you’re probably doing your own picking and packing – maybe out of your living room! The time, energy, and focus it takes to correctly pick and pack order after order quickly overwhelms sellers as they grow, though, which is why most turn to a 3PL and outsource their ecommerce order fulfillment once they get traction in the market. As you can imagine, picking and packing gets a lot more complex in a warehouse optimized for speedy and accurate ecommerce fulfillment. Read on to learn how pick and pack quality impacts your ecommerce store, how the experts optimize their processes, and how you can find the best pick and pack fulfillment service for your needs.
Why Pick and Pack Fulfillment Quality Matters
Picking speed is an essential behind-the-scenes metric for ecommerce stores because it dictates order cutoffs and on-time delivery. These metrics in turn have a big impact on your conversion rate and repeat customer rate, and therefore your overall growth!
Your order cutoff time is the time in the day before which a customer has to place an order that can be shipped out that same day. Faster, more efficient picking operations can set later order cutoffs. In the days of 7 day shipping, this wasn’t such a big deal. With the rise of 1 and 2-day shipping, though, missing an order cutoff means a customer has to wait twice as long to receive their package. According to McKinsey, almost half of online shoppers will buy elsewhere when the estimated delivery time is too long – so an early cutoff means lost customers.
Picking accuracy is perhaps even more important than picking speed. As more sellers pile into ecommerce, price and advertising competition continues to rise, squeezing margins. Repeat customers that don’t need advertising to convert are critical to a seller’s ability to build a sustainable long-term business model. Sending customers the wrong order kills a brand’s image, likely loses the chance to create a long-term customer, and on top of that incurs return shipping fees.
Finally, intelligent packing can make the difference between a profitable sale and an unprofitable one. How? It’s all in the box.
It’s easy enough to set rules that guide which single item-orders are put in which boxes. But what about multi-item, multi-quantity orders? They can quickly get confusing for warehouse personnel, and workers under pressure to go fast default to using too-big boxes to fit all the items. That in turn increases the dimensional weight of the box, which increases the cost of the shipping label.
Top ecommerce fulfillment 3PLs like Cahoot have efficient picking operations that work quickly while minimizing errors and cost. Cahoot’s processes enable 2 pm cutoff times that are a full two hours later than industry standard, while its teams use barcode scanners to eliminate errors. When every single pick is checked by a computer, the order is right every time. Finally, Cahoot software creates intelligent and dynamic rules even for the most complicated multi-item orders that minimize shipping cost, saving you money.
Pick and Pack Warehouse
How does picking and packing work in an ecommerce warehouse? The answer varies widely based on the sophistication of the operation and what types of items they’re working with. Automation also has a huge impact on how warehouses pick and pack, with the most tech-forward operations leaning heavily on robots and conveyor belts to quickly move items to humans doing the picking and packing.
Piece pick and pack
Piece picking is the most straightforward method. Fulfillment personnel will pick orders one at a time as they come in, moving about the warehouse to pick items before returning to a packing station to prep the package for handoff to a carrier.
In most warehouses, each item will be stored in its own bin or case in a distinct location. When an order comes in, warehouse software will automatically generate a “pick list” that tells the worker where each item is stored in the warehouse. That way, the worker knows where to go to find each item, and can grab them one at a time.
While this is the simplest pick and pack method, it’s also the least efficient, and most medium-to-large warehouses have moved past it.
Batch pick and pack
Batch picking is similar to piece picking in that workers still move about the warehouse picking items for individual orders, but in batch picking workers pick items to fulfill more than one order at a time.
Intelligent warehouse management software (WMS) guides this process to its optimal level of efficiency. Larger warehouses with more orders coming in have more opportunities for personnel to pick for multiple orders at once. Let’s say that four orders come in for the same pack of soap all within three minutes of one another; in this simple example, the WMS will send just one worker to pick the soap for each of the four orders, bring it all back to a packing station, and to pack all the orders sequentially. Of course, this saves three trips to the soap shelf, and helps the warehouse run more efficiently.
Zone pick and pack
Zone picking is the first big step up in complexity, and it involves splitting the warehouse into different “zones” and giving different workers responsibility for each zone. Order pickers stay in their zone, and they pick items from their assigned zone only. Instead of the worker passing from zone to zone, then, they pass the picking box or cart over to the next zone from which it needs items. Once all of the needed items have been picked, they’re passed to the packing station, which is a separate and final zone.
Warehouses that use zone picking often have automated parts of the process – for instance, many will have conveyor belts that connect different zones to one another. That makes handoffs between personnel in different zones much quicker and more efficient, freeing them up to focus on fast and accurate picking. Each zone will also connect to the packing station via conveyor belt, so that orders of single units can quickly be passed up to the packing station for shipping.
Wave pick and pack
Finally, wave picking combines zone picking and batch picking. Each zone picks a large amount of items needed for orders in a batch, and then that batch is combined with batches from each other zone and sent up to the packing station. Workers at the packing station then grab what they need for orders from the batches packed from each zone to prepare for shipping.
Like zone picking, wave picking benefits significantly from automation and is frequently employed in large, sophisticated ecommerce fulfillment facilities.
How Does Pick and Pack Work for Fragile Items?
When picking and packing fragile items, speed becomes less important than the safety of the goods. After all, sending items that arrive broken is even worse than sending items slowly; you’ll have to write down the value of the broken items and pay to ship out replacements.
Picking and packing fragile items so that they don’t break in the warehouse or during transit used to come down to experience and know-how of individual packers. Like most processes in the warehouse, though, guesswork is being replaced by intelligent automated rules to ensure that products arrive safely.
Consider our example below of a host of fragile goods from a fine Italian foods purveyor. Each item is a breaking risk, making an order with all of them a nightmare for most warehouse personnel.
An intelligent shipping software will make the difficult feasible by splitting the order into a number of shipments that finely balances shipping cost and breakage. It then will give guidance to the packing station on how to precisely protect and package each item to fit into the smallest box that will prevent damage in transit.
Many warehouses are set up for peak speed and efficiency, and they thus don’t have the flexibility to intelligently adapt to different types of goods that need different treatment. That’s where Cahoot sets itself apart.
Cahoot: The Best Pick and Pack Fulfillment Service
Cahoot’s nationwide network of over twenty warehouses provides affordable national eCommerce order fulfillment for online merchants. Our wide and diverse network enables us to fulfill a wide variety of needs, from sellers who need absolute peak speed at minimum cost to those that have fragile items or others that require special handling.
Our fulfillment centers are outfitted with dedicated personnel and technology that confers all the benefits of a top pick and pack service:
Efficient picking enables late 2pm order cutoffs
Barcode scanning all but eliminates incorrect orders
Intelligent pick and pack software optimizes boxes for every order, minimizing shipping cost for complex orders
Lowest cost by design
Unlike other providers, Cahoot also has the flexibility to work alongside existing merchant-owned warehouses (if you have them). We know that many merchants with non-standard items and order profiles carefully manage fulfillment themselves due to how difficult the process can be. Cahoot will analyze your existing network and customer base, then add a few locations of our own to seamlessly extend your network into a nationwide footprint.
With this approach, you can continue to get value out of your existing assets while delighting your customers and your bottom line with affordable fast shipping.
Of course, our approach works just as well for merchants who want to completely outsource their fulfillment, and we’d be more than happy to take that on.
Getting started with Cahoot is fast and easy – with pre-built integrations for major eCommerce channels like Amazon, Walmart, Shopify, and BigCommerce, we can get merchants started in as little time as it takes to send us your inventory.
Talk to one of our experts today and explore how we can be the key that unlocks the next level of your profitable eCommerce growth.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Seeing the success of Amazon’s outsourced fulfillment service Fulfilled By Amazon (FBA), marketplaces and ecommerce platforms are racing to build their own ecommerce order fulfillment networks. No doubt, it is beneficial for sellers to have access to third-party fulfillment services wherever they choose to sell, but at what cost? Do these marketplaces have the sellers’ best interests at heart?
Seeing the success of Amazon’s outsourced fulfillment service Fulfilled By Amazon (FBA), marketplaces and ecommerce platforms are racing to build their own ecommerce order fulfillment networks. No doubt, it is beneficial for sellers to have access to third-party fulfillment services wherever they choose to sell, but at what cost? Do these marketplaces have the sellers’ best interests at heart?
Multi-Channel Selling is More Profitable
When third-party sellers first started selling online, the first questions were, “Should I sell on Amazon or eBay besides my ecommerce website?” However, over time, that question has changed into, “How do I sell on both, as well as Walmart and other marketplaces when they make sense for my business?”. In fact, with the current ecommerce trend, it is almost imperative for online sellers to sell on multiple channels to grow. Numerous studies show that retailers using two or more sales channels, on average, do better with their bottom lines. It gets complicated. Now each platform has its own order fulfillment service offering and prioritizes the sale of items fulfilled through it.
Let’s take a closer look at them.
Amazon FBA: Penalizing Multi-Channel Order Fulfillment
Amazon launched its third-party marketplace to satisfy the customer demand for a broader assortment of products. Third-party (3P) sellers add products much faster than Amazon sourcing all the items itself. This helped build the “everything store” behemoth. Today, third-party sellers make up more than 58% of all physical goods sold on Amazon.
Then came Fulfillment by Amazon (FBA), a large-scale distributed warehousing and order fulfillment network for its third-party sellers. FBA helps Amazon deliver a consistent 2-day shipping (soon 1-day) to customers even if a 3P seller sold the item. Commanding 47% of all U.S. eCommerce sales, Amazon was able to negotiate unbeatable shipping rates from all major carriers and offer incredibly low fulfillment fees to sellers. Opting for FBA gives sellers a distinct advantage within the Amazon ecosystem. FBA sellers are more likely to win the “buy box” and are outright forgiven for any shipping related customer complaints.
However, using FBA to fulfill non-Amazon orders is not as rewarding financially. Amazon uses FBA to deliver excellent shopping experience for Amazon customers and power it’s famous growth flywheel by prioritizing its FBA services for its marketplace customers. The fees for non-Amazon orders are much higher. Moreover, Walmart outright banned FBA from its platform due to Amazon’s aggressive branding on boxes.
Shopify Order Fulfillment Network: The New Kid On the Block
Shopify started as an ecommerce platform enabling sellers to quickly create their own professional online store, independent of the marketplaces. Coupled with its vibrant app ecosystem, Shopify aims to be a one-stop-shop for small and mid-size online sellers.
One of its growth strategies has been the app marketplace. Shopify’s great diversity of stores means there is also a high demand for specialized features. Keeping up with this expectation through Shopify’s own development team is very challenging. Therefore, to service the growing needs of their sellers quickly, they’ve created an app marketplace. Through the marketplace, third-party companies can build and monetize specialty apps that augment and extend Shopify’s native functionality.
To continue fueling its growth, Shopify launched additional services to power more parts of the seller’s business and in turn, capture a larger share of the wallet. They launched Shopify Payments, Point-of-Sale, Shopify Capital, and Shipping Label printing services, to name a few. Small to Medium (SMB) sellers need these services, and they also like the simplicity of a one-stop-shop. These value-added services have enabled Shopify to increase their revenue per seller over time.
As an extension of the same strategy, Shopify has now tossed its hat into the ecommerce order fulfillment ring too. ‘Shopify Fulfillment Network’ is geared towards Shopify sellers with options such as custom packaging. The pricing and shipping speed aren’t expected to be anywhere near FBA (at least not in the near-term), as Shopify does not own any logistics infrastructure. However, there are plans to partner with other warehouses and 3rd Party Logistics (3PL) providers. Smaller Shopify sellers who fulfill orders by themselves may find it a step-up, but it’s too early to say. One thing we know for sure is that fulfilling orders through Shopify will not boost their “buybox” chances on Amazon. Shopify is serious about this move, as demonstrated by their acquisition of 6 River Systems for $450M earlier this September.
eBay Managed Delivery: A Defensive Move
eBay also announced its own ecommerce order fulfillment solution in July, called ‘Managed Delivery.’ The objective of the program is to take the fulfillment burden off of eBay sellers and increase delivery speeds for the end customers. The program will be available to U.S. sellers in 2020.
Third-party partners will run the program on the eBay platform, which means it may not be able to compete with FBA on cost or service quality.
‘Managed Delivery’ may, however, be able to provide some respite to larger eBay sellers with access to discounted shipping rates and faster deliveries. At the launch, eBay CEO affirmed, “We don’t want to win a fast shipping game — that’s not the point. You’re not going to hear one-hour delivery, five-minute delivery.”
So, what is the end-game here? eBay is now playing catch-up to newer ecommerce platforms, trying hard to hang on to its position as the second-largest ecommerce marketplace. eBay is competing against behemoths like Amazon and Walmart, both of which offer small businesses access to massive groups of customers. It’s not an easy battle because eBay has an “image problem.” It’s generally thought of as a marketplace where you go to buy used goods, while Amazon and Walmart are the places customers go to purchase new items. Participating eBay sellers in the “Managed Delivery” network will get them higher visibility on eBay, but the service will not be very helpful in winning in a multi-channel environment.
Be Careful Jumping onto the Bandwagon
So, nearly every major marketplace in the U.S. now has a preferred ecommerce order fulfillment network. There are definite downsides, some outright punitive, to using a non-preferred fulfillment network. These moves are contradictory to the trend of selling multi-channel and come at the sole expense of the Sellers.
So why not sign up for all the order fulfillment networks?
It’s not even about the fees charged by these networks, which can be significant for any business. The large hidden costs come from maintaining inventory at multiple locations. Let’s break it down:
Redundant inventory in key markets: Imagine a merchant wants to offer fast shipping to customers in California, and that merchant operates on three different marketplaces. They will then need to store their inventory in California but at three separate warehouses for each marketplace. After accounting for safety stock, that’s a lot of excess capital tied up unnecessarily.
Multiple inbound shipments: If a merchant signs up with three fulfillment networks, they will have to transport their inventory to three warehouses in every major region. This will be more expensive because they’ll be splitting their one big inbound shipment into multiple smaller inbounds.
Safety stock: Splitting the same amount of inventory between multiple warehouses, instead of one or two, increases the amount of safety stock merchants must maintain. The square root law of inventory dictates the additional safety stock that is needed to keep as the merchants expand their order fulfillment locations.
Clearance through multiple channels: If a product doesn’t sell well, merchants will incur the cost of clearing the dead stock through each of these redundant fulfillment channels.
Returns through multiple channels: Sellers will also have to compensate or pay for restocking returns to every platform, which can be as high as 20% in some product categories.
Apart from the tangible costs, there are other headaches with managing multiple order fulfillment programs — for example, the added complexity from juggling multiple contracts, billing audits, and keeping track of ever-changing rates and terms. Furthermore, holding more inventory exposes sellers to a higher risk of losses from shifts in customer demand or during a recession. If a seller opts to go with an unaffiliated third-party logistics provider, they end up being a buy box pariah on every platform.
It is hard to ignore the cost to the environment too. The inefficiencies of excess inventory at its core result in a larger carbon footprint through excess transportation and warehousing operations. The repercussions are hard to ignore when humanity is inching towards irreversible damage to the climate every day. Sellers are losing, and so is our planet!
The Future of Order Fulfillment is Wide Open
The platforms and marketplaces are doing what’s best for them. They are building their own ecommerce order fulfillment networks to drive revenue and lock sellers to their platform. What’s best for marketplaces may not be best for Sellers. Captive order fulfillment services add unnecessary costs and do not scale to a seamless customer experience across channels.
The optimal future of order fulfillment is customer-centric. It means delivering goods to customers the way they prefer it, not limited to the options thrust upon them by the seller or the fulfillment partner. The options should not be limited to lightning-fast delivery, or the ability to pick up an item at one of the company’s “owned” stores. They should also allow the customer to choose delivery options that are greener for the earth or the ability to have the order delivered the same day from a local store without costing an arm and a leg. When order fulfillment networks operate under this new paradigm, they’d be able to offer these options and more to merchants of all sizes, and such services will not be a luxury limited to large multi-billion dollar retailers (think Amazon-Kohls as an example).
The future of ecommerce order fulfillment must also be efficient, where all constituents of the supply chain work together to serve the customer profitably and responsibly. Instead of walls and hurdles preventing growth and advancement, true next-generation fulfillment solutions will facilitate collaboration between all members of the value chain. It will unite the manufacturers to the retailers and everyone in between, including the competitors. At Cahoot, we firmly believe that unless we re-imagine and re-design our captive order fulfillment models, both customer-centricity and merchant profitability will continue to suffer. You can read more here about what we believe the future of order fulfillment is, and how our solution can help you get there today.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Knowledge workers will either need to learn to harness the power of AI to 10X their output (or the output from the tools at their disposal), or AI agents will take over those jobs at a fraction of the cost.
The peak holiday season is the most critical time of the year for e-commerce businesses, characterized by intense order volumes, high consumer expectations, and operational complexities.
Trying to find extra warehouse space as a merchant is daunting. According to JLL’s recent Industrial Outlook, the market for industrial rent has never been worse. Vacancies are at a miniscule 4.3%, an all time low, and rents rose a whopping 7.1% in 2021, reaching an all-time high.
And yet, you need room to grow. Higher sales and more products demand bigger inventories, and that’s without mentioning the supply chain crisis that’s forcing merchants to load up on more inventory than usual.
At the same time, many merchants aren’t using all of their own warehouse space. It’s tough to get the perfect size warehouse, so many err on the side of caution and start with more room than they need.
That’s where on demand warehousing comes in – merchants who need space can get the warehouse capacity they need from those who have more than they need.
What is On Demand Warehousing?
On-demand warehousing is the idea that merchants can rent out space in other merchants’ warehouses to help with their storage and fulfillment needs.
“The idea is to tap into unused space in a crowded U.S. industrial real-estate market where distribution centers near population centers are fetching a growing price premium. Retailers and manufacturers are trying to position goods closer to customers without getting locked into long-term contracts or multiyear leases when rapid changes in buying patterns and trade conditions have made forecasting demand more difficult.”
On-demand warehousing platforms connect merchants to others that can provide warehousing services. A user on one of their platforms will be able to see a variety of warehouse owners that may be able to suit their needs with temporary space. They can then negotiate for warehouse space and services directly from those owners, securing the extra footprint they need.
On-demand warehousing is rising in prominence because it’s becoming more difficult to “go it alone” in the eCommerce era. Before the rise of Amazon Prime, merchants could easily lease space solely around their home base, keeping inventory centralized and easy to manage. Prime, though, has pushed customer expectations for fast delivery ever higher – and those customer expectations extend past Amazon’s marketplace to DTC stores and brick & mortar retailers alike.
To provide fast shipping at an affordable cost, merchants need to strategically deploy inventory in four or more locations across the country. Put it all together, and you see why merchants are looking to expand their footprint across the United States. On demand warehousing offers one way to build a nationwide ecommerce order fulfillment strategy.
Pros and Cons of On Demand Warehousing
On demand warehousing can solve many challenges for merchants, but it comes with its own issues. In this section, we’ll cover what it does well and what it doesn’t address.
Pros of On Demand Warehousing
1. Flexible growth
The retail landscape seems to shift at warp speed – we went from talking about 2-day delivery to same-day delivery in the blink of an eye. The pandemic has only accelerated the pace of change, and while the total retail and eCommerce markets grow rapidly, it’s more difficult than ever to predict their futures.
Will curbside pickup from big box retailers disrupt Amazon? Will dark stores powering same-day shipping leap over customer demand for 1- and 2-day shipping? What’s just over the horizon?
If you’re buying or leasing your own space and investing heavily into operations, you’re locking yourself into one particular mode of fulfillment for years to come. On demand warehousing’s short contracts and endless options, on the other hand, present an opportunity to shift your approach at the drop of a hat and satisfy the newest customer demands.
2. Enables fast shipping
On demand warehousing is a flexible way for merchants to strategically place their inventory in 4+ US fulfillment centers. Directly owning or leasing space across the country requires a huge investment of time and capital, and it’s simply out of reach for most merchants. 4+ locations, though, are necessary to cover the entire country with 2-day shipping at ground rates. With on demand warehousing, nationwide inventory distribution is feasible even for smaller merchants.
Source: Cahoot analysis of FedEx Ground delivery times
It also helps larger enterprises strategically deploy inventory in regions where they think they’ll experience a demand spike. For instance, when natural disasters unfortunately occur, large retailers will send a massive amount of relevant equipment to on demand warehouses in a nearby area to ensure that they don’t go out of stock on essential goods. It can also help with the holiday rush if a retailer feels that they don’t have enough inventory in a critical part of the country.
3. Low capital requirements
On demand warehousing fits entirely into Operating Expenses. This minimizes the risk of investing in the wrong areas, and it maximizes the capital available to deploy towards other critical parts of the business.
For instance, you can flexibly rent out more space to try out a new product, and if it doesn’t move, you can quickly get out of the on demand lease. If you had leased out commercial warehouse space yourself, you might be stuck in a 12-month or longer lease, and tied up money that could have gone to a new hire or to expanding the marketing budget to make up for the new product failure.
Cons of On Demand Warehousing
1. Questionable warehousing & fulfillment quality
Fast and accurate fulfillment is hard, and warehouses that weren’t designed with it in mind can’t keep up. When you use an on demand platform to contract with one or more warehouses, you just won’t know the level of quality you’ll receive until your products have been shipped.
The benefit of enabling affordable fast shipping with a nationwide network will quickly be stripped away by errors in the fulfillment process if you contract with a fulfillment center that can’t keep up with the rigors of same-day shipping. Moreover, as the pressure to work quickly increases, the error rate at many operations skyrockets – just ask the merchants that have been dropping out of the Seller Fulfilled Prime program.
On top of that, you’re unlikely to get good customer support when working with warehouses on demand. Warehouses that sign up for an on demand warehousing platform don’t usually consider customer service a core competency, and you might not even have a reliable way to get someone on the phone to talk out issues.
On demand warehousing gives you tremendous flexibility in choosing who to work with, but it doesn’t come with a central control tower to help make sure things go right. Problem solving and troubleshooting with multiple different facilities will be up to you, and if even just one warehouse isn’t up to par, it’ll eat up a huge amount of your time – and not to mention your profit.
2. Integration complexity
If you just work with one other warehouse through an on demand platform, you’ll have to build a two-way data integration with them to ensure that you have visibility into what’s happening with your products and orders.
Now imagine that you’re doing the same thing with 2 or 3 more warehouses – that’s not a fun tech problem!
No two warehouses’ tech stacks are alike; just about everyone has a different mix of WMS, OMS, IMS, Shipping Software, and more. That means that every additional warehouse you want to add comes with another integration, which adds expense and slows the process down.
The benefits of a short-term contract also come with a downside: just as you aren’t locked into a long-term commitment, neither is the warehouse providing you with space and fulfillment capabilities. If they want to expand their own operations, or if they find a customer that will pay more for you, you can find yourself needing to find a new place for your inventory with only a few weeks’ notice.
Not to mention, your expanding needs will force you back into the on demand marketplace over and over to find new partners. The warehouses that you contract with at first only have so much space and only have certain capabilities, so as you expand, you’ll need to add new warehouses. You’ll find yourself going back to the platform over and over, which incurs significant managerial time costs. And on top of that, you’ll add more and more complexity instead of enjoying economies of scale.
Who Uses On Demand Warehousing?
On demand warehousing is the best fit for sophisticated enterprises that have the resources and capability to manage a high degree of complexity in their operations. They use on demand warehousing to meet specific, short-term goals without deploying capital. In this way, they can take advantage of growth opportunities and find creative solutions for logistics challenges without putting a huge bet on an uncertain or short-term strategy.
Consider our example of Walmart from earlier – they leased out a full 1.5 million extra square feet of space through an on demand portal. They know exactly what their short-term needs are, and importantly, they know exactly how they’ll move on from their short-term on demand solution.
Ace Hardware presents another interesting example of how on demand warehousing can work well for enterprises. During the 2018 hurricane season, they used on demand warehousing to flexibly stage disaster-relief items near regions that were hardest hit by the natural disasters, ensuring that they could get people the products that they needed to rebuild quickly. Like the Walmart example, Ace used the flexibility offered by on demand warehousing to execute a very specific short-term strategy.
On the other hand, SMBs don’t have the time or capabilities to evaluate, integrate with, and manage short-term warehouse partnerships. If you’re an SMB and want to take advantage of the benefits of on demand warehousing, what can you do?
Cahoot – Your Nationwide Network, Without the Hassle
You want a nationwide footprint to power your growth with affordable fast shipping, but you don’t have the time to manage multiple relationships with on demand warehouses across the country.
We’ve built a nationwide network of top-quality merchant fulfillment centers already, and we continuously monitor them to ensure a leading >99.95% on-time shipping rate. Your dedicated Cahoot account manager will be your one point of contact, and our software gives you real-time visibility into our fulfillment performance and your inventory. You may have inventory in four of our locations, but from your perspective, you’re just working with one great company.
On top of that, we’ll strategically evaluate your order flow and make recommendations to improve your inventory placement across our network. Need to add a location? You don’t have to go back to an on demand platform again to find yet another partner – we’ll just add one with the click of a button, and you’ll be ready to grow.
Whether you already have a warehouse and want to expand your footprint or are looking for a full-service fulfillment provider, we have the flexibility to handle your specific needs.
Talk to an expert today and see how our peer-to-peer network will power your profitable growth.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Podcast: Maximizing Ecommerce Merchant Fulfilled Prime (FBA Alternatives)
Cahoot is a network of order fulfillment centers and warehouses belonging to other sellers who have very efficient operations of their own and high performance metrics. Cahoot offers sellers an opportunity to make money by monetising unused space in their warehouses. Cahoot offers an Amazon FBA-like service where they distribute inventory throughout the country for sellers to achieve one-day delivery, two-day delivery, cost-effectively and affordably.
Cahoot is channel agnostic and supports whatever is most beneficial for the client, including sending inventory to Amazon FBA, utilizing Cahoot’s warehouse network to fulfill other orders, and achieving two-day delivery across the USA. Cahoot is a great backup option for every seller, even if they are using Amazon FBA. Cahoot supports what is best for the client, not just Amazon, and offers a lower order fulfillment cost structure by design, providing high levels of service at an affordable price.
Kevin Sanderson: You are listening to The Maximizing E-commerce podcast, helping you build an ecommerce business you can be proud of. And now your host, Kevin Sanderson.
Kevin Sanderson: All right. So, it’s super important that we are as profitable as possible, get our goods from point A to point B to our customers, because if we don’t get them fulfilled, there is really no sales, and we don’t want that because we want things to get to the customers, so they come back to Amazon or wherever it is they’re buying. So, I’m excited because we have someone on today who we shared the stage with at the recent Surge Summit in Tampa. we have Manish Chowdhary from Cahoot who’s joining us. So Manish, thank you for joining us on Maximizing E-commerce.
Manish Chowdhary: Thanks for having me, Kevin. I’m really excited to be here.
Kevin Sanderson: Yeah, I’m excited to have this conversation too, because I’m trying to think of how to articulate what I’m literally feeling right now, and that is, I came to the realization, which maybe some people already realized this, that Amazon switched fairly recently from purely weight based order fulfillment fees to now… What’s the word I’m looking for? Volumetric. And volumetric could be you have it in a poly bag and there’s space in the poly bag, and so, instead of the product being maybe X size, if it goes a little bit beyond that, even if it’s just a poly bag that’s going to bend and fold and whatever, they’re charging you for that. So now it’s increased the order fulfillment fees on just about everything that I have. And I’ve started noticing this in forums and Facebook groups too, people complaining about this. So total side notes, I’m excited to talk about alternate solutions here.
Manish Chowdhary: Yeah, I mean there were, actually, believe it or not, Amazon went through four pricing changes this year alone.
Kevin Sanderson: Oh, wow. I didn’t realize it was that many.
Manish Chowdhary: That we are aware of. In fact, probably five.
Kevin Sanderson: Well, they could have snuck one somewhere and nobody noticed.
Manish Chowdhary: No, no, actually, I will give you the timeline. February 1, 2022, Amazon announced the previously increased price changes to Fulfillment By Amazon (FBA). They do that every year. And so that went into effect, what carriers call GRI, which is general rate increase. You probably heard FedEx raising their rates by 6.8%. So Amazon FBA is no exception to the rule, so they raised their rates on February 1st, 2022. Then they claimed inflation as… They had the lowest profit or a really bad quarter for Q1, and they came back with a 5% increase, what they called the inflation surcharge on April 28th, 2022.
Manish Chowdhary: And then, as we all know, Kevin, that October one, which is Q4, storage fee at Amazon FBA triples, so from 83 cents to $2.40 cents per cubic foot per month is not an increase, but it is certainly an increase over last year. And then, more recently, just a couple of weeks ago, Amazon came up with the first ever peak order fulfillment surcharge, which is six to 8%, which will go into effect on October 15. So, the thing that Amazon FBA is the cheapest solution is sellers got to take a look at their books very closely. And by the way, in addition to these four, earlier this year, this was I think January or February, what you were talking about, is Amazon made changes to a small and light program, which used to be primarily based on weight and now it’s called dimensional weight. And they implemented that, so that had a massive impact in terms of fee increases for a number of small and light shipments.
Kevin Sanderson: And mine’s not even small and light. It’s never been small and light. So maybe they’ve expanded that program. So side note, when this is all over, I’ll have to go back and find… Because I’m sure there was an announcement, and I’ll be honest, I don’t read all the announcements from them. Sorry, Amazon. But at the end of the day, they probably gave me the information, but I just didn’t check it. Well, let’s go back in time. You and I were chatting on a bus because we were going out from the hotel where the Surge Summit was. The night before, you and I were on a panel together about shipping logistics, and we were chatting about your ecommerce business model, which I thought was pretty unique and interesting. And you were telling me a little bit about your background. So before we get into your current business model, let’s go back in time and just describe how you got into the whole ecommerce logistics, shipping, order fulfillment world, because it wasn’t the same path that I usually hear with people.
Manish Chowdhary: Well, thank you, Kevin. Yeah, I’ve been involved with ecommerce since 1999. I was a student at the University of Bridgeport, Connecticut back then, and that’s when I started my first business out of my dorm room at the University of Bridgeport. And somehow we got involved with ecommerce and I loved it. And we were building a custom ecommerce website, and then we built one of the first turnkey ecommerce platforms.
Kevin Sanderson: Oh wow. Just so everybody understands, this is years before there was ever a Shopify, WooCommerce, BigCommerce. There was nothing, right? There was no out of the box ecommerce platform other than you wanted to hire a developer.
Manish Chowdhary: Right. There was Yahoo. Yahoo was what Shopify is today or what Salesforce cloud would be. All the top ecommerce brands, the Adidas of the world, I think were on Yahoo ecommerce platform. Yahoo was the Google of the day, if you remember.
Kevin Sanderson Okay, yeah, yeah. Back when people would go to Yahoo to look for things. And who’s Google? Yeah. Yeah.
Manish Chowdhary: Yeah. So I started building an ecommerce website. My background is computer science and got involved helping someone who… This was the first ecommerce platform. Before the word ecommerce platform existed we used to call it shopping cart software. Turnkey shopping cart software that you could do it yourself. Super easy. This is long before Shopify and so on. So, that’s where I got my start in ecommerce. Since then, I’ve been speaking with merchants, to the same kind of merchants, more or less. Of course, everybody’s GMV has ballooned 10 times, a hundred times in the last-
Kevin Sanderson: Just for the audience who’s not familiar, GMV means what?
Manish Chowdhary: Gross merchandise value, meaning the amount of sales on the internet.
Kevin Sanderson: Oh, okay. Yeah. Yeah.
Manish Chowdhary:
Yeah. It used to be a time when people were, they would check their email once every two days and if they got the sale… And now of course we have emails on our phone, which wasn’t the case back then.
Kevin Sanderson:
Oh yeah, yeah. Your phone literally was for calling.
Manish Chowdhary: That’s right.
Kevin Sanderson: Back in the day, there wasn’t even text messages on it. It was kind of a novelty that you didn’t have to be connected to a cord in your house or within 20 feet of the cordless phone receiver in your house. So you could go somewhere else and call other people. And that was still fairly novel in the late 90s, early 2000s.
Manish Chowdhary: Yeah.
Kevin Sanderson: So, speaking of this journey you were pretty early on in some of this, which is kind of fascinating to me. Not kind of, it is fascinating to me. You shared a story with me when we were on the bus going back to the hotel from this… We had gone on a cruise that they had us go on that evening, which was really fun. Total side note there. But you were telling me the story of you were starting to notice some patterns in where stuff was shipping from that maybe there was some inefficiencies in the system.
Manish Chowdhary: Yes.
Kevin Sanderson: Can you describe that?
Manish Chowdhary: Yes.
Kevin Sanderson: If I remember correctly?
Manish Chowdhary: Great memory, Kevin.
Kevin Sanderson: I try. I try. Yeah.
Manish Chowdhary: So yes, this was during that time we actually plotted sales data from camera sellers in the US. So I remember vaguely there were about 70 camera sellers and we plotted the sales data on the map of the US. And of course, products like digital cameras or… The world was moving from film like Kodak films to digital. And I remember Canon and Nikon were at the top of the game. I remember some products like Canon, Elf, Nikon, CoolPix, these two products that stuck with me, they used to be the best-sellers, the top sellers. And when we plotted that sales data, there was a fascinating observation that the same item, the same product was traveling from a seller, say in New York to a customer in California at the same exact time the product was traveling from a seller in California to a customer say in New Jersey. And that was happening 40% of the time, if I remember correctly.
Kevin Sanderson: Got it. So sometimes they’re literally, the trucks could be crossing each other going across the country, because there’s no Amazon FBA fulfillment algorithms.
Manish Chowdhary: Well, even if there was Amazon FBA fulfillment, even Amazon FBA hasn’t solved this problem because if you are a seller X, selling-
Kevin Sanderson: Oh, that’s true.
Manish Chowdhary: And then seller Y in California. But the fundamental macro issue was why this inefficiency? Why should the same item travel 7,000 miles cross-country in two opposite directions? Both sellers lose because they’re paying for exorbitant shipping cross-country, both customers lose because they’re paying for that. Those were the days, there was no such thing as free shipping, customers were paying, and both the customers were waiting eight to 10 days to get their items. And the environment was suffering at the same time because of so much carbon emission. So, this was not helping anyone.
Kevin Sanderson: Nobody was winning.
Manish Chowdhary: Except UPS, FedEx… And I don’t know if that’s called winning, but nonetheless, that’s when I applied for my first US patent and said, “This should not be,” because if you think from a macro perspective, that level of inefficiency should not exist regardless of who sold what to whom. And that is where I built the intellectual property and said, “Hey, I’m going to create an exchange and optimize ecommerce regardless of who sold what to whom we will… And the way we’re going to do it is we are going to reduce the miles that our product travels so that it’s cheaper and faster. That was the vision. And that is what translated into Cahoot many years later. And this is long before Amazon Prime. Amazon Prime didn’t even exist. In fact, the Amazon Marketplace did not exist. So I had seen that trend that at some point, what’s good at the macro level from first principles is always good and your time will come when the economic incentives align, when this would make sense. So that is the genesis of Cahoot.
Kevin Sanderson: Got it. So Cahoot, just so folks who are not familiar, you basically offer something… Forgive me, this could be a horrible analogy, but something if you took Fulfillment By Amazon (FBA), how they’ve got order fulfillment centers all over and you mixed it with a third party logistics (3PL) company, which most 3PLs have a location. Maybe they have a location in Miami or they’re located in California, opposite sides of the country. Or sometimes there’s one that maybe has a location in Miami, one in Oklahoma, and one in Portland. And so, they have three locations across the country, so to speak. You’re kind of mixing them together to make an Amazon FBA out of multiple third party logistics (3PL) companies. Am I understanding this correctly?
Manish Chowdhary: Yeah. So Cahoot is a network of order fulfillment centers and fulfillment warehouses belonging to other sellers who have very efficient operations of their own and high performance metrics. So a seller, let’s say a seller who has 50,000 square feet warehouse and has 10, 20, 30,000 square feet of unused space that they’re not utilizing, they can come join Cahoot as an order fulfillment partner. And for the very first time they have an opportunity to make money, with the space that’s going idle, your rent doesn’t change whether you use half the warehouse or use the full warehouse, your utilities don’t change. So this is such a, I think a wonderful idea and option for merchants who have their warehouse to participate in the order fulfillment economy and Cahoot stitches that altogether, makes it super-duper simple for fulfillment partners to operate.
Manish Chowdhary: And what’s the net benefit to our clients? Our clients are sellers. They get an Amazon FBA like service. For them, all of this is behind the scenes. They’re looking for distributed order fulfillment so that they can achieve one day delivery, two-day delivery, cost effectively, affordably, and without any penalties for, “I will only fulfill this channel and my pricing is this for this channel.” No, an order is an order is an order, and we need to help that customer meet their expectations wherever they sell, wherever they want the inventory to be, and Cahoot intelligently distributes the inventory. And the benefit is it’s a lower cost structure by design. And that’s where our clients win because they get a high level of service at an affordable price.
Kevin Sanderson: Got it. So basically, if I’m understanding correctly, what you’re doing is there’s warehouses throughout the country that are already operating, they already have space. In most cases, they’re not necessarily filling to the exact brim, so to speak. There’s other space they might have and you’re giving them a way to monetize that space, which creates efficiency from a macro perspective. And then at the same time too, being able to distribute inventory throughout the country for sellers so that they can get it relatively quickly to their customers as opposed to if they’re only in Miami. Sure, the East coast is great if they’re only in California, the West coast is great, but either way, what about the people in the middle of the country where it might take longer?
Kevin Sanderson: So you’re helping to solve some of that problem, which is a unique thing there. So help me understand, one of the things I think people might be thinking in their heads is, okay, but if I had something like that, Amazon likes FBA inventory and the customer likes Prime. So what would be the benefit to the customer or to the seller to be involved either 100% or probably better said to mix it up a little bit, because I know people look for backup plans, especially around the holidays coming up.
Manish Chowdhary: Yeah, that’s a great question, Kevin. Cahoot is channel agnostic. We are the most merchant centric order fulfillment services network on the market because we support whatever is most beneficial for the client. If a client wants to send some of the inventory to FBA, then Cahoot would gladly support that. In addition to, utilizing our network to fulfill other orders. If you think from a seller’s perspective, the seller does not differentiate that, “Oh, I need a warehouse for FBA. I need a separate warehouse that’s going to send my inventory to Walmart fulfillment services. I need a third warehouse to send my wholesale orders, and then I need to now contract with three, four different 3PLs to achieve two-day delivery across the US. So from a seller’s perspective, FBA is not the solution to all their problems because if you’re selling on Shopify, you don’t want to pay multi-channel fulfillment rates.
Manish Chowdhary: I mean, FBA on one hand, we just heard that FBA is rolling out some new services like Amazon warehouse and distribution, and they want to offer long-term storage. And on the very same day, we heard on the Surge Summit from the stage from one of the largest sellers that their inventory limits have been slashed to a very, very low number. So, Amazon is a great service, but sellers have to recognize that Amazon does what’s best for Amazon and the sellers need to have a backup option. It’s like a backup hard drive on your computer. You’re not going to go around with no backup because things can fail and things do fail, and we’ve learned repeatedly that Amazon will cut your inventory without limits, and what are you going to do? So, Cahoot is a great option to have for every seller, even if they’re using FBA. And Cahoot’s position is we will support what’s best for the merchant, B2B, B2C, and Seller Fulfilled Prime (SFP). And those are all two opposite ends of the spectrum. And I’m sure you may have questions on Seller Fulfilled Prime (SFP), which I can tackle.
Kevin Sanderson: Yeah. Okay. So yeah, Seller Fulfilled Prime (SFP). That’s the part that I think probably just got some people really thinking there like, okay, you can still get the Prime badge but be seller fulfilled. Now, the part that’s scary for a lot of people is if Amazon screws up order fulfillment, it’s their problem. If you take that on as the merchant, regardless of you physically putting the boxes as the seller and putting labels on them and putting them into the post office, or you hire someone; you as the seller in your account are responsible for it. And then Seller Fulfilled Prime (SFP) is another level because you can’t just say, “Oh yeah, we’ll ship it in seven to 10 days like you could with other merchant fulfilled options.” So what are the requirements for Seller Fulfilled Prime (SFP)?
Manish Chowdhary: Yeah, Seller Fulfilled Prime (SFP) is the gold standard of fulfillment. And Cahoot is one of the very, very few networks that can handle Seller Fulfilled Prime (SFP) confidently. In fact, if you went and spoke with the traditional third party logistics (3PL) company, they’ll flat out tell you no, and you definitely don’t want to take a chance because as you said, the risk is so high, the standards are so high, unforgiving… And I’ll explain what that means.
Kevin Sanderson: Yes, please explain the unforgiving standard.
Manish Chowdhary: Seller Fulfilled Prime (SFP)’s standard is you need to have 99.5% on time shipping. You need to have 2:00 PM-
Kevin Sanderson: Okay, hold on. So that means, you can only make a mistake one out of 200 times.
Manish Chowdhary: That’s right.
Kevin Sanderson: Right? Did I get the math right?
Manish Chowdhary: Yes, you got the math right. Yeah. One mistake out of every 200 orders you need to deliver… You need to ship six days a week, which means you have to pick Saturday or Sunday to also ship on. You need to have a cutoff time of 2:00 PM, same day cut off time. Means if an order comes in by 2:00 PM you must ship it the same day. Then you need to use Amazon Buy shipping to purchase all shipping labels. So even if you have the best fulfillment operations, if your technology is not rock solid, you’ll get screwed up there. You don’t want to email your shipping labels to your order fulfillment partner. That is a bad idea. And now, on top of that, where things get really tricky is what Amazon defines as page view metrics. So, in order to qualify and remain in good standing for the Seller Fulfilled Prime (SFP) program, every seller must meet one day, two-day delivery page view metrics. And I’ll break that down for you.
Kevin Sanderson: Okay, yeah. Help me understand what that means.
Manish Chowdhary: Meaning, Amazon Prime have moved Seller Fulfilled Prime (SFP) away from two day delivery. Two-day delivery is yesterday’s news. In fact, day before yesterday. For Seller Fulfilled Prime (SFP), for standard size items, you need to have at least 20% of page views to the consumers on amazon.com that promise one day delivery. In addition to-
Kevin Sanderson: Okay. So time out.
Manish Chowdhary: Yeah.
Kevin Sanderson: How does the page view know whether it’s one or two days? You have to be communicating that to Amazon? That if a customer lives in Tennessee, it’s going to be X number of days versus if they live in Utah?
Manish Chowdhary: So essentially that’s the reason why you need at least four to five warehouses. You cannot achieve Seller Fulfilled Prime (SFP) using a single warehouse if you are shipping using economical ground shipping. So these are all managed through the shipping templates in Amazon Seller Central. So if you go on Amazon Seller Central, you can go create all your warehouses and then you create shipping templates. And shipping templates are what informs Amazon and thereby the consumers what to promise to the shopper on amazon.com. So Amazon, of course, as you know, is fanatical about customer experience, so they want 20% of the page views to promise one day delivery.
Kevin Sanderson: Got it. So 20% of the time someone lands on that page, they’re promised one day delivery.
Manish Chowdhary: Right.
Kevin Sanderson: Now, theoretically more people are probably in population centers. That probably helps you a little bit, but you have to make sure that you can do one day delivery to a lot of the population centers and things of that nature.
Manish Chowdhary: Yeah, it gets tricky.
Kevin Sanderson: It does. It sounds like, oh, that’s easy enough, but there probably is some threading of the needle there.
Manish Chowdhary: It’s far from easy.
Kevin Sanderson: Yes.
Manish Chowdhary: I’ll give you an example.
Kevin Sanderson: Okay.
Manish Chowdhary: If you have a 2:00 PM cutoff in New York, which is where a lot of people live, right? Meaning that’s the same day promise, a customer that’s visiting your webpage, let’s say at 7:00 PM, you can’t ship that product today. So, that automatically means if you’re going to ship tomorrow, it’ll be delivered the day after tomorrow. One day became two days.
Kevin Sanderson: Got it, got it. Okay.
Manish Chowdhary: So you need to have 40%… And this is accrued math, of course. At least 40% of the US population covered within one day radius in order to scrape by the Seller Fulfilled Prime (SFP) account help metrics for standard sized items.
Kevin Sanderson: Got it. So they’re not saying by 2:00 PM you must have 20%. It’s total. So if most of your shoppers are shopping at night, you better hope that you have a better chunk of the pre 2:00 PM crowd covered.
Manish Chowdhary: Yeah, this is what makes it… And this is where the world is going. If you are sending your other orders from other channels and taking three days, I mean, you’re doing massive disservice. Why is Amazon growing so fast? Why do customers come to Cahoot is of course, not only for programs like Seller Fulfilled Prime (SFP), but once your inventory is distributed in the Cahoot network, then you can offer the same Prime like shipping promise on your website. Imagine not having to pay 15%, 20% in commission and you’re building a brand and because your inventory is already there, and that’s where the scales begin to tilt. And by the way, we covered one day metric, but there’s also two day metrics for the rest. And as I said, six-day shipping, late cutoff, all of these make things very complicated. And that’s the reason why traditional players cannot affordably offer the service without… For example, if you have to rush the order using next day air, that will erode all your margins for the next hundred orders possibly.
Kevin Sanderson: Yeah, that would be crazy. Okay. All right, so let’s get into this now. So how did you go from back when either Clinton was still the president or maybe Bush’s first term, basically a long time ago, realizing there was inefficiencies of cameras crossing over each other, going from one end of the country to another, just based on where the seller was to coming up with this idea of a fulfillment services network?
Manish Chowdhary: Yeah, essentially the idea was to create a network that would enable people to collaborate. And in order for merchants to collaborate in some fashion, you need an independent body that’s a governing body. Without governance, nothing works, you need to have the rules, you need to provide the decorum. It’s no different than a marketplace like Uber or Airbnb for the drivers and the riders to collaborate. Essentially, they’re collaborating. On Airbnb, the renters and the hosts are collaborating. It’s a different service. With Cahoot, it’s merchants who are collaborating with other merchants under the Cahoot umbrella who sets the rules and holds people accountable and so on. And that’s what we built the Cahoot network to essentially, one, enable sellers who have warehouses. There are about 2 million sellers in the US and if any of the listeners have a warehouse and have spare capacity and they have excellent metrics, I invite them to come check out Cahoot. Fill out the Contact Us form, and we can get in touch with you if you want to join as an order fulfillment partner and make some money.
Kevin Sanderson: Well, let’s get into your current network. We can get into the how someone joins as we get further into this, because I’m just intrigued. So how many warehouses are there currently in the network?
Manish Chowdhary: They’re multi dozen warehouses and that number keeps growing.
Kevin Sanderson: Okay.
Manish Chowdhary: We have a very large network. We cover the entire nation in one day, two day shipping. And so, essentially the clients get an Amazon FBA-like service sellers can deploy their inventory and if they need Amazon FBA assistance… But we are not an Amazon FBA forwarding service. If somebody wants just Amazon FBA forwarding, then that’s not Cahoot. There are a lot of other services that just do Amazon FBA forwarding.
Kevin Sanderson: Got it. Yeah, there’s a lot of warehouses for that, but you’re doing a specific service of basically getting it closer to the customer so that when the customer orders on Amazon, they can still get Prime or they order on Walmart and then get whatever badge it is there or whatever, Shopify stores, whatever. So it doesn’t have to just be Amazon inventory. So this could be either Amazon has become cost prohibitive for the seller for whatever reason, and they need to look into other options. Their inventory was cut back, they just want a second backup just because, like right now, I can ship in 15,000 units and last year at this time, I think I had a thousand units I could send in total.
Manish Chowdhary: But-
Kevin Sanderson: You’re all over the place. up and down.
Manish Chowdhary: When is a thousand going to reduce to 750, you have no idea.
Kevin Sanderson: Yeah, exactly. Exactly. I almost wake up in sweats on Monday mornings… Not wearing sweatpants, but in cold sweats, what is my number going to be this week? Sometimes it goes up by 5,000 and sometimes it goes down by 5,000, and thankfully I’m never right on the edge. So anyone that says to me like, “Oh, should I just send all my stuff on Amazon?” I’m like, “Absolutely not, because they could just cut it.” And they’ve done that before when they get close to the holidays and they’re like, “Oh, we’re filling up more than we thought we would.” So they just cut it off and now all of a sudden you can’t send in the popular stuff that you were hoping to send in, so you have to have something to do. And so hopefully your dining room has a lot of space, but for a lot of people that might not be the case.
Kevin Sanderson: So, for a seller, let’s just say, we can use Amazon as an analogy just because I think most people, probably most of their sales are coming out from Amazon and we’re talking about Seller Fulfilled Prime (SFP) and things of that nature. So Amazon processes, I go into Sellers Central and I say, “Here’s what I’m sending you, Amazon. Here’s the quantities, where do you want me to send it?” And hopefully it all goes to one place. Sometimes they split it up and they say, “Send it here, here, here, here, and here.” Walk me through what does the process look like If I have just for the sake of example, a thousand units I want to send to Cahoot? What happens?
Manish Chowdhary: The process is very similar to Fulfillment By Amazon (FBA). You’ll create an inbound in Cahoot, and Cahoot will guide you through where the inventory needs to be based on your requirements. Some sellers don’t want to distribute. They’re not targeting two-day delivery for whatever reason. Distributed order fulfillment is more expensive than shipping everything from Florida, as you know, because there’s a cost of movement of goods and so on.
Manish Chowdhary: I mean, that’s why Amazon… Even Amazon FBA charges you more to send you inventory to one location versus sending it to all the different locations that Amazon wants. It’s not free even at Amazon FBA. So it’s essentially the same network, similar network, but we charge the same low fees for all channels, whether it’s an Amazon order, it’s a Walmart order, whether it is a Shopify order, eBay, we have all the order fulfillment integrations, so we will connect. We’ll get the order, we will optimize to make sure that the right packaging, you’re paying the lowest shipping cost possible, and we give you all the visibility once the order is shipped and we write the information back to Amazon. So it’s a pretty set and forget, it’s very similar to just managing your inbounds on Amazon and then watching-
Kevin Sanderson: So if I have a thousand units, does Cahoot say X number here, X number here, X number there if I want it distributed? Or does Cahoot distribute around for me as time happens? As one area gets depleted, for example.
Manish Chowdhary: It’s a collaborative process because if you’re doing Seller Fulfilled Prime (SFP), we will provide you with more guidance, but you have more control. With Amazon, you have little to no control. Amazon dictates because Cahoot is doing full service fulfillment, remember Cahoot is not just doing Amazon sales. So, you may have wholesale orders, you may have stuff that needs to go to Amazon FBA. So for us, the problem is a little bit more complicated than just serving the customers on amazon.com.
Kevin Sanderson: Got it. So you have something that’s about a pound on Amazon, and let’s just say that’s four bucks for the fulfillment fee. Is it a similar fulfillment fee? Is it a little bit more, a little bit less on Cahoot? And where does the cost of the actual storage compare?
Manish Chowdhary: Yeah, I mean, Cahoot overall is going to be more cost-efficient because when you look at Fulfillment By Amazon (FBA), you got to look at all the fees, you got to look at the storage fees, you got to look at how long it takes for you to receive your end box. And frankly, Amazon FBA is very attractive for what I call small and light. Amazon FBA fees undoubtedly are very attractive. So Cahoot will be very comparable to Fulfillment By Amazon (FBA), and if you have larger products, if you have slightly what Amazon would call standard oversize or oversize items, and that’s where Cahoot rates are going to be dramatically lower.
Manish Chowdhary: Cahoot overall is very, very affordable on par with Amazon FBA, but there are few pockets where Amazon has its own delivery trucks, whereas Cahoot relies on carriers. Third-party carriers like UPS, FedEx DHL and all that. So, the way we like to educate our clients is to think about all the different channels you want to sell on, all the different things you need to manage and maintain and so on. And we are there not to replace Fulfillment By Amazon (FBA) if that doesn’t make sense. We are there to support whatever order fulfillment strategy that’s best for the seller.
Kevin Sanderson: Okay, interesting. So yeah, this is an interesting network that here you are, you saw an inefficiency in the system, so to speak, and you’ve created a system around it, which helps to essentially give people an alternative to Fulfillment By Amazon (FBA) in general, if maybe their oversized items and the pricing doesn’t make sense with Amazon FBA or they just want an alternative because they can still keep the seller fulfilled badge, knowing that at the holidays you could have stuff in fulfillment center processing for two weeks and it just sucks.
Manish Chowdhary: Every seller, including you, Kevin, should have an Amazon FBA backup because otherwise you’re putting all your eggs in one basket and that’s never a good idea. Certainly not in Amazon’s basket. You want to have a backup so that you can turn it on whenever you think is required, whenever you need it, because you can’t send all your inventory to Fulfillment By Amazon (FBA). There are all kinds of delays getting inventory from overseas if it’s coming. And almost every seller should be selling on multiple channels. Nobody should limit it to one channel only. And we know that MCF, multi-channel order fulfillment, is more expensive, so why should it be more expensive? If the cost of shipping is the same, it’s just… So the way we like to think about it is that Cahoot has created the most merchant friendly order fulfillment solution on the market because we’re agnostic. We are there to support the seller, help them sell more, help them make more profit, and if we can be part of their journey, we’d be great.
Kevin Sanderson: Awesome. Now, one thing I think people would be curious about, who are sellers that are thinking about going onto this… Because Airbnb, I think we’ve all had great experiences, Uber, we’ve all had great experiences, but you always hear the horror stories. Who are these people? And there’s always this bad apple. So what does it take just either if someone’s interested in it potentially because they have a warehouse and may be interested in joining a network like Cahoot? Or they are a seller and they’re just like, who are these people who are going to be storing my inventory? Kind of walk us through what that looks like? How does someone get onboarded? What do you look for in an order fulfillment partner and what are they held to?
Manish Chowdhary: Thank you. That’s a great question, Kevin. Becoming a Cahoot order fulfillment partner is a by invitation only program, so even if you went to our website, you may not find… Because we have to be very selective in who we allow from a fulfillment partner, because as you heard, supporting seller fulfillment Prime is playing with fire. It’s not for the faint of heart. So we need to ensure that we are selecting these partners very carefully. There are two million sellers out there in the US, many million globally. So we invite them to come, submit, contact us, we will get in touch with you. Cahoot does a lot of due diligence to make sure that the program is the right fit for them and they’re the right fit for us.
Manish Chowdhary: If they have excess capacity and they’re doing a great job of fulfillment for themselves, they should consider applying because there’s more than one way to make money. One is to sell more goods, and the second is to fulfill. You’re already fulfilling orders, might as well just fulfill a few more. And I think that’s a great way to make extra cash, and it’s super-duper simple. So, from horror stories, it’s really some things that are within Cahoot and our fulfillment partner’s controls. Some are not, like inclement weather. That happens. I live close to New York, we get snow storms here. Just yesterday there was a hurricane in Florida, which-
Kevin Sanderson: Oh, yeah, we’re recording it. Oh no, it hasn’t even made land yet. In fact, last night I was-
Manish Chowdhary: Okay, sorry.
Kevin Sanderson: Dodging tornado. Yeah, I happen to be on the east coast, this is on the west coast, so I’m very familiar with what you’re talking about. So we’re lucky to be even having this conversation that I have internet right now. Anyway, sorry, side note. But yeah, stuff happens.
Manish Chowdhary: So carriers sometimes may have difficulty picking up. When the pandemic hit, carriers were completely blocked. They had no space in their trucks. So if you suddenly ran a special sale and instead of getting 10 orders a day and you got thousand orders, I mean, FedEx, their space doesn’t have elastic capacity that they can elongate by click of a button or manufacture trucks digitally. So, those are real world physical challenges that we deal with. Those are things that planning for capacity… But our order fulfillment partners have been great. They have always stood their ground and they have delivered. So generally speaking, most of the problems that we’ve seen have been outside our control, and we speak with our fulfillment partners regularly. So it’s not just a digital platform that you have no connection with, human connection, whether it is staffing.
Manish Chowdhary: People do fall sick. During the pandemic we had people in the warehouse that had COVID, they had to be isolated. These are… Amazon shutdown several warehouses during that time, so all the same challenges. It is about great governance, clear expectations, good communication, and great technology and system. From a technology standpoint, we often encounter bugs or issues with buy shipping, but we have to use buy shipping for Prime orders to get the label. So our technology has to be resilient to deal with those challenges. Sometimes it’s an inconvenience. Let’s say buy shipping is not returning the economy ground shipping method because it’s only returning expensive two day air label, so that costs our sellers money, and we are very sensitive to that. However, it’s also important to protect the account, those metrics, because in order to save 20 bucks, if the account is endangered of the health of the account, that is going to be a far more expensive problem than 20 bucks.
Kevin Sanderson: True. Because if you get one out of 200 that you get a grace on.
Manish Chowdhary: So those are the problems that we’ve seen, but our technology is resilient, our fulfillment partners are awesome, and we’ve been very fortunate that way, and we want to keep it that way.
Kevin Sanderson: Awesome. So for somebody who wanted to learn more, either as a seller or potentially if they had a warehouse, where would they go?
Manish Chowdhary: Go to www.cahoot.ai. If you’re interested in availing yourself of Cahoot’s, affordable fulfillment services, just fill out the Contact Us form. There’s also a live chat option. If you’re looking to join as a fulfillment partner, we are glad to have you. We’d love to invite you. Just fill out the Contact Us form, and then a representative, a fulfillment expert, will be in touch and we will determine if we are the right fit. But we are here to help our customers. If we can add value, that’s what we like to see.
Kevin Sanderson: Awesome. And spell Cahoot, just for folks who are not familiar.
Manish Chowdhary: Yeah, Cahoot is a play… You know how Slack, when you are using Slack at work, you are in cahoots. So C-A-H-O-O-T.ai. It’s singular. Cahoot.ai is the URL. You can check us out. And yeah, if there’s any questions we can answer for them, we’ll be happy to.
Kevin Sanderson: Awesome. If you’re listening to the audio podcast, that’ll be in the show notes. And if you’re listening or watching on YouTube, it’ll be in the description down below. So Manish, this is an interesting conversation and I am fascinated with what you’ve built here. So, thank you so much for coming on.
Manish Chowdhary: Kevin, thank you so much for having me. And thank you to all your listeners for listening to me. And if Cahoot can be of help, please just check us out and we’d love to chat and share notes, and we learn as much from sellers as much as we have to share our expertise with them. So I always enjoy those conversations.
Kevin Sanderson: Awesome. Thanks so much.
Manish Chowdhary: Thank you. Bye.
Speaker 1: Thank you for listening to the Maximizing E-Commerce Podcast. If you found this episode helpful, you can get more episodes by subscribing on iTunes or wherever you enjoy listening to podcasts.
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Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
With the supply chain crisis still in full swing, the most unheralded part of the process of getting goods from the manufacturer to the end customer has received a lot more attention than usual: the humble warehouse.
As eCommerce gains a larger share of the total retail market, the demands on warehouses keep growing higher. While the underlying principle of what a warehouse is remains the same, the actual processes run within warehouses look far different from what they did even 20 years ago. Efficiently handling long-term storage, B2B replenishment, and online DTC orders is a tall task for any one warehouse, and rising consumer demand is pushing costs even higher.
What seems like a simple decision – where you should store your products before last mile delivery – can get complicated in a hurry. In this blog post, we’ll walk you through the basics of modern warehousing and give you a primer on how to pick one that’s right for you.
What are Warehousing & Fulfillment Services?
Simply put, warehousing is the term for the storage of inventory before the goods are sold. Warehouses focus on storing inventory inexpensively, securely, and in a way that supports necessary access to the goods. Within that enormous category, there are many, many different types of warehouses.
Warehousing can occur at many steps along the supply chain – manufacturers need to store products, warehouses are often needed to help with middle mile distribution, and then of course inventory waits in a warehouse until it’s ordered by a customer or a business and moves to its final resting place.
In this post, we’re focusing on that last type of warehouse – facilities that store products but also need to fulfill orders. These are the warehouses that have seen the most change over the past few decades, as they’ve had to shift from focusing entirely on B2B orders to being able to fulfill a large portion of B2C orders, straight from their shelves.
How has that shift impacted warehousing & fulfillment operations?
Inventory storage
Much of the floorspace in a warehouse is dedicated to inventory storage, but the way in which inventory is stored has changed dramatically thanks to the shift towards ecommerce order fulfillment.
Warehouses that focus on B2B replenishment store their inventory efficiently in large bundles – think of a full pallet of goods, or a pallet of goods off of which multiple cases can quickly be picked. Relatively little is needed to do in order to receive the goods and put them into storage: if orders are pallet-sized, then they might not even need to be unpacked at all.
Contrast that with inventory storage at a warehouse that fulfills ecommerce orders – goods have to be stored in such a way that they can easily be picked in eaches (or single quantities). When an ecommerce warehouse receives pallets of inventory, they have to unpack the pallet, put away cases of goods, and then open some of the cases so that they can easily access the products inside. The speed with which a warehouse picker can get to the items and pull one or more out becomes of paramount importance, because they have to repeat the process hundreds of times per day.
The explosion of eCommerce has been accompanied by an explosion in warehouse automation, as providers try to make their operations ever more efficient. When storing product, warehouse personnel must be able to pinpoint the exact location of all SKUs, count the number of units on hand, and respond to recalls. Each of those tasks can be made considerably easier with the intelligent use of technology, like bar code scanning.
Warehouse fulfillment
Moving from a handful of large B2B orders every day to thousands of B2C orders per day is a huge shift. Just like the change to warehouse storage strategy, the change in fulfillment strategy has underpinned a significant increase in the complexity and cost of warehousing.
Warehouses need to employ more fulfillment personnel and deploy more technology in order to get products from storage, into boxes, and affixed with shipping labels as quickly as possible. Amazon Prime’s continual push to cut delivery times shorter means that warehouses can’t wait to fulfill orders; each customer that presses “buy” needs to have their item picked, packed, and dropped off with the carrier that same day.
Returns processing
eCommerce warehouses must be able to process returns – those that don’t leave their customers unable to provide a critical service to the end customer. Marketplaces again have led the market with super-easy no-fault returns policies, so online merchants of all stripes are under heavy pressure to offer the same on their DTC sites. So, warehouses have to be able to receive returns, assess whether they’re damaged or not, and process them back into available stock whenever possible to minimize loss.
How to Choose the Right Warehouse
Choosing the right warehouse to support your business can be a daunting proposition. There are a huge variety of services provided by warehouses and 3PLs, and it can be difficult to figure out what each company specializes in at first glance.
What are the key criteria that you should keep in mind?
Sales channels
Where are you selling now? What’s your growth strategy?
Many online sellers get their start on Amazon, and rely on Fulfillment by Amazon, or FBA, for their warehousing and fulfillment. It’s only suitable for selling on Amazon, though, so they quickly find that they need an FBA alternative for their other sales volume. The same is true of sellers that rely on Walmart Fulfillment Services for their Walmart volume; their warehouses are for their own channel only. If you want to sell direct, or if you want to sell on more channels than just Amazon and Walmart, you can’t solely rely on their own in-house warehouse solutions.
Stepping outside of the big marketplaces, you’ll find that many warehouses and 3PLs specialize in either B2B or B2C orders, and not both. Picking a specialist provider can be a strong strategy for sellers that are certain they’ll never want to cross over from retail to online sales, or vice versa, but most have ambitions to grow on both channels.
If you’re currently selling both B2B and B2C, or have plans to do so, you should know that there are providers out there that can do both at a high level. Many sellers start out with a warehouse that specializes in the one channel on which they sell (like FBA for an Amazon seller, or a single Shopify 3PL for a DTC brand), and then they add different warehouse and fulfillment companies as they grow to new channels that their existing provider can’t address.
On the other hand, flexible 3PL networks like Cahoot will scale with you and add the warehouse capacity you need for whatever channels you’re adding. Thanks to our peer-to-peer model, we have a dense network of many different types of warehouses – so we can consolidate your fulfillment needs under one roof, and customize our approach to your evolving needs.
Inventory turns
How quickly are your products going to sell?
The faster your inventory turns, the more you can lean towards hyper-efficient B2C warehouses located in expensive real estate directly next to (or in) major population centers. Thanks to their consistent high volume, they also can and should be distributed to 4+ different US fulfillment centers so that they cover the entire country with affordable 2-day delivery.
It’s not so simple, though – most sellers have fast-movers and slow-movers in their catalog. Their hero SKUs generate an outsized chunk of their profits, but they need the “long tail” to bolster their brand and provide holistic value to customers. These slower movers are most efficiently stored in less expensive areas of the country, and moreover they’re difficult to distribute around the country because that strategy significantly increases inventory carrying costs. In short, you want an entirely different warehousing strategy for your slow movers from your fast movers.
Some fulfillment networks like FBA specialize in fast movers only; most Amazon sellers have learned this painful lesson from getting hit with restrictive FBA limits that push all but their best sellers out of the service. Many of the newer tech-enabled 3PLs like Deliverr have adopted similar models, and they all have similar markers: they have strict limitations on the inventory they’ll accept (and in particular they don’t like large items), they charge huge long-term storage fees, and they put punishing surcharges on storage and fulfillment during peak seasons.
You can choose a mixed warehouse strategy in which you use fast-turn-optimized fulfillment centers like FBA for your fast movers, and more efficient, low-cost providers for your slow movers. This can work, but it also requires a large amount of managerial time, and you’ll find yourself frustrated when you have too much inventory in one warehouse and too little in another. Alternatively, more innovative networks like Cahoot bring together warehouses that specialize in fast movers, slow movers, B2B orders, and everything in between. That way, you can consolidate your operations with one provider, simplify your life, and enjoy economies of scale.
On top of these considerations, our current supply chain issues add another wrinkle to your warehouse choice. Many sellers are opting to stock up on as much inventory as they can in advance, because they know that “just in time” shipments from overseas will likely not actually arrive in time. This adds another need for super-efficient storage – if you try to keep 6+ months inventory in a warehouse optimized for B2C fulfillment, you’ll rack up ruinous storage fees. If you’re going to be bringing in more inventory than usual, our advice is to find a long-term storage warehouse in a relatively low-cost area close to your port of entry. There’s no avoiding the fact that you’ll have to pay more to store this inventory than if you brought it in “just in time”, but you can mitigate the cost with this approach. And if you’re stuck with extra inventory and no place to put it unexpectedly (for instance, from cut FBA inventory limits), then you’ll need on-demand warehousing.
Technology needs
Whether you sell online, wholesale, or both, you can’t avoid having a complicated tech stack in the 21st century. Even ten years ago, many warehouses were still operating via Excel spreadsheets – customers would email over previous day’s orders, and the warehouse would get to work shipping them out. Warehouse operations have changed dramatically, though, and you need to carefully understand what technology your warehouse can integrate with.
It starts with sales channels, eCommerce platforms, and order management systems: does your chosen warehouse have a pre-built integration with the services that you use? Does it have an open API and developer support so that you can connect lesser-known channels or custom technology to the warehouse? If you want efficient operations, at a minimum your warehouse should automatically receive orders from you, and then automatically update all of your customer management, inventory management, and ERP software with shipment information. It’s not easy, and many warehouses and 3PLs have struggled to make the digital transition.
On top of that, the technology that your chosen warehouse(s) uses to operate day-to-day can have a significant impact on your total costs. Most warehouses and fulfillment centers make the shipping label decision for you, because the label has to be printed on location. If they’re relying on an older shipping software, they likely have to manually pick shipping labels. This in turn often leads to you paying more than you need to, because they won’t always pick the optimal label. Next-gen shipping softwares completely remove the human from the process and rely on automation to select shipping labels. They will automatically rate shop carriers against one another, and pick the one with the lowest cost that meets your SLA. In this way, your warehouse’s technology impacts the final price that you pay.
Warehousing Services Recap
Your needs for warehousing services can vary dramatically based on what and where you’re selling – from the humble long-term storage warehouse to the highly automated fulfillment center.
Many sellers take a piecemeal approach to warehousing as they grow; they’ll start with a 3PL that meets their initial use case, but they’ll quickly outgrow it and have to add multiple providers. Keeping up with a wide set of warehouse providers is time consuming and inefficient, but new warehouse and fulfillment networks are rising to address the challenge.
Cahoot’s innovative peer-to-peer network has flexibility to cover a wide range of use cases, all under one company (and multiple warehouse roofs).
Cahoot’s fulfillment network is built for the ever-shifting needs of growing eCommerce sellers. We’ll help you delight your customers with a stellar, Amazon-like delivery experience no matter where you sell. We have pre-built integrations with major marketplaces, shopping carts, and eCommerce platforms to fuel your multi-channel growth.
We don’t stop there, though. We’ve expanded our dense network to add significant B2B capabilities so that we can efficiently support retail replenishment.
We can do this while others can’t because our warehouses are operated by merchants just like you with excellent fulfillment operations. There are millions of unique merchants in the country, and chances are that we have a few merchants that know your use case inside and out – because they live it every day.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Get 50 Proven Shipping Strategies in This Ultimate Guide
For any online seller wanting to get ahead of the pack, it is a must to offer free and fast shipping. But shipping is not really free for you and can creep into your margins. We have created THE ultimate guide on how to offer free shipping and still make a profit. Keep reading to learn 50 proven ways you can offer free shipping profitably and radically improve your order fulfillment.
Shipping costs are easily the biggest component of your order fulfillment prices, worse if you happen to sell big bulky items. But the problem is, every year the carriers increase their rates while you have to keep prices low to stay competitive. Giants like Amazon can afford to subsidize their deliveries but what are you to do to offer free shipping as a small businessman?
Well, a lot.
With Amazon itself getting into the freight and shipping business, other carriers like UPS and FedEx are doing all they can to retain their customers. For these carriers, every bit of business is important. This presents you with the perfect opportunity to pull up your socks and put on your negotiation cap.
The key is shopping around and negotiating with your carrier account manager (if you have one). Chances are you’ll get a better deal if you can convince carriers that you are a reliable source of repeat business. First, you’ll have to gather what your business’ shipping needs are and then you formulate a formal Request for Proposal (RFP). This RFP document will help carriers assess your needs and tailor a deal for you. It’s easier to distribute this document across multiple carriers rather than setting up one-on-one discussions with everyone too early in the negotiation. For more details, Logiwa does an excellent job of explaining how to go about it.
There’s a merit to being well prepared for your negotiation. Be sure to really understand what sort of shipping profile your business have, ranging from:
Breakdown of shipping speeds you need historically
Different sizes of packages needed and their dimensional weights
Percentage of residential vs. commercial deliveries
How often errors and corrections like address changes and incorrect weights occur
Having a clear sense of what your business really needs helps you avoid paying for features you don’t really need in your deal with the carrier and makes sure you negotiate for the items that you use the most. Pulse commerce also has a great in-depth article on how you can negotiate better rates using shipping data and analytics.
Pros:
Taking the time to assess your needs and building an RFP will pay off because it comes with a few benefits:
It becomes easier to negotiate with multiple carriers at once
The RFP can be repurposed to negotiate with suppliers, warehouses and software solutions
Cons:
Negotiating a contract seems like a solid way to lower your shipping costs but there are a few things that you should keep in mind:
You get locked-in with the carrier. This might mean you lose out on any short-term discounts other or new providers give out.
Your shipping needs may change. If you change your SKU assortment, you might no longer be able to ship at the negotiated rates for new sizes and weights.
If the carrier is sloppy with your deliveries, even if you get reimbursed, few unhappy customers can really drive your business into the ground.
2. Convince Suppliers to Use Your Shipping Account
You might be leaving money on the table if you use your shipping account for only outbound shipments. Most ecommerce sellers get inbound inventory shipments from their suppliers. If you’re one of those merchants, it would be a good idea to convince your suppliers to send them using your shipping account, meaning the carrier will bill you directly for the inbound shipment. This translates to more shipping volume on your account, and if we learned anything from the first tip, the more volume you have the more bargaining power you’ll have as well. In addition, you might already hit a higher volume discount even before further negotiations.
There are third-party solutions such as Boxton which let you manage account access rights for shipping with various partners:
Pros:
There are two major advantages:
It increases your sales volume so that you can negotiate better rates.
It also prevents suppliers from marking up transportation costs in the invoice.
Cons:
However, you should exercise some caution. Your carrier account numbers are like a credit card number. Things can go wrong such as:
If you have multiple suppliers or change your suppliers over time, your account could end up paying for someone else.
It is often difficult and time-consuming to comprehensively audit your carrier invoices and claim reimbursements.
It is also difficult to track which service levels the suppliers are using. They may end up using a more expensive shipping method over the most practical.
A simple solution would be to set up a process through which suppliers can provide all the shipment details to you and you can provide them with the shipping label. You can email those labels directly to them so that they can print and handoff the packages to the carrier.
It would be best to avoid delivering low-cost items for free as their shipping costs are often higher than the cost of the item itself, leaving only so much margin. Setting a minimum order value in your shopping cart helps you generate enough margin to recover some of the shipping cost. One study has revealed that about half of the shoppers will add additional items to their shopping cart just to qualify for free shipping, making a great case for setting a minimum order value for free delivery.
However, be mindful that there’s a fine line between setting a minimum order value that will increase total sales and one that will drive away the customers. There are different ways to test what that right amount is. Don’t set a limit too far away from your average order value. It should be just enough for customers to add a couple more items at most.
The following is a simple model developed by a data analytics company, RJ metrics:
Source: RJ metrics
To learn more about calculating your minimum order value, check out this guide by Shipgooder.
Pros:
The advantages of having a minimum order value are:
You don’t lose all your profit margin by spending it away on shipping cost.
Your average cart size goes up, meaning on average your customer spends more every time she buys from your store.
Cons:
There are a few things you should keep in mind while using this approach:
There’s a chance of your core customer base abandoning you for a better alternative and not coming back.
If you are in growth mode, subsidizing shipping may be the only way to get your products out there and create a great track record of customer service. And hence, setting a minimum order value may not be in your best interest at this early stage.
Trade organizations such as the American Bar Association or the Outdoor Industry Association are not just good for their annual conferences and shows, but they also offer a lot more advantages to their members. One of them is working together to help businesses reach scale when buying goods and services.
Shipping carriers often have relationships with many professional associations and offer member discounts. Depending on the size of the organization, you could be eligible for discounted rates of up to 50 percent with UPS and FedEx.
While UPS does not advertise the associations they offer discounts to, don’t hold back from asking your account manager or your association, whether you qualify.
Pros:
The advantages building a relationship with carrier through a professional association are:
You don’t have to build a separate relationship with the carrier to get the discounts and other benefits
The carrier will be able to provide the same discounts to you at trade shows organized by your association
Cons:
But there are a couple of things to keep in mind while doing this:
You may not stay on as a member of the organization forever. Building a direct relationship may be a possible alternative for a long-term solution.
Savings from the member shipping discount may be less than the cost of membership. However, you might receive other intangible benefits from associations such as the network and learning opportunities.
Free shipping is a great motivator for shoppers even if it means getting the delivery a little later in some cases. According to a 2017 survey by Bizrate Insights, 9 out of 10 shoppers are willing to wait longer for a free shipment. Hence, using the cheaper option of ground shipping may be your best bet.
Similar to tip #3 which aims to add enough margins in a shopping cart to make free shipping viable, an alternative is to provide free shipping but at a slower speed. Consider offering a no rush delivery option for your customers who are willing to wait for free shipping. Ground shipping uses trucks to ship around the country rather than air cargo, therefore reducing the carrier’s costs and giving you better margins.
Here are some possible options for ground shipping from different carriers:
FedEx Ground: Offers delivery to commercial destinations with the certainty of delivery on a pre-informed day. They deliver within typical business hours and the delivery duration is between a day to five days.
FedEx Home: This is like FedEx ground, but with deliveries to residential addresses. It is slightly more expensive and has a wider window of delivery between 9 am and 8 pm. The delivery duration is between a day to five days.
UPS Ground: UPS ground shipping is a ground delivery service with a guarantee of delivery on a specific date similar to FedEx.
USPS Parcel Post: The delivery duration, in the case of USPS, is between two to eight days. It is even less expensive than UPS and FedEx ground but takes 2 to 3 days longer.
Source: Shipping Easy
To help you decide which carrier to go with, check out this price comparison by Shipping Easy on the 2019 rates for ground shipping by different carriers:
Pros:
In the end, using ground shipping for your order fulfillment has its benefits:
Compared to a 2-day guaranteed delivery service, ground shipping saves online sellers more than 50% in shipping cost.
A slower shipment using ground shipping makes sense for products that do not fall under the ‘instant gratification’ category, in which delivery speed is very important.
Ground shipping is the greener choice for the environment because truck and lorry deliveries produce up to 85% less emissions compared to air cargo.
Cons:
Ground shipping is not the ideal method for delivery though. If you stick to ground shipping, be ready to deal with the following issues:
Buyers increasingly opt for the faster shipping method due to the norms set by marketplaces such as Amazon Prime
If your items are perishable, they might not be able to survive the long journeys in a truck across the country.
There could be delays due to unexpected stoppages and detours caused by weather conditions or accidents, affecting your customer experience.
You can also see a quick video of this episode here.
Part 2 – Pricing Strategies
Pricing is one of the most determining factors of a customer’s buying decision. While customers naturally gravitate towards the lowest price, this expectation is now the norm thanks to marketplaces placing a high importance on low final prices (which includes the list price and shipping cost). If you look at any product page in Amazon, very likely the seller who has the buybox also has the cheapest offer. This price expectation puts pressure for online sellers to set a “just right” price that is both low but enough to provide free shipping. Shipping charge is an important component of online product pricing.
Points 6 through 10 will talk about five way to recover your shipping costs by strategically setting your prices:
Remember the last time you were irritated about hidden resort fees during hotel checkout? Or that mysterious additional tax you didn’t know about when traveling to a new city? Similarly, customers perceive a surprise when you charge shipping separately to an item sold on your page which might lead to cart abandonment.
However, the shipping cost is an inseparable part of selling online. There should be no reason to treat this cost separately. What if you included the shipping cost in the price of the item?
Imagine having to pick between these two options for something you’re about to buy:
Option 1: $30 + $5 shipping charge
Option 2: $35 with free shipping
Bill D’Alessandro, of Rebel CEO, a consulting firm, ran this very test for a skincare product and option two converts twice as many sales. Several other studies have shown that customers are more likely to abandon the shopping cart when they see the shipping charge right at the end during check out.
How do you distribute shipping costs to individual item prices? One approach is to change the pricing of items below your free shipping threshold to include a portion of expected shipping cost.
Say a merchant offers free shipping for orders of $50 or more and on average shipping cost is $5. For a $25 item, add 50 percent ($25/$50) of the shipping cost to the item price. For a $10 item, add 20 percent ($10/$50) of the shipping cost to the item price.
If shipping cost on average is $5, the $25 item would now be offered at $27.5. The $10 item now has a price of $11. You still offer free shipping, but you’ll recoup a portion of the costs. Customers may prefer to pay $11 with free shipping versus $10 with $1 shipping.
Pros:
The advantages of including shipping costs in the product price are:
The rate of cart abandonment goes down as there is more transparency from search to checkout.
Your marketplace stands out with the tag of free shipping against other stores irrespective of the prices they are offering
Cons:
There are other factors that you might want to keep in mind before using this method.
Landing customers on your page can become tougher with slightly higher prices; there is a potential to offset any advantage gained by removing shipping charges at the end of checkout.
If the customer initiates a return, you need to refund the listed price including a part of the shipping cost baked into it.
Customers buying multiple quantities would prefer a separate shipping charge on the whole purchase than higher prices.
It is tough to offer free shipping for your entire SKU catalog when you sell everything under the sun big or small. But you can thoughtfully select which items to offer with free shipping.
It is often the items with low-margins, heavy-weight, and big-size that suffer losses from shipping costs. This should not stop you from providing your customer with free shipping on other items where the shipping cost is not a big chunk of the product price.
The key is communicating it effectively to the customer, being clear and upfront about such restrictions will help customers navigate your page easily and with trust. Here’s an example that Neil Patel demonstrates in this blog:
He goes on to show how there is a marked improvement in net profits with this experiment despite a reduction in margin per SKU. You can gain more profits because of the increase in sales and a positive margin per order.
Pros:
Offering free shipping to a limited selection of SKUs has its benefits, such as:
Offering free shipping increases your sales volume, effectively negating any decrease in margin per single item.
Free shipping as a way to recruit new customers, there will be upsell-opportunities when satisfied customers come back to your store.
Cons:
However, keep in mind these few things while implementing this shipping strategy:
Free shipping on select items works best when you have at least one high-selling item with a low shipping cost.
Promoting free shipping on one item may signal the customer that you specialize in that item only.
Setting minimum order value increases your margin so that you can recover your shipping costs. But the shipping strategy does not work for everyone. If you have a limited variety of items, the customer may end up abandoning the purchase because they cannot find anything relevant to them.
Quoting a minimum order value forces customer to find the item priced at a certain amount. It is easier to nudge the customers with a prompt that says, “free shipping when you buy 3 or more”.
It works in case of items that are consumables that customers regularly buy, like personal care or household items. For these products, customers are used to expecting savings when buying in bulk or large packs. The end goal is similar to minimum order value in that the merchant can increase average order value and ship the items together to decrease the shipping costs.
Pros:
The advantages of bulk/quantity based free shipping method are:
It’s easier for customers to add one more item of a product they already want to buy and will need to repurchase in the future.
Packing multiple items is also time and cost-effective.
Cons:
A possible hindrance to something like this would be:
It is mostly applicable only to marketplaces which sell items customers regularly repurchase over time.
It will not be profitable for items that cannot be shipped together to reduce packaging and shipping cost.
If for some reasons, it is still not possible to bake shipping costs into your product prices, there is still a way to manage customer expectations. Customer will have less anxiety and surprises if they know the shipping charge they will need to pay irrespective of what they buy. They are more likely to find an item they want and complete the purchase.
Online customers are faced with a lot of options and must take into account many factors while deciding on a purchase. Therefore, making one factor very clear and straightforward will make the customer’s shopping experience that much easier. Customers respect the transparency from a merchant in a crowded marketplace.
You should consider your average margin per unit and average shipping cost to calculate the flat rate to achieve positive profits. Here’s one online seller advertising flat rate shipping very effectively: “We don’t want our customers to experience sticker shock when they see the shipping rates at our store. Also, we want to make our online shopping experience straightforward and having a $10 Flat Rate Shipping charge lets customers quickly calculate their costs. That can’t be a bad thing, right?”
Pros:
Some of the advantages of flat rate shipping are:
Sales increase as the customers will increase their average order value to make the most of the flat rate
The shipping options on the product page are much easier to configure
Cons:
However, you should be careful about a couple of things:
Flat rate shipping is not suitable for low margin items, depending on the flat rate you charge, such margin might not be enough when customers only order a single item during check out.
It is also not profitable for items that have high shipping costs such as ones with bigger size, are heavy or need special packaging.
While the last tip focuses on providing a clear expectation of shipping costs via a flat fee, it is possible that customers may find other online sellers offering the same items cheaper. In some cases, if your order fulfillment center is close to where the customers reside, you might be able to charge a lower shipping cost than average.
Sellers typically apply a standard shipping fee during check out. There could be some customizations there. It could be related to the speed of delivery. Additionally, the zip codes are often used as a decider whether to offer free shipping or not. Nevertheless, there is a dollar amount imposed on the customer for shipping.
Typically ecommerce sellers calculate shipping charge using the average shipping rate for all their sales, a combination of different zones, sizes, and weights. So, some customers end up paying more than they should for their shopping while some others pay less.
If your shipping charge imposed on the customer are higher than other sellers, because of the kind of item you ship (heavier, larger), your cart abandonment rate will be higher. On the other hand, offering free shipping for the customers in proximity will result in losing your margin.
With the same input of zip code, there is an opportunity to charge the customer the shipping fee tailored right at them. You can get real-time estimates of shipping rates right from your shipping solution. Connect your shipping solution right to the checkout page. This way, each of your customers will be shown a shipping charge that covers your shipping as well.
This blog by Squarespace explains one way to do it in great detail.
You can rest assured that you won’t lose money from shipping costs, no matter the location of customer or change in carrier rates.
A portion of your customers will be rewarded for their proximity to your order fulfillment location, assuring you of their business.
Cons:
However, there are repercussions to imposing a dynamic shipping charge
If your fulfillment location is away from the concentration of your target customers, you will end up charging your core market more-than-average shipping cost
Temporary spikes in shipping rates may result in a customer lost for good, establishing your reputation for high costs.
You can also see a quick video of this episode here.
Part 3 – Exploring Your Carrier Options
Carriers are one of the most important stakeholders in running an eCommerce business successfully. Although every order involves some action through your carrier, you might not be using all the services that your carrier has to offer in fulfilling those orders. Selling on online marketplaces can be exhausting, and you don’t always have the time to figure out what’s best for you.
In this part, we list down the most effective ways you can lower your shipping cost by exploring your carrier options.
Hybrid services like Surepost by UPS and Smartpost by FedEx can help you cut your costs by half if you qualify for their weight and size restrictions. Hybrid shipping services are ideal for packages weighing between 2 to 10 pounds that don’t meet the criteria for a postal flat rate shipment. Packages lighter than 2 pounds should use USPS first class shipping or Priority Flat rate box and packages heavier than 10 pounds should use Standard shipping methods. Outside of this sweet spot, the prices for hybrid services may be comparable to other service types but hybrid services will take longer to deliver.
Hybrid services are a great example of how competitors work together to increase value by working in their area of expertise. The most expensive component of shipping is the last-mile delivery. The ground distribution network, especially in residential areas, has never been a strong suit of large national carriers such as UPS and FedEx. Instead, UPS and FedEx inject these packages into the USPS distribution for last-mile delivery, effectively outsourcing the final delivery stretch. This collaboration saves a lot of order fulfillment costs for them, making it possible to charge less.
An example would be FedEx SmartPost, which provides the last mile delivery to every US address using USPS services. Although, recently FedEx has started to use its own trucks to do even the last mile as it tries to fill it’s unused capacity as a result of its recent infrastructure expansion.
UPS also offers the same service for domestic and international orders through Mail Innovations and UPS Surepost. Here is a visual explanation of their Mail Innovations process.
Pros:
The advantages of using a hybrid shipping service are:
Enjoy the long-distance speed of private carriers and last-mile efficiency of USPS, saving you up to 50% in cost.
No surcharges for residential deliveries or special territories
Cons:
However, there are some things you might want to keep in mind while going for hybrid deliveries:
Slower than standard shipping and it lacks a guaranteed delivery date.
Availability is limited. Due to hybrid’s lower margins compared to standard shipping, carriers only offer this service to select merchants
Some carrier services operate in specific regions only, they are often less expensive compared to FedEx or UPS because they operate in a smaller area and use mainly ground transportation for delivery. Their delivery networks are typically limited, but many of them cover wide ranges of states and fast deliveries as well, some of the prime examples of such carriers are:
Regionals carriers typically provide better services than national carriers because they specialize and operate in a smaller area. They can provide same day or next day delivery options for deliveries that usually take a couple of days through FedEx and UPS.
They are more flexible in accommodating the requests of online sellers too. Since they have a smaller base of customers and fewer packages to handle, it is not uncommon for them to provide later pickup time and earlier deliveries.
Pros:
The advantages of going with a regional shipper are:
You can save about 10% to 40% on your shipping costs compared to UPS and FedEx.
Options for same-day or next-day delivery are greater when compared to the national carriers.
The service windows are more flexible with earlier pick-ups and later deliveries when compared to the national carriers.
Cons:
There is always a risk of partnering with regional carriers due to their relative inexperience and size
The consistency of service over a longer period of time may vary depending on the maturity and financial state of the often-smaller regional carrier
The services are only available in a geographically bound area. You will have to use national carriers or other regional carriers for different areas, adding complexity to your order fulfillment.
You might lose out on volume-based discounts with FedEx or UPS. Carefully analyze the impact on discounts before diverting some of your deliveries to a regional carrier from national carriers.
13. Support Local Courier Services Like Postmates, Uber, Instacart, Etc.
Local courier services such as Postmates and Instacart offer instant delivery from select stores to customers in exchange for a delivery fee. Though the end customer does not always get free shipping, customers are used to paying extra for instant delivery through these couriers. Some also provide a subscription service offering free deliveries, which can help relieve the customer’s anxiety of paying for shipping.
Courier services generally have three stakeholders: the businesses who are listed to sell their product in an area, the drivers who deliver the product, and the consumers who order the product. Businesses pay a portion of their total order value to the courier service as a fee for listing and delivering their product instantly (usually less than an hour). Fortunately, this fee is typically much less than the conventional shipping cost for same-day delivery.
Courier services enable an “on-demand economy” where customers seek instant gratification from the convenience of their home. It has grown beyond food ordering & ride-hailing and now anything available locally can be ordered on demand.
One study shows 41% of the adult population had used one of these apps in 2017, and it is a great way for a seller to increase their online footprint. It makes a great case for adopting instant courier delivery for your store, especially for ecommerce sellers catering to urban customers with an order fulfillment center in the area.
Pros:
The major advantages of using an on-demand courier service are:
It is the fastest way to deliver products to your customers.
The delivery costs are split between the customer and the local business, reducing the burden of shipping costs.
Cons:
An online seller must be available to pack and ship the order throughout the day for the hours listed on the app.
The delivery experience for the customer may be erratic due to the on-demand workforce compared to standard delivery service by carriers
Online shipping is an easy alternative for sellers who are new to ecommerce and haven’t reached the volume to qualify for negotiated rates or discounted 3PL services yet. You can print your shipping labels online instead of at the post office counter and enjoy reduced rates. It can be done via USPS’ website or through authorized USPS postage services like Endicia claims savings of up to 40% on USPS orders, whereas Stamps.com can save you up to 30% on priority mails. Online shipping with USPS also saves you from carrying all your packages to the post office with its free parcel pickup service.
Using USPS is ideal only if you are shipping packages weighing less than two pounds. For heavier packages, it’s less expensive to go with the private carriers (FedEx and UPS). For private carriers, it’s best to open an account online rather than shipping them through the physical counters. These carriers reward the Do-it-yourself mentality! If you pay & print labels online and drop them off at the carrier store, you can save up to 50% compared to doing all of this directly at the carrier’s store.
Pros:
There are a host of advantages when you buy shipping online:
Online shipping makes it easier for merchants to compare and select the right service for the desired delivery window and affordability.
If you go with USPS, you can have your package picked-up directly from your location for free — no more trips to the post office.
Easily add extra instructions such as ‘signature required’ or other services such as redirecting the package while on its route right from your own computer.
Email notifications, so you have updates sent to you instead of checking tracking numbers one by one on their website. This way, you can update customers on delivery status quickly.
Cons:
Online shipping is a great starting tool. But there are a few things to worry about as you scale:
It can be time-consuming to do it yourself manually as you grow and send more packages. You may need to explore more sophisticated solutions like multi-carrier shipping software and 3PLs.
Express and guaranteed deliveries over long distances will still be expensive, so you will need to explore other ways to reduce those costs.
UPS and FedEx, the biggest national carriers, add a surcharge for all shipments to residential addresses. Carriers’ definition residential addresses aren’t always clear, but you can reduce some of your costs by planning around residential surcharges.
UPS defines a residential delivery as delivery to a location that is a home, including a business operating out of a home.
FedEx also adopts a similar definition of the residential addresses, to be completely sure you can enter addresses in your account to check their status. FedEx provides a helpful example list of addresses here.
You can find the complete list of surcharges for FedEx and UPS on their site here.
Carriers impose a residential fee surcharge because, to them, it is more expensive to deliver. A courier can deliver many packages to different businesses in a single trip to a commercial building, whereas typically a courier makes one delivery to a single residential address. It is this discrepancy that made carriers charge a residential surcharge.
It’s important to choose the right shipping method to avoid surcharges. For example, FedEx Ground is cheaper than FedEx Home Delivery, but when shipped to residential addresses will incur a surcharge of $4. However, FedEx Home Delivery is 35 cents cheaper compared to FedEx Ground+Surcharge. Imagine, with 2000 incorrect labels per month, you’d be missing out on ~$700 worth of savings!
So how do you go around it? One way is to utilize the services such as UPS Surepost and FedEx SmartPost as outlined above to eliminate your residential surcharge. However, keep in mind hybrid services do not give you a guaranteed delivery day and take longer.
Also, analyzing your past shipments will help you understand how much residential surcharges have you been paying so you can take action accordingly. The surcharges may not seem like much, but when shipping high-volume packages and utilizing the wrong network, they can add up quickly and can accumulate many lost dollars.
The solution is to separate your deliveries for home and commercial addresses and select delivery methods accordingly. While we can’t force the customers to only ship to a commercial address, you can make it easier by asking the customer to identify in the address type if it is a commercial or residential address. Lastly, there are intelligent shipping software solutions like Cahoot that provide address identification and verification besides buying and printing your labels to help you ship as inexpensively as possible.
Pros:
The advantage of doing this is:
You save some per order but can amount to sizable savings on your total volume.
You can use address type of customer to personalize messaging for your targeted advertisements.
Cons:
However, doing this does bring in a hassle.
In the absence of a good shipping software doing it for you, you will end up spending a lot of time correcting and sorting addresses for a large volume.
Each carrier has their own identification for an address being either commercial or residential, and when comparing service types across carriers, this can be inconsistent.
Choosing the right carrier strategy is important in keeping costs low but still provide good service. Cahoot’s shipping software and order fulfillment network automates this process and provides you the most affordable options for the desired level of service every time.
You can also see a quick video of this episode here.
Part 4 – Marketing Strategies
Innovative marketing is essential for any online seller to stand out in today’s world of fierce competition. In the headphones category on Amazon, for example, there were seven new products from two new brands added to the top 100 list every day last year.
Free shipping can be leveraged as an excellent tool in clever marketing campaigns by treating shipping cost as a customer acquisition expense. This part of the ultimate guide will focus on using promotions ed around free shipping to acquire new customers while preserving your long-term profits.
Below are five ways to offer free shipping through smart marketing strategies:
Loyalty programs are customer memberships offered by retailers in exchange for various perks, including free shipping. The customer is charged a fee or must collect points against regular orders to enjoy the perks of the membership. It is designed to encourage repeat purchase, enabling retailers to absorb the shipping costs.
Some big retailers offer the membership to customers solely in exchange for their basic personal details such as email account, name, address, gender, and birthday. Retailers use this information to encourage more purchases through targeted marketing efforts. They leverage customers’ purchase history and demographics to send special offers and personalized catalogs.
The increase of purchase frequency from a loyalty program is reflected in the customer lifetime value (CLV), which is the basis for most loyalty programs. CLV refers to the dollar amount that a customer is worth to you between their first and last purchase with your business. It is easy to calculate with a formula:
CLV = (Average order value) x (Average gross margin) x (Average Number of transaction per customer over a year) x (Average lifespan of a customer in years) + (Loyalty program fee per year) x (Average lifespan of a customer in years)
For a loyalty program to be successful, CLV should increase when compared to CLV without the loyalty program. Let’s walk through an example. Before loyalty programs, your average order value was $50, Average gross margin was 20%, the average number of transactions per customer over a year 8, and customers only stay for 1 year. We assume customer lifespan on your store to be a year. Then,
CLV=$50 x 20% x 8 x 1 + 0 = $80
Now suppose you offer free shipping for a yearly fee of $50, you see a few changes in your metrics. Your gross margin goes down to 10% because of $5 assumed shipping expense per order, but the customers are likely to stay with you for twice as long (that is two years). In this case,
CLV = $50 x 10% x 8 x 2 + $50 x 2 = $80 + $100 = $180
Since there is an increase in CLV despite a decrease in gross margin, the loyalty program worked in this case. And this estimate has not accounted for increased purchase frequency from customers wanting to take more advantage fo the free shipping.
Even if you don’t charge a monthly fee, the point system is a good alternative. The points-based system encourages customers to keep shopping and take advantage of free shipping. Also, it can be designed to ensure there is enough additional margin to make up for shipping costs. Another driver of sales is the tailored offers and product catalogs, as mentioned previously.
Loyalty programs, in some cases such as supermarket cards, end up being a discount program without getting any more loyalty from the customer. Customers get membership cards from all supermarkets they visit and continue with similar order value with an added discount. Therefore, it is necessary to design loyalty programs to increase your profitability and reward increased spending.
A few good examples of membership programs designed around free shipping would be Instacart, Shipt, and Newegg Premier. Instacart and Shipt’s annual memberships provides free grocery deliveries for orders $35 and above at $99 per year, which basically encourages a monthly shopping behavior from its members (per delivery fee is ~$8). Newegg’s $49.99 annual membership provides free shipping and returns, which also incentivizes customers to purchase from Newegg frequently to make it worth their while.
Someone who does it well is Sephora. If you look at the Sephora Beauty Insider program, it rewards dedicated beauty shoppers with more than discounts and free shipping; it has early access to products, exclusive events, access to like-minded beauty enthusiasts, and other extra frills. Customers are encouraged to buy more and stay on to reap the benefits tailored right for them.
Another unique membership program is Shoprunner, which partners with high-end luxury retailers to provide free 2 day shipping for its members. The membership is currently free for customers, potentially charging the retailers for the express delivery service.
Pros:
The advantages of this shipping strategy are:
Sellers can offer ‘free shipping’ while recovering the shipping costs from customers at the same time./li>
Customer data acquired through loyalty programs can be used to drive other marketing campaigns and to design future products.
Customer behavior data can help you improve your user experience by conducting different experiments on the same customers.
Cons:
A few things to keep in mind while offering loyalty programs:
Sellers should be wary of customers using loopholes to extract the maximum value against their membership, such as multiple people using one account.
The success of loyalty programs is difficult to assess over a short period, given the need for customer longevity.
If you’re not yet set to offer free shipping all the time, free shipping for a limited time serves as a great marketing tool in many cases. The purpose of providing free shipping here is to encourage additional purchase and build a relationship with the customer for future business.
Very simply, you need to set a target of future incremental sales from customers who have used the free shipping promotion. The margins from incremental sales should cover the costs of shipping during the offer and help you assess the success of your campaign. Additionally, just acquiring more customers could increase brand awareness, which will attract new prospects organically in the future.
If you have a high engagement rate on your web store but low conversion rate, that means customers need a nudge to complete the checkout. Offering a limited-time free shipping offer will excite the prospective buyers and turn window shoppers into paying customers. Temporary free shipping can be an excellent investment to boost sales during slow periods. It is essential to be careful about frequency to not habituate the customers to free shipping.
You can be creative by offering a limited time offer through different shipping strategies:
Offer free shipping on next purchase to customers only after checking out. This acts as a reward for shopping with you and encourages the customer to explore your catalog for future purchases.
Offer customers free shipping when they share their purchases on social media or after writing a product review. Here, you are using free shipping to increase your exposure and potential sales via consumer generated content.
The broad idea is to invest in the shipping cost for a few orders to acquire more customers and get more future orders.
Source: https://www.partydelights.co.uk
Pros:
Limited time offers of free shipping require relatively fewer changes in order fulfillment operations.
Free shipping promotions can be added on top of your existing discount promotions to make them more effective.
Cons:
Running limited time offers frequently may accustom the customers to expect free shipping all the time.
Free shipping promotions being so commonly available these days can get lost amongst the host of other promotions.
18. Offer Free Shipping at Peak Seasons of the Year
Free shipping is not a value creation strategy if you do not have enough sales to increase your bottom line with reduced unit margins. Therefore, offering free shipping during peak season could be a better idea. One, there is potential for more sales and two, you need to be competitive when everyone is offering some kind of promotion. Free shipping is cherry on the top of any other promotion.
Every business has a seasonality to it. Depending on your products, test out free shipping offers during different times of the year such as Christmas, Mother’s Day, Valentine’s Day, Amazon Prime Day and Back-to-School.
Source: GameStop
Third-party sellers on various marketplaces such as Amazon could also benefit from offering free shipping during their flagship sale day. Increased customer traffic on Amazon during Prime Day can work in your favor only if you can stand out. Even if you don’t offer free shipping all year round, temporarily offering free shipping could help you convert a larger share of the increased traffic to the site.
Best Buy has been offering free shipping to all customers during its peak holiday sales season. Target, on the other hand, offered expedited free shipping before Christmas on most of its items. The key was to increase sales during the peak season and get even bigger share of the pie than usual.
The objective of this shipping strategy is to increase profits by increasing gross sales at a lower margin, but be mindful of not losing money on every sale. Customer acquisition can be a secondary goal, but the primary purpose of this shopping lift should be to increase your overall profit. It’s possible that customer spending on your site during the off-peak season might not cover the promotional free shipping losses made during the peak season, so you may have to wait until the next year for a possible pay-off. Therefore, be selective about what products you offer with free shipping.
Pros:
It is relatively safe to offer temporary free shipping as the increase in sales volume will guard against the downside in margins.
This shipping strategy does not set unrealistic customer expectations of free shipping all year round.
Cons:
Running peak season promotions to acquire customers at loss may create uncertainty of pay-off if the off-peak sales are lower than anticipated.
It is a busy time for both carriers and online sellers. The sheer volume spike can cause delays when on-time delivery is crucial (e.g. gifts shouldn’t arrive a day or two after Christmas). Make sure you’re prepared to handle fulfilling this sales jump and not disappoint your customers.
Online shopping prominence has made returning products much more critical in the last few years. Customers care about the ability to return the item if they are not satisfied with it almost as much as free shipping. Hence, there is an opportunity to attract customers by offering free shipping on returns as a feature of shopping with you.
There are few categories, where the customer thinks about returns even before they have made the purchase. These are the products that conventionally require a trial. Anything in the fashion category, house décor, and jewelry fit into this.
When customers shop for clothes, they cannot be 100% certain of the fit or how they would look wearing the product. The risk is higher if returns are complicated (e.g., how to print the label, how to mail them, how much will it cost to ship, etc.). This creates a lot of hesitation for the customer to buy these things online. Free returns take the fear out of monetary loss from unsatisfactory purchases. For example, kurufootwear.com, an exclusively-online footwear-store, advertises free returns explicitly.
Free returns can become very costly for items that have high shipping costs such as a couch or television. Therefore think about what products are worth offering with free return shipping. Products that are light and small with good gross margins are good candidates as the reverse shipping costs won’t eat up all your profits. Expensive or high-end luxury products are prime examples of products that enjoy a good margin and hence excellent candidates for free return shipping.
Nevertheless, try to keep returns to a minimum by helping customers choose the right item in the first place. This can be done by having detailed product information section, multiple size charts, FAQs, and useful visualizations.
Besides making it free, make sure that the customer receives hassle-free service during the return process. This can be achieved by giving them clear instructions on the site or including a pre-paid return shipping label inside the original package itself.
Pros:
By offering free shipping on Returns only, not all orders will incur the cost of additional shipping expense
It attracts customers who are wary of shopping online altogether because of the fear of getting duped by product presentation.
Cons:
A free returns policy can encourage unwanted consumer behavior such as wardrobing or ordering an item without serious intent to keep it.
A free returns policy must be accompanied by investment in product visualization and additional product description to ensure minimum surprises to the customer.
20. Offer Free Shipping to First-Time Customers Only
Getting customers to try your products can be the biggest hurdle in growing your ecommerce business. Offering free shipping could be the nudge that customers need to buy from a new online seller. Such an offer makes sense for a retailer who is looking to broaden its base or acquire new customers.
It is a simple but effective shipping strategy. Many successful businesses, such as Postmates or Grubhub, have used it in the past to get the customer on board. Once the customers realizes the value of the service, they stay on to become regular paying users.
Petco.com offers a similar offer to first-time customers. They even doubled down on this shipping strategy by providing an additional discount on first purchase and free delivery on the first repeat order. This lays out the foundation for a long-term relationship and more orders from that customer in the future.
An existing ecommerce seller with a new product offering or a brand new online store, free shipping on the first order can get the product out into the hands of the customers. This is especially useful in consumable categories like pet food, coffee and vitamins where customers tend to order the products at routine frequency but are not sure if they are ready to commit to the product or the seller just yet. It can be considered as an online version of free sampling.
Pros:
A way to get new products in the hands of the customers or for a new store to gain visibility in front of customers
Paves the way to a long-term relationship when coupled with consumables/regularly purchased items
Cons:
May be vulnerable to exploitation if not executed properly (e.g. multiple fake accounts)
May not be enough to entice new customers depending on what competitors are offering and which season is the promotion
You can also see a quick video of this episode here.
Part 5 – Third-Party Logistics
Fast shipping is just as important as free shipping. Amazon has conditioned customers to expect 2-day shipping and is continuing to push one-day delivery as the norm. As a third-party seller, it can be costly and sometimes impossible to deliver on such expectation. Thankfully, several third-party logistics services help you relocate inventory to different parts of the country to fulfill customers in under two days. They provide services from inbound freight to final shipping.
In this section, we will focus on different models of third-party logistics (3PL) services:
Fulfilled by Amazon (FBA) is a logistics service focused on products sold on Amazon marketplace by third-party sellers. FBA enables online sellers to reach their customers as fast as possible through warehouses across the nation, along with Amazon’s renowned customer-obsessed service. Also, items fulfilled by FBA are eligible for Amazon Prime two-day shipping, free shipping, besides other benefits.
FBA assumes all responsibility of fulfilling an order right from storage to handling returns. Along with basic order fulfillment services, it offers 24/7 customer service, and shipping costs are included in the FBA fees.
Amazon has more than 400 order fulfillment centers currently in the U.S. and uses pioneering technology in warehouse, order, and inventory management to reduce cost and increase speed and efficiency. It has continuously pushed the boundaries of fast shipping by utilizing its own last-mile delivery fleet and services.
Source: Jungle Scout
Amazon charges two types of fees, – fulfillment fees and monthly storage fees. You can find the latest pricing on this page. For products sold on Amazon, pricing is one of the cheapest for third-party fulfillment service. However, if you operate a multichannel business, the fees are nearly double to fulfill an order originating outside of Amazon.com.
Pros:
Most of the product fulfilled by FBA automatically qualify for Prime badge and more likely to get the buy box.
Service fee includes deeply discounted shipping rates and world-class customer service available 24/7/365 to your buyers.
Ecommerce Sellers get protection in terms of their ratings and reviews on Amazon in case of unsatisfactory deliveries due to issues in order fulfillment or shipping.
Cons:
It is expensive for fulfilling orders from other sales channels due to higher fees and lack of custom branding on the package. Walmart has even prohibited its sellers from using FBA to fulfill orders received on Walmart.com.
It is not suitable for heavy items as handling costs can be very high.
Storage costs can add up quickly; therefore, seasonal or slow-moving items can incur high charges.
Online retailers have no control over order fulfillment operations and must keep up with strict ever-changing guidelines from Amazon.
FedEx Fulfillment, UPS Supply chain solution, and C.H. Robinson are some examples of 3PL providers that also provide end-to-end solutions for ecommerce businesses from inbound freight to white-glove last-mile delivery and returns management. They have an extensive network of distribution centers around the world with infrastructure to support large-scale logistics.
For example, FedEx Fulfillment uses conventional logistics infrastructure to offer 3PL solutions to brands and retailers. It combines FedEx Freight, FedEx Fulfillment, and FedEx Shipping all rolled into one to provide 2-day delivery across the nation. They offer a complete solution, including inbound freight, storage, pick-and-pack, shipping, and returns.
Traditional 3PLs offer custom pricing to customers based on volume. One can get better pricing with higher volume. All your operations are coordinated by a dedicated account manager who works directly with you. The order fulfillment fees are standard depending on the size of your units and the packaging required, but you may qualify for discounted shipping rates.
Pros:
Discounted pricing on shipping and freight for large volumes.
An end-to-end solution with everything from in-bound freight to last-mile delivery.
Ecommerce sellers can service orders originating at different marketplaces and support multi-channel sales through easy integration with popular online platforms like Magento, Shopify, and BigCommerce.
ome 3PL providers have extensive networks that cover even international markets
Support for reverse logistics from processing customer refunds to the liquidation of returned inventory
Cons:
It is expensive for fulfilling orders from other sales channels due to higher fees and lack of custom branding on the package. Walmart has even prohibited its online sellers from using FBA to fulfill orders received on Walmart.com.
It is not suitable for heavy items as handling costs can be very high.
Storage costs can add up quickly; therefore, seasonal or slow-moving items can incur high charges.
Ecommerce sellers have no control over order fulfillment operations and must keep up with strict ever-changing guidelines from Amazon.
Whitebox and Cpg.io are examples of outsourced third-party solutions that go beyond the scope of logistics and provide an all-inclusive solution for online sellers looking to outsource their entire ecommerce operation.
Whitebox works on top of Amazon FBA to further enhance the retailer’s brand by offering product listing creation and market research. Cpg.io provides support for multiple marketplaces, including Amazon, Walmart, and eBay.
They set up the seller account and support all the day-to-day tasks from product listing to inventory replenishment. It includes quality control, kitting, warehousing, order fulfillment, optimizing product listings, and managing reverse logistics.
Optimization of listing includes managing stock quantities, keyword research, and product visualizations. They also help you select and run appropriate marketing campaigns for your products.
You can optionally choose to list your products on marketplaces under their Seller account, so in essence, they become the seller of record. They act as a partner who takes care of all the operations and takes a cut in profits while you are responsible for just the availability of the product itself. You typically get paid at the end of each month after deducting their fees. They typically charge an onboarding fee and offer a la carte pricing depending on the services you require.
Pros:
Their scope of services goes beyond just order fulfillment; this may be an attractive choice for online retailers with little or no experience or ones not looking to actively manage their ecommerce operations.
Products can get the ‘Prime’ badge without the hassles of managing FBA requirements directly yourself.
Sellers benefit from the partner’s experience and know-how in implementing best practices in listing optimization and order fulfillment from the get-go.
Cons:
They do not cover the freight logistics for inbound shipping, requiring you to hire another service provider for that.
Ecommerce sellers have less freedom to implement their own ideas on marketing their products on the marketplaces.
Outsourcing nearly all your operations will cost you more vs. other operating models.
On-demand warehousing is a relatively new concept that connects online sellers with multiple warehouses and 3PLs across the country. Solutions such as Flexe, Flowspace, and Ware2Go utilize a two-sided platform model akin to Uber or Airbnb. On the supply side, warehouse operators and 3PLs list their unused space, and on the demand side, sellers can rent warehouse space and purchase order fulfillment services.
The platform takes care of all the support and additional services needed to effectively run an order fulfillment operation. This includes all the typical functions such as receiving inbound shipments, storage, pick-and-pack, and outbound shipping using the right carrier; but through multiple facilities in distributed geography instead of just one.
For online sellers, these platforms provide an order and inventory management system that allows them to manage their product catalog and aids them to distribute their inventory while keeping track of order fulfillment. This includes visibility into distribution, tracking inventory levels, tracking fulfillment, and replenishments.
For Warehouses, these platforms inspect and certify the available space and the order fulfillment support provided by these firms. Through a software interface, warehouses monitor and manage the inventory sent to them via the platform.
The advantage of using on-demand warehousing is the ability to get distributed warehousing without committing to a capacity long-term. You can change your mind about how much space you need on short notice and scale up or down as needed. It is both useful for online retailers in the growth stage and who have uncertain demands.
Pros:
Online sellers only pay for warehouse space they need without the long term commitment.
The storage fees may be cheaper than conventional 3PL models because warehouses on the platform mostly list their unused space.
Sellers get access to many more facilities than those available via a typical 3PL.
Cons:
The space availability in a region is subject to the availability of warehouse providers on the platform.
The service level beyond a minimum standard (guaranteed by the platform) may vary depending on the warehouse provider.
Not always a solution for smaller ecommerce sellers. Some platforms require a minimum number of orders per month.
Is more expensive than a traditional 3PL because both the warehouse and the platform needs to charge and make money in order to make this service available to sellers.
There are a few models on the market that specialize in catering to new online sellers and emerging brands. They do not provide a one-stop solution but help out in costly order fulfillment through services and pricing for new sellers. Let’s talk about two interesting players in the limelight: ShipBob and Deliverr.
ShipBob offers a package of 3PL services designed for newer small businesses. Online sellers can do batch-fulfillment with ShipBob in case of a seasonal offering, a crowdfunding campaign or subscriptions, and continuity programs. It is a start-up friendly order fulfillment service with a minimum requirement of only 100 orders per month. It also offers standard fulfillment services including support for inbound freight, distributed warehousing and specialty kitting for private brands.
Deliverr focuses solely on fast deliveries through a lean order fulfillment network. Deliverr leases unutilized spaces from different warehouses throughout the country. Once you sign up with Deliverr, they estimate future sales geographically with their proprietary algorithm and then distribute inventory only to regions with meaningful future sales. They don’t offer other services such as freight or returns. This enables them to offer cost-effective fast shipping for orders originating at multiple marketplaces.
Pros:
They enable distributed order fulfillment for new online sellers without large minimum volumes.
They are a cost-effective solution for sellers who require assistance with fast order fulfillment but are adept at handling sourcing and marketing.
Cons:
The quality of service provided by the underlying facility could be inconsistent since they rely on third-party infrastructure and their operational maturity.
They do not provide order fulfillment solutions for international markets or personalized branding and unboxing experience.
Ecommerce sellers may need to manage several other operations such as freight and returns.
You can also see a quick video of this episode here.
Part 6 – Special Carrier Services
We have covered a variety of methods to ship, and increase profitability while doing so. However, there are some more methods to ship profitably if your online business has certain features such as concentrated sales in a region or an international customer base.
Here, we cover 5 special carrier services that may well just be the right fit for you:
Zone skipping is a practice of consolidating orders and shipping them together to a destination region. From there on, the parcels can be shipped individually within the destination region. The shipping cost is often calculated by the number of regions or ‘zones’ a package travels through to reach the destination. Through zone skipping, the parcel is injected into the carrier’s network directly into the destination zone. Hence, the term Zone-Skipping.
This is ideal for online sellers with a large volume of sales within a region. If you have close to a truckload of orders from a zone every day, zone skipping is for you. Your objective should be to get your orders as close to the destination as possible, from where the shipping carrier can pick-up and deliver each package to the final destination.
For example, if you are based out of Detroit (Zone 1) and have a considerable volume of orders coming in from southern California (Zone 8). If you ship all your orders directly, you will have to pay for high shipping rates for Zone 8. Instead, with zone skipping, you can bundle all your orders from California every couple of days and send them to Southern California by a truck. Once in California, it can be picked up by the shipping carrier and shipped within the Zone at lower rates. You end up saving big because paying for bulk transportation is far cheaper than the difference between zone 8 and zone 1 shipping rates.
Here is a snapshot of how zone skipping saved money for two online merchants:
USPS Parcel Select is a great complementary service to zone skipping. Under Parcel Select, sellers are expected to drop their packages in bulk at a postal facility as close to the destination as possible. Not only, do they save on zone-skipping, but Parcel Select also offers an additional discount for dropping off large orders at once. In fact, Parcel Select is used by UPS and FedEx too as part of their hybrid shipping services, mentioned in the third-party logistics section of our guide.
Pros:
Online retailers can save more than 10% on their shipping costs which can be substantial for many orders
Zone skipping enables sellers to access additional discounts through Parcel Select.
Cons:
Online sellers must arrange for transportation of parcels in bulk to the destination zone.
It is slower than Ground Shipping if the volumes are not large enough to fill a truck in a day.
27. Ship Directly from Overseas Using the Global Mail Program
Sourcing from overseas can seem like a costly affair because of the obvious reasons. But there is an international mail program that makes it incredibly inexpensive to ship from some countries, including China.
Under a program called ePacket, ecommerce sellers can ship products that weigh less than 4.4 pounds for a low rate. It is governed by a century-old treaty called Universal Postal Union (UPU) between major nations wherein postal services have agreed to deliver mail coming from other countries for a fee called terminal fee. Now, this fee is based on how ‘developed’ a country is. Say Chinese postal services can charge higher for deliveries from Western countries as western countries are more developed. Vice versa, USPS can only charge very little for the post coming from China. This has made it cheaper to deliver from China to Texas, compared to New York to Texas.
Wish.com bases its whole business model on Chinese sellers using ePacket to deliver their products at extremely low prices. As a seller, you can also take advantage of this. Start with establishing a trusted supplier of quality items in China. However, it is challenging to locate a reliable supplier due to physical and cultural distance. After overcoming this hurdle, you need to think about managing returns within the country as shipping back the product will be a lot more expensive.
It must be noted that this program has come under a lot of scrutiny under the Trump administration. The White House wants to put an end to low-cost shipping from overseas, a move widely supported among U.S. e-commerce sellers. USPS has also warned shippers that they may no longer be eligible for discounted rates if the US leaves the postal union, pending negotiations with the other members to form new bilateral and multilateral agreements. Previously negotiated rates for international shipping may be null on Oct. 1, 2019 — creating even more uncertainty for cross border e-commerce going into the peak season.
Pros:
Sellers don’t have to set up a warehouse in the US if your supplier can drop ship directly at such low costs.
Sellers can compete with the Chinese sellers on prices in certain categories (weighing less than 4.4 pounds).
Cons:
The deliveries can take up to 20 days, making it suitable for certain categories only.
ePacket is valid for items weighing less than 4.4 pounds.
Managing and reselling returns can become a complex operation.
This program may be short-lived and replaced with higher rates as the U.S. government renegotiates its contracts under the United Postal Union (UPU)
28. Use International Freight Forwarders to Fulfill International Orders
Shipping international from the US can be a costly affair. Besides, international shipping can be an operational headache too. There are several things to consider. You need enough manpower and time to manage different aspects of international shipping.
International Freight Forwarding services carry out the logistics operations on behalf of a firm. These generally involve, as the name suggests, large orders. But with the increase in ecommerce, a lot of freight forwarding agencies offer services tailored to ecommerce sellers.
Freight forwarders provide less-than-container load (LCL) services for ecommerce sellers. They bundle your parcels with other parcels to fill pallets and containers, which are then delivered to your destination country via the conventional freight network. At the destination, the last mile delivery is done by the local postal service in the destination country.
This end-to-end process is taken care of by the freight forwarder. Online sellers enjoy savings since they get freight discount for parcel shipping and have to deal with their freight forwarder only. Freight Forwarders also provide support for calculating real-time duties, taxes, and other governmental fees to present itemized final prices to customers as well as costs to sellers before the sale is made.
In some cases, if you have an order fulfillment provider like Amazon FBA in the destination country, freight forwarder ensures that your items reach the fulfillment provider’s warehouses.
A good example of such a service is DHL ecommerce (formerly Global Mail) which provides a solution tailored for online sellers.
Pros:
Sellers get discounted freight rates along with simplified cross-border charges.
Sellers maintains control over the checkout process for international customers including pricing and marketing.
Cons:
It is hard to monitor and audit cross-border fees if there is no transparency from Freight Forwarder.
The delivery time can be incredibly long, making it unsuitable for some product categories.
29. Selling Internationally through Full-Service Cross-Border Solutions
While delivering domestically can be taken care of using other shipping strategies we’ve discussed in our guide, selling and delivering to customers in other countries is a whole other ball game.
Aside from accurately calculating shipping charges and various import fees, there are a few other things that an online seller needs to do. To avoid surprises, your customer must understand your product’s pricing and the different tariffs included in the final landed cost. Additionally, having familiar payment options at checkout would reduce hesitancy, for example, allowing payment via China Union Pay, WeChat, or Alipay.
Thankfully there are cross-border solutions such as Pitney Bowes’ BorderFree and International Checkout that provide a comprehensive solution for selling to an international customer. An end-to-end solution offering typically includes:
Localization of your product content and checkout pages in locale-specific language, UI, and currency.
Calculation of duties, taxes, and import fees for transparent final pricing to customers before the order is placed.
Presenting and processing country-specific payment options.
Efficient international order fulfillment using freight forwarders and other service providers.
The following checkout page example of an online store that uses Borderfree shows personalization to a Chinese customer buying from a seller located in Australia.
Pros:
Online sellers can increase their market reach to include international customers without having to deal with all the operational complexities.
Sellers save on additional costs for website development that includes local payments and locale-specific content and customer service for international customers.
Cons:
Limited control over customer experience for international customers due to complete dependence on a third-party service provider.
The program may not be profitable, at least in the beginning, if your products do not have sufficient demand in the overseas market.
Amazon Logistics is newest last-mile shipping service meant to complement and partially replace existing national providers like UPS, USPS, and FedEx. It started by servicing Fulfilled by Amazon (FBA) orders, but of late, high performing retailers without FBA have also been invited to use Amazon Logistics at low teaser rates. If you are a top-rated seller on Amazon and haven’t got any such invitation, you should reach out to your Amazon contact and try to make your case for it.
Amazon Logistics offers a range of services for Amazon sellers from 7-day to same-day delivery. It provides the technology needed for drivers to handle deliveries. Amazon Logistics uses Delivery Service Partner (DSP’s), freelance partners delivering on behalf of Amazon. This way, the dependence on traditional shipping carriers is eliminated, and Amazon can offer fast deliveries at low costs. This program is still new, and due to its reliance on freelancers, sellers have had uneven experience in deliveries through DSP’s.
Amazon logistics can be even cheaper than the discounted shipping rates that Amazon offers to merchants using its FBA program. With total control over operations and contracted workforce, Amazon can run an efficient and lean operation and pass on incredible savings to its participating merchants.
Pros:
It allows retailers to take advantage of Amazon Lockers and potentially other logistic innovations from Amazon.
Sellers can enjoy expedited shipping such as same-day delivery and two-day delivery with rates lower than popular carriers.
Cons:
The delivery experience for the end customer may vary depending on the logistics partner as they are independent contractors as opposed to full-time Amazon employees.
Sellers cannot choose or avoid a DSP based on their past experience.
You can also see a quick video of this episode here.
Part 7 – Supply Chain Options
There are many ways an online seller can orchestrate the flow of products from manufacturers to consumers. With big competitors operating with best practices in supply chain management, it’s almost imperative for you to continue improving yours to stay competitive. Any cost reduction from an optimal supply chain can alleviate the costs of offering free shipping to end customers.
Points 31 through 35 talk about ecommerce-friendly supply chain options that will help you fulfill your orders profitably:
If you already have a brick-and-mortar presence, your stores can be turned into mini-order fulfillment centers. Through this method, people working in stores will be the one picking, packing, and shipping your orders. Having more locations to send from can cut the distance your package needs to travel.
Leading brick and mortar retailers such as Target have adopted the shipping strategy to fulfill orders received on its site. A well-established network throughout major cities reduces costs & delivery time by shipping from the nearest store. Such a feat is typically assisted by an Order Management System or OMS that can analyze inventory levels and delivery-time-to-customer to determine which warehouse or shop is most appropriate to ship from.
If you don’t have your own stores yet, there’s a possibility to partner with stores that carry your product. Alternatively, partner with a brick and mortar store and list their SKU’s on your store. You can take care of online visibility and sales while the store fulfills the orders. However, because conventional stores are not designed to fulfill online sales, employees need to be trained to handle e-commerce order fulfillment.
Illustration of OMS assisting ship-from-store. Source: Celect
Pros:
Brick and mortar stores can increase their sales by adding an additional channel of sales.
Online sellers can reduce costs and increase delivery times by shipping from stores closest to the customers.
Shared inventory reduces safety stock in case of split inventory.
Cons:
It requires an integrated inventory management software to get real-time visibility and requirements for offline and online operation.
The physical spaces in stores need to be redesigned and retooled to enable packaging and shipping online orders.
Employees need to be trained to fulfill online orders.
32. Minimize Inventory Storage Through Just in Time
Just-in-Time inventory Stocking (JIT) is a common inventory management technique and a lean methodology to increase efficiency. A successful example is Zara with its “mind-spinningly supersonic” supply chain. Zara operates in an industry where inventory “spoils” quickly so they commit less than a quarter of a season’s line and produces about half of its line at the start of the season. The remaining? They were designed and produced during the season. Zara watches for popular styles and puts new designs like it in stores throughout the season while it’s still popular. With JIT, Zara improved its cash flow by reducing low-demand inventory.
Today online sellers can quickly gather and process historical sales data to make better demand predictions. As a buffer, some safety stock is still needed but sellers won’t have to dedicate ample space for storage. With proper planning, deliveries may not be fast, but you can provide a guaranteed delivery date to all customers.
Another application of JIT is cutting storage costs at 3PLs such as Fulfilled by Amazon. FBA is generally an excellent option, but only if the seller can handle the storage costs. By estimating their sales via FBA, sellers can ship items regularly to FBA warehouse in quantities that will sell immediately. The remaining items can be stored in an inexpensive warehouse or own facility.
Pros:
Lower inventory holding costs leading from smaller storage space needed and less deadstock
Free up cash flow, money not used to stockpile inventory can be reinvested elsewhere
Cons:
Very accurate estimation of demand is needed to minimize stockouts.
Buying inventory all the time makes you more sensitive price shocks, margins will slump if prices suddenly go up
Pros:
It decreases order fulfillment cycle time, which means after the orders are received, they leave the warehouse earlier than before.
Along with the decrease in costs, automation helps increase safety in the warehouse.
Robots can work around the clock, increasing the productivity of a warehouse.
Cons:
Currently, the return on investment is profitbale for high volume fulfillment operations only
Additional resources for implmenting and maintaining the technology products are required.
This is not a strictly an option to improve ‘Shipping’ as in delivering to customer but can help you in satisfying the customer need at a low cost. Buy Online Pick-up in Store or BOPIS enables customer to pick-up their items from a physical location nearby either at your store. The key here is eliminating shipping altogether by getting the customer to pick up their order.
Customers expect free and fast shipping and in some categories such as grocery, healthcare products and some household items, fast shipping is a priority over free shipping. In such a case, BOPIS bypasses the shipping process, cutting delivery from days to mere hours. More so, it can be a differentiator between you and the competitor, increasing your total sales. To minimize additional staffing needs and wait times, self-service package lockers can be installed. Prepared orders are delivered to a locker in your store that customers can open via an app or one-time password.
Example of an in-store locker. Source: Package Concierge
Pros:
Online retailers can eliminate their last mile shipping costs and returns cost.
The store pick-up can be used to drive more traffic to a retail location.
The parcels are more securely delivered to the end customer without the risk of theft from doorstep.
Cons:
Customers can get frustrated and dissatisfied if the pick-up is not convenient or involves waiting in line.
BOPIS needs dedicated space for customers to pick up, some investment may be needed.
BOPIS requires training and staff time to prepare orders
Dropshipping is a popular order fulfillment method used by many online sellers. Dropshipping sellers don’t stock up the items in their warehouse, effectively making it a zero-inventory business. Whenever an order is placed on their online store, the seller purchases the item from a third-party (such as a wholesale supplier) and has it directly shipped to the customer. Sellers don’t handle or even see the product in the whole process.
Dropshipping has a host of advantages as the online seller does not require startup capital, a warehouse or expertise in order fulfillment. However, the seller must contend with low margins and no control over fulfillment. Therefore, drop shipping should be pursued by sellers who intend to focus on building a diverse and creative product portfolio and concentrate on marketing to get the maximum sales.
Under the drop shipping model, the suppliers assume the risk of unsold inventory and cost of packaging and shipping. Even though you end up with lower margins, it allows you to offer free shipping while concentrating on improving your sales without worrying about fulfillment.
Pros:
All order fulfillment operations from including shipping and returns are handled by the supplier.
Less capital is required to start the business as the seller does not need to hold inventory to sell.
Operating costs are also lower since there is no need for the warehouse or fulfillment facilities.
Because of lower costs and low requirement of infrastructure, it is easier to start an online business with drop shipping.
It makes it easier to switch product in and out of product portfolio and list many SKU’s.
Cons:
The margins are very low as it is a competitive space. Since it is easier to start, many online sellers are present in the space with very low prices.
Dropshipping is frowned upon by leading marketplaces such as Amazon and may incur suspension or penalty.
The order fulfillment can be unreliable as you are not always aware of the inventory in stock at suppliers.
Order fulfillment quality can vary as the suppliers have different priorities to yours depending on the size of your business.
We discussed some tactical shipping strategies such as JIT inventory and store deliveries. And we know supply chain, in general, is not an easy puzzle to crack. Whether you’re a veteran on the space or just starting out, it is always good to step back and reassess your supply chain for improvements.
However, ecommerce lags behind the brick-and-mortar stores inefficient supply chain management. Due to high growth in the past few years, online sellers have not realized the need to examine and solve inefficiencies. Looking for purposeful improvements in the supply chain can help you improve your cost structure and allow you to offer free shipping.
Here are a few high-level recommendations to streamline your supply chain:
Optimize Sourcing: When you start out your online store, you go with the easiest option to start sourcing your items. As you scale and increase your bargaining power, you should look beyond the current sourcing and look for alternative suppliers that align with your selling strategy, which can occupy any position in the spectrum of cost leader or high differentiator. You should also consider talking directly with manufacturers in case you are dealing with aggregators currently.
Optimize Order Fulfillment Location: E-commerce allows businesses to operate from anywhere simply with an internet connection. But as you scale, the inbound and outbound shipping becomes a significant cost as already discussed. Being closer to the customer can save you money and delight customers with faster shipping. On the other hand, being closer to vendors will help you reduce lead time and inbound costs. Both of these factors should be considered in deciding the optimal fulfillment center location. In addition, some locations also enjoy cheaper labor costs and government incentives.
Reduce Inventory: As an ecommerce business grows, the common reaction is to increase warehousing facility and inventory size to meet the customer demand. But inventory is a cost trap and increasing inventory should be avoided as much as possible. Explore options such as reducing lead time from suppliers and getting rid of slow-moving inventory. Drastic measures such as liquidation and promotional sale of obsolete items should be standard practices in an industry with dynamic SKU’s.
Consider Costs of Splitting Inventory: Distributed warehousing seems to be a mainstream solution for satisfying the customer expectation of fast shipping. However, the costs of splitting inventory are often overlooked. Multiple distribution centers require more labor as there is identical personnel needed at every center. Even when going with a 3PL service such as FBA, the cost of additional stock has to be considered. According to square root law of safety stock, splitting inventory increases safety stock required which in turn will increase your storage costs. There are indirect costs too. Online sellers lose the opportunity to learn and grow their own order fulfillment operation and become dependent on 3PL.
Multi-Channel Sales: it is a good practice for retailers as many studies have shown the advantage of selling through multichannel is huge. You reach more customers and the topline sales growth increases. This is not different from the conventional brand offering their product through the flagship store, departmental stores, and specialty stores. In a similar vein, the online world has different channel dominated by different demographics of consumers. For example, Gen Z is more likely to shop via social channels through influencer marketing while millennials prefer comparing different marketplaces and stores.
You can also see a quick video of this episode here.
Part 8 – Returns Optimization
Returns can quickly become a major cost center if not appropriately handled. Higher returns mean higher shipping costs overall, thus offering free shipping becomes even more expensive. As mentioned earlier in the post, 95% of online customers will prefer an online store with a free return policy. That makes free returns an indispensable tool to stand out against the competition.
Points 36 through 40 talk about five ways to optimize returns in order to cut down it’s costs and increase profitability:
Prevention is the best medicine; our best-case scenario is for customers to have no reason to return products at all. Before we go on enhancing returns efficiency, let’s look at what we can do to prevent returns. There are three major preventable reasons why customers return a product (1) the product doesn’t match their expectations when buying, (2) they don’t like the product right away but they still might in time, and (3) they bought the product by mistake.
First, mismatched expectations. What customers see in the product page needs to be precise. Product descriptions should be elaborate and always have a detailed specifications section, mainly because different customers value different features.
There is more than one way to populate a good product page, below is an example from SoloStove.
Visualization is important to convey the real product value. Add multiple photos from all relevant angles and if possible, a video too. It’s a more realistic depiction of the product in action. With the new development in AR and VR, few apps also allow customers to try their products virtually. Amazon is developing a virtual changing room, where you can try outfits on your virtual avatars. Warby Parker has used similar technology for their website. There are third-party applications which let customers try on products virtually from different online stores.
Having multiple helpful and fair reviews of your product is also essential. This adds to the transparency of your limitations and will prevent customers from surprises. Having numerous honest reviews with photos adds to the credibility of your product. Although only a handful of customers are willing to leave reviews, it’s a worthwhile effort to ask for one.
Second, not liking the product right away. Some products like home decor may take some getting used to and, you should try increasing the return window for these products. As opposed to increasing the returns, you will see a decrease due to this policy. It takes away pressure from customers to return as soon as possible. Going further, longer the product stays with the customer, more attached the customer becomes to the product, something economists call endowment effect.
Having support available for customers to ask questions would also reduce preventable returns. Some products like furniture require some assembly, and sometimes customers get confused. At that peak frustration point, customers will then return the product. Having a customer service line either from the manufacturer or through you can defuse the situation before returns happen.
Lastly, buying things by mistake. In the event of a mistake during check out, give customers the option to cancel their order within a short period after the order. So customers can reorder the correct item before fulfillment begins. This means it gets corrected before it costs you money for fulfilling the order, paying returns, and restocking.
It all boils down to having a killer product page. Building it is an interactive process, and it is important to understand why returns happen, so you can take the right steps towards improving your product page.
Pros:
Stop returns before you incur fulfillment and return costs
Successfully preventing returns also mean more satisfied customers
Better product page helps increase the perceived quality of your online store.
Cons:
There’s only so much visualizations and descriptions can do
Being proactive with customer needs will prevent returns but would take time and money (if you decide to make a support team)
Not as applicable to products that rely on touch-and-feel or try-on to convey its characteristics.
It may require investment in professional photography and videography.
37. Offer Local In-store Returns to Save on Shipping and Drive Traffic
Now that you’ve finished dealing with the main reasons for product returns, it’s time to look into making returns more efficient and profitable. Offering returns to the store has two significant benefits. First, you (or the customer) won’t need to pay for return shipping. Second, it opens up the opportunity for more sales and makes up for restocking fees. Returning at a store is easier for customers who dislike the hassle of repackaging and shipping the product back to the seller. As long as customers don’t mind going to a store, it’s also faster for smaller issues such as a T-shirt size exchange.
A UPS survey found that more than two-thirds of customers who came to return at a physical store ended up buying something else. So even if a customer is not interested in the product anymore, there’s an opportunity to upsell other items in-store. You can also enhance that conversion with coupons offering discounts for customers coming for returns. For example, Kohl’s gives anyone returning Amazon products at their store a 25% off coupon that’s valid for 7 days. The pilot program has been successful for both parties and approved for a nationwide roll-out.
Pros:
No return shipping fees needed by either party. Stores can pool restocked products into one bulk shipment to the warehouse vs. a myriad of small boxes.
In-store returns reduce the hassle of repackaging and shipping unwanted products.
It is an opportunity to retain a dissatisfied customer by offering an instant exchange, upsell, or store credit to buy more stuff, recovering the lost sale.
Cons:
Partnering with stores that don’t sell your products may result in cannibalization.
Impractical for customers located far away from the designated return stores.
Stores would need to be able to restock inventory and ship back to warehouse if needed.
38. Use Returns Consolidator Services to Reduce Logistic Complexity
If you sell internationally, returns can be a massive logistical headache. Not only is it expensive and complicated with different carriers, but it also includes dealing with border customs. Moreover, if you are selling on marketplaces such as Amazon, you are required to offer local return addresses in countries you’re selling to and free return services.
However, international returns can be very pricy through carriers or forwarders or FBA. Some solutions exclusively handle international returns such as InterCultural Elements, or Salessupply, or ReBOUND. They pool product returns to cut down return shipping costs. These services collect returned items from multiple sellers in one country (e.g., all returns from your customers in Spain) into one warehouse and ship them in pallets to their source country’s warehouse (e.g., InterCultural Element’s warehouse in the UK), then send the returned products back to each seller’s warehouse (e.g., your main warehouse in the UK).
Pros:
Helps retailers meet marketplace requirements such as a local return address and free returns.
Customers are more likely to purchase if returns are available within the country.
Cons:
The returns take a longer time to reach back to the seller so it may not be suitable for fashion (not efficient for exchanges) and perishable products.
Takes longer to decide between reselling or writing off because products arrive later.
39. Restrict Returns from High-Risk Profiles or Categories
Segmentation is a practice adopted by marketers to design different shipping strategies to attract and retain customers who have different personalities and traits. The same technique can be used to prevent returns by identifying high-risk customers and offering free return promos to customers who are unlikely to return. Of course, this depends on the seller’s ability to identify which high-risk profiles are bad actors (e.g. fraud and abusers).
The idea is to analyze data from previous returns and identify the commonality between the customers with the highest number of returns. You can do this using R to perform a segmentation analysis, or perform regressions to predict factors that contribute to returns, or advanced data science techniques like differences in differences. The success of the analyses above depends heavily on your ability to gather and process customer data. As an alternative, the Cahoot network analyzes return orders across its entire network so it can help identify the customers with high-risk profiles.
Another method is to find which product categories are more prone to returns based on your past sales. Some categories are more prone to returns, such as Auto Parts (22.8% return rate based on Appriss Retail 2017 research). You should consider limiting free returns on high return rate items.
Pros:
Sellers can dodge malicious attempts of returns.
Sellers can use the results of analytic studies to improve their product selection further.
Sellers can offer free returns for different products to different groups of customers.
Cons:
Sellers cannot offer free returns as a store policy but only through email or notification campaigns.
Sellers need to develop or hire expert analytic resources to efficiently execute this shipping strategy.
40. Listen to Your Customers via Comprehensive Customer Feedback
The key here is getting a deeper understanding of why returns happen. We need to make customer feedback the central element of the whole returns process. First, by enriching the quality of reasons why the return happened at all. A simple questionnaire makes the returns process easy but short simple answers don’t really explain the root cause of returns. Instead, an online seller can ask customers to initiate a return by stating the reason over email or call.
This can have three benefits. One, you will be able to get explicit and detailed reasons for the dissatisfaction. The insights can then be used to improve the selling process or catalog. Two, if the reason for return is easily fixable like an assembly error, support can help problem-solve and reverse the dissatisfaction. Three, customers will only make the effort to call and email to initiate returns if they are absolutely certain. This deters people who are unsure about the product and would make them give the product another try before returning.
Pros:
It reduces frivolous return requests from impulsive customers.
Potentially reverse dissatisfaction if it’s a minor error.
You can get more visibility into what causes dissatisfaction with the products.
Cons:
A few customers may get frustrated and end up never buying from the online seller again.
The seller may need to employ additional resources or spent more time processing returns.
You can also see a quick video of this episode here.
Part 9 – Miscellaneous Options
We have covered different aspects of ecommerce through a number of ways you can reduce your shipping costs or offer free shipping profitably. There are some things a retailer can do which do not strictly fit into anyone criteria but can trim down costs depending on your online business.
Points 41 through 45 talk about five things a seller should explore implementing for their online business:
Packaging is an often-overlooked area in optimizing shipping costs. Shipping costs are dependent on the size and weight of the package, and online sellers should look to cut down on both while choosing the optimal packaging.
If you are using small cardboard boxes, you can cut down on weight and size both by going with poly bubble mailers. Poly mailers are versatile can accommodate different shapes and sizes of items while keeping the volume and weights low. For example, a poly bubble mailer of size 7.5” x 12” can weight just 0.5 ounces compared to 3.6 ounces for a small 6”x4”x4” box. Be mindful of only shipping small and strong items using poly mailers like books, cables, or kitchen gadgets. For apparel, some brands like Abercrombie & Fitch uses un-padded poly mailers that costs and weighs even less than its bubble-padded counterparts.
The difference in packaging prices and weights between cardboard and poly bubble mailer. Source: eBay
Another source of cost-cutting is using carrier boxes or packaging. All carriers give away free packaging for specific classes of mail. If you are shipping within that service, buying a separate box and affixing the label on to it may be more costly than just going with the carrier boxes.
Knowing what amount of each item you ship most often can also help you reduce your costs of packaging. Figure out the most frequent order number and get the packaging that is optimum for that order. For example, you may be using the same package to ship multiple quantities of an item like soap. But if your box is designed to accommodate 5 numbers and you are mostly shipping 2 items at once, you should consider getting a separate smaller package and save money by shipping for less. It increases complexity but will save money over time.
More shipping supplies and expenses to you but customers feel the waste. Source: Gizmodo
Pros:
Sellers can reduce the shipping rates as well as the cost of packaging at once.
Smaller packages are easier to dispose and produce less waste
Cons:
Reduces negotiation power with carriers with a lower volume of a single size of packaging.
It adds the complexity of continually assessing and changing the packaging required to fit the ordered quantity and new SKU’s.
There are two main benefits of reusing supplies from inbound orders, one is reducing waste and two is reducing the supplies you need to buy. Packaging supplies like boxes, fillers, or padding may look trivial but can pile up in costs. Mainly because they apply to every parcel shipped.
If you offer fragile or sensitive items that require special packaging, chances are some materials from your inbound shipments can be reused. Reusing fillers like bubble wrap, peanuts, paper, or crinkled paper can reduce your spending on new supplies while reducing waste. Of course, the amount you can reuse may vary from each seller, but it’s generally a better idea to reuse before finally recycling them.
Pros:
Retailers can reduce expenses while reducing the overall waste produced by their business.
It reduces the risk of carrying additional supplies for new online sellers in case the sales are erratic.
Cons:
The unboxing experience for the buyer may not great with reused packaging.
Ecommerc sellers should be wary of not compromising on the integrity of product safety over saving a few cents.
Businesses have used prepaid shipping in the context of returns and business reply mails. But prepaid shipping can be equally applicable for certain online stores to ship items to the customer. If a seller uses national carriers such as FedEx and UPS, using prepaid shipping can discount the shipping rate up to 20 percent as opposed to printing labels for each parcel individually. How it works is that you order and prepay shipping labels in bulk ahead of time to get volume discounts, then use it to fulfill orders.
Of course, this only works if you know your shipping destinations and therefore is applicable to businesses who work on subscription models. In such a case, the deliveries are scheduled at regular intervals to fixed customers. A good estimate of the kind of packages you are going ship (in terms of weight and volume) can prevent you from buying too much.
Pros:
Prepaid shipping is a good option for small online sellers without contracts and a few SKU’s.
It minimizes the effort to ship the items eventually.
Cons:
Sellers can get better discounts for larger volumes.
It does not make a huge difference for sellers using USPS as their carriers.
Explore the possibility of consolidating all your orders and ship them all together on dedicated days. This strategy can be used in conjunction with zone-skipping mentioned earlier. There are 2 ways of doing this, (1) is to fulfill end customer orders, like in crowdfunding campaigns and preorders and (2) when transporting goods between your warehouses to retail outlets.
For the first one, Boardgame Kickstarter projects often use this method to offer the cheapest shipping options possible. For example, Trial by Trolley a recent campaign raising more than $3.5M has an estimated delivery date of December 2019 and charges $10 for US shipping. Having one day of delivery allows them a simpler shipping process (just one time), and the delivery expectation allows them to use ground shipping to send the finished products.
For the second one, this works well if you have a brick and mortar presence. The main idea is delaying inventory replenishment until you have a full truckload of goods per shipment. Shipping efficiently (a full truck) reduces the logistics cost of each item carried. Having a good demand forecast is key in minimizing stockouts and estimating optimal shipment schedules. A set shipment schedule provides carriers certainty of future business and can help in your negotiations as well.
Pros:
It consolidates order fulfillment into one dedicated shipping day/period for preorders
It improves shipment efficiency between warehouses or warehouse to retail outlets.
Consolidated shipping reduces the touchpoints for all the parcels from a seller to buyer reducing the risk of damage.
Cons:
Not recommended for end-user shipping due to rising fast shipping expectations, except for preorder items/crowdfunding.
Online sellers will need careful estimation to replenish stocks at full truckloads and ample safety stock.
It requires negotiation and management of bulk shipping with a logistic provider.
When free shipping is not an option, showing guaranteed delivery dates helps manage customer’s shipping expectations. Online sellers should explore offering customers options for different delivery dates with different shipping charges. The slowest one might be offered free, but it still has a guaranteed date of delivery.
Guaranteed dates also help customers to make decisions faster because it takes out the mental math of “delivers in 5-7 business days”. Amazon and Walmart have used this shipping strategy for its marketplace. Amazon has increased the accuracy of delivery date moving from a range to a specific date because of this very reason.
Source: Walmart.com
A seller should keep a couple of things in mind while implementing date-certain shipping options. They should create a sense of urgency by showing how long the date of delivery will be valid before it changes as the shipping window changes. Moreover, the tracking should be made available to the customer in great detail to create transparency and further decrease the anxiety.
Such options ease the process for customers because they can see the trade-off between spending more and delayed delivery. This lets different types of customers choose and complete purchase depending on their priority.
Pros:
Showing dates takes out the mental math of delivery dates from customers
Customers can make decisions for themselves on how important money vs urgency of delivery.
Retailers don’t have to target a specific customer profile and provides options for all types of customers.
Cons:
It creates complexities of shipping the same SKU through different carrier services for different customer.
The chances of cart abandonment may increase as customers take more tie to decide and find other options.
You can also see a quick video of this episode here.
Part 10 – Look to the Future
As we conclude The Ultimate Guide to Profitable Free Shipping, the last section is going to look at the future of shipping. Innovations in the sector have been driven by the rising cost of last mile shipping and warehouse management. They are already being implemented by big players in the order fulfillment industry in some capacity and, with time, most of them will trickle down to every ecommerce seller. So you should be aware of how these technologies will shape the future.
Points 46 through 50 talk about technological innovations that are driving the shipping industry forward:
Autonomous mobile robotics (AMR) is an exciting innovation in warehousing operations. Amazon is leading the way with large scale deployment of robots in its order fulfillment centers to reduce the costs of the pick-and-pack and sorting.
The robots help in eliminating the cost of employing human labor and increase the efficiency. There are less mistakes and more speed when a robot conducts an operation. Currently, order fulfillment centers have robots work alongside humans to transport many items at once, in some cases the complete racks, to stations manned by humans.
In other cases, robots speed-sort items by weight and volume to be packaged accordingly for different shipping services. This reduces the chance of human-error while increasing the speed.
Kiva and Takeoff have been two breakthrough robot developers that have helped lower costs significantly for ecommerce sellers. Kiva has since been acquired by Amazon and taken off the market for exclusive Amazon use.
Takeoff specializes in micro-fulfillment centers. It focuses on grocery deliveries by taking orders from a large set of customers.
According to Amazon in 2016, Kiva robots cut the cost of warehousing by 20%, which amounts to more than $20 million dollars for the warehouses where it was deployed. Since then it has been estimated that Amazon will potentially save $800 million when the robots are deployed to all facilities.
Using robots has helped Amazon cut the time required to fulfill each order. At the same time, it has allowed better utilization of space by building narrower isles and getting rid of handling mechanisms that were required before.
To start with, for a warehouse without any robots, simple solutions such as Automoted Guided Vehicles (AGV’s) can be an entry level solution. They are used extensively on factory floors and follow a predetermined path to transport materials without human intervention. This helps reduce manpower. Another solution could be Autonomous Mobile Robots (AMR’s) that can identify their environment and information on packages. This lets them sort packages, thus reducing human intervention even further.
Pros:
It decreases order fulfillment cycle time, which means after the orders are received, they leave the warehouse earlier than before.
Along with the decrease in costs, automation helps increase safety in the warehouse.
Robots can work around the clock, increasing the productivity of a warehouse.
Cons:
Currently, the return on investment is profitbale for high volume fulfillment operations only
Additional resources for implmenting and maintaining the technology products are required.
Drones are unmanned aerial vehicles (UAVs) that can be used to deliver lightweight items over short distances. Currently it is being piloted all over the world for critical deliveries such as medicines to remote areas. In some cases, though, they are being tested to replace the conventional last-mile delivery in postal services.
Israeli startup Flytrex conducted a pilot program for delivery in Iceland in 2017. And an American startup Matternet is experimenting with deliveries in North Carolina. Google also launched it’s own drone delivery service called Wing which will start its pilot program in Canberra, Australia.
There are several advantages to using drones for deliveries as it opens up a new medium of delivery unlike existing congested routes.
However, there are still many hurdles for drones to become mainstream, the biggest of which is regulation framework to ensure secure use of drones to avoid any conflict with privacy and safety.
Drones are also not tested for different weather conditions, unpredictable events and deliveries in dense urban residences such as apartments in Manhattan.
Source: Amazon Prime Air
Retailers can hope to benefit from the efficiency of drone deliveries once the carriers roll them out. It will help lower the cost of last-mile shipping overall. Another possibility could be an aggregator service for local deliveries that replaces current services such as Postmates and Doordash. It will atleast reduce the dependence on carriers for local deliveries.
Pros:
Reducing congestion as delivery vehicles will not operate on the road.
Better routing of packages as air-travel does not depend on roads and traffic.
Improved safety as less touch-points along the way from warehouse to the customer.
Cons:
The regulations are, currently, very rigid regarding the public use of drones.
Drones have fundamental limitations to operate in certain conditions such as apartments and unplanned neighborhoods.
The biggest challenges in last-mile delivery are low capacity of conventional postal systems, cost of labor, cost of repeat deliveries and increased traffic congestion. All of these contribute to high cost of last-mile fulfillment currently. There has been no innovation in this part of shipping process for decades, until now.
Delivery robots are small mobility robots that can deliver items to individual houses by navigating the unique challenges of last-mile delivery. Drones have their limitations as explained in the previous section. As an alternative, robots that work in conjunction with manned or autonomous delivery vehicles to bring the item to door step are being tested. Robots are physically located on the vehicles and disperse as the vehicle approaches the vicinity of the destination. These systems are an improvement on current system and do not need radical changes in regulations and infrastructure.
Source: Continental Anybotics
Some of the early innovators in the space are Boxbot, Marble, Nuro and Starship. Even Amazon and FedEx are testing their robotic systems for last-mile order fulfillment. FedEx has partnered with DEKA which also invented Segway while Amazon is testing its robot Scout for deliveries in southern California.
Just like drones though, sellers will have to wait for carriers or aggregators to prove and deploy the technology on a large scale to reap the benefits of lower costs.
Pros:
Delivery robots are one-to-one replacement of current last-mile delivery mechanisms, and therefore are able to operate seamlessly with existing supply chain.
Delivery robots have less regulatory limitations and therefore, easier to commercialize.
Cons:
The robots may face limitations in dealing with complex situations such as new constructions and dealing with different acceptance mechanisms in buildings.
The robots are also prone to damage from sudden weather events or unpredictable events involving humans.
Amazon launched its program Amazon Key in conjunction with GM and Volvo, two major players in Automotive across North America and Europe.
It operates under prime delivery that allows deliveries to cars parked on the streets or other accessible parking. It works with the car’s central locking and GPS systems which can be accessed through the cloud. The customer has to opt-in but given the convenience offered, it can be a game changer, as it reduces the frequency of missed deliveries and increases the speed of shipping to customers.
If the customer has a smart lock at their homes, Amazon key also enables deliveries right inside the homes. The cost associated with repeated deliveries and inconvenient trips to post office for collecting packages are eliminated if the customer opts-in to this service.
Currently it’s not applicable for third-party seller items and large items but Amazon could extend the program soon for all sellers using FBA.
From the customer’s side though, there are major concerns regarding the privacy which can slow down the acceptance of this offering.
Pros:
It reduces the overall shipping rates by decreasing the costs associated with repeat deliveries because of unavailability of the customer during delivery.
It increases the value for customers with smart homes and connected cars by providing more convenience.
Cons:
There are concerns of privacy and safety by giving access to personal space to external providers.
The service will not be directly available to individual sellers as it requires high level of technological integration between companies and associated security measures.
Throughout the Ultimate Guide we have seen various manners of relationships and technologies being used to offer convenient forms of shipping. For example, the hybrid shipping service illustrated the concept of collaboration between competitors. However, we haven’t seen collaboration between ecommerce sellers themselves to address their shipping concerns.
Cahoot is a unique peer-to-peer order fulfillment network where top-rated merchants and 3PLs collaborate to decrease delivery times, increase margins, and boost customer satisfaction without compromise. It harnesses a vast nationwide network of trusted and verified peers to fulfill orders more efficiently.
Alternatively, Cahoot also offers outsourced fulfillment where merchants can place inventory across its vast network of warehouses and have Cahoot fulfill your orders. This is an excellent option for merchants to offer profitable free and fast shipping without operating their own warehouses.
The unique advantage of using Cahoot is that online sellers can scale their shipping capability using their existing order fulfillment facilities. The shipping costs decrease by 40% while the delivery times reduces as well by up to 2 days. There are no additional costs of inventory distribution and outsourced fulfillment.
Cahoot seamlessly integrates with each verified Seller’s account, analyzing every incoming order. Its patented platform identifies merchants best suited to fulfill each order, based on the promised delivery date, lowest shipping costs, and the warehouse’s geographical location. Cahoot automatically generates and sends the shipping labels to each merchant while updating the tracking information in Seller’s accounts.
Pros:
Increased profitability and speed enables online sellers to offer free and fast shipping across the country, increasing their sales.
It enables instant inventory replication at multiple warehouse without any investment, virtually creating endless inventory.
The retailers within the network are able to increase the profitability and sales for each other at the expense of retailers outside the network.
There is much greater visibility into every step of the shipping process including the partner and carrier actions.
The sellers don’t need to change any of their order fulfillment capabilities or practices.
Integrates with the existing shipping software to increase the overall value.
You can also see a quick video of this episode here.
Offer 1-day and 2-day shipping at ground rates or less. Schedule a call to find out more.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
You’ve put countless hours into creating your product, perfecting your Shopify website, and marketing to grab attention. But have you paid enough attention to your fulfillment strategy? It’s not just a cost center – the difference between poor and great fulfillment has a huge impact on your customer experience and revenue growth.
Depending on what type of product you sell, you have a lot of options for fulfillment. The pros and cons can be tough to parse, and it gets complicated in a hurry.
In this blog post, we’ll explore why fulfillment is so important for eCommerce, your options for Shopify fulfillment, and how to choose the fulfillment service that’s right for you.
Why Your Shopify Order Fulfillment Service Matters
Simply put, a great fulfillment strategy is the difference between keeping up with Amazon and getting buried by it. If you can’t deliver orders quickly, customers will immediately look for a similar product with better shipping options on a marketplace.
Amazon, Walmart, and eBay have set the bar high for order fulfillment, and unfortunately customers now expect the same high standards from online brands as well. A new study by BloomReach underscored the challenge for retailers – a full 9 out of 10 shoppers said that even when they find a product they want on a webstore, they’ll still compare it to a competing product on Amazon.
Ignore fast and free shipping at your own risk – 75% of US consumers expect free shipping even on orders under $50, and 63% of all cart abandonment is caused by unexpected shipping costs.
Having great Shopify order fulfillment will improve your cart conversion and customer satisfaction, leading to more immediate revenue as well as repeat customers
So you’re convinced – you need to offer fast & free shipping on Shopify, and it can’t break the bank. What are your options? The next section will cover the three major fulfillment options for Shopify sellers.
3 Best Fulfillment Services for Shopify Sellers
There are three main fulfillment options every seller on Shopify can choose from:
Self-fulfillment
Dropshipping
Using a 3PL provider
Each fulfillment strategy has its own unique pros and cons. Let’s go over the three Shopify fulfillment options in detail:
Self-Fulfillment
If you’re selling small, low-cost items to a fairly local customer base, then self-fulfillment may be the best Shopify fulfillment strategy for your business.
Small items are easier to store yourself, and if your customer base is local, you won’t have to pay too much for shipping. Moreover, products will arrive relatively quickly to the customer because they don’t have too far to go.
Self-fulfillment also means you’ll have full control over product and fulfillment quality. You can choose where and how your products are stored, ensuring that they’re in the best condition possible when they get to customers. If there are errors in fulfillment, you have the power to immediately fix issues.
The main drawbacks of self-fulfillment are that it’s extremely time-consuming and it isn’t cost-effective in the long run. If you’re fulfilling your own orders, your success comes with a price – more and more of your time will be consumed by managing operations. Every second spent on logistics is a second not spent on growing your top-line revenue. So, most brands that start out self-fulfilling choose to outsource fulfillment as they grow.
Dropshipping
Dropshipping is a good option if you have the resources to find reliable suppliers and can successfully manage your relationships with them. With dropshipping, the entire fulfillment process is handled by the supplier or manufacturer, which means you don’t have to invest as much time in it – but you also don’t have control over it.
The key benefit of dropshipping isn’t to be underestimated; you can simplify a huge part of the logistics value chain. Instead of having to worry about getting product from your manufacturer to a middle location, and then from that middle location to the customer, it goes straight from the manufacturer to the customer.
Source: Oberlo
The main drawbacks of dropshipping are a lack of control over product quality and a poor delivery experience.
For quality, you don’t get to inspect the product before it gets to the customer. You have to rely entirely on the dropshipper, and when things go wrong, you’re left on the outside looking in.
Just as importantly, your customers won’t be delighted by fulfillment provided by dropshippers. Since they’re almost always shipping from one location, the delivery won’t be fast for customers across the country – and as we explained above, that’s a critical piece of modern eCommerce. Since they’re often shipping long distances, the shipping is more expensive than it needs to be as well.
Using a Third-Party Fulfillment Provider
If you’re looking for a Shopify order fulfillment service that offers the benefits of self-fulfillment without all the hassle, then using a third-party provider is your best bet.
The best 3PLs will give you access to a nationwide network of warehouses and carriers, so shipping products will take less time than if you were going it alone – in most cases within one or two days. Furthermore, if a 3PL places your inventory across the country strategically, you’ll always pay ground rates for shipping, so fast delivery will come at low prices.
In addition, third-party logistics providers work with shipping carriers to negotiate discounted shipping costs, further improving your profitability.
Like dropshipping, trusting a third party means giving up some control over your product before it gets to the customer. This challenge can become apparent with 3PLs that aren’t built for eCommerce, as products get damaged in their rush to fulfill orders. Modern 3PL networks that specialize in eCommerce, though, have very low defect rates and may even improve on your own delivery record.
Of the three Shopify fulfillment options, using a third-party provider is the best option for most Shopify stores. It’s a question of when, not if for most sellers. Many assume that they need thousands of orders before they can get a good deal with a 3PL, but today’s tech-enabled fulfillment networks are built to be easy to use for merchants of all sizes.
So, if you’re looking for a 3PL, how do you choose one that’s right for you?
Choosing the Right Shopify Order Fulfillment Service for Your Store
It’s one thing to decide to work with a 3PL provider and another thing entirely to find one that has the right Shopify fulfillment network that your business needs to scale. Here are the key factors you’ll have to consider:
– Shipping speed SLAs (what shipping options will they enable?)
– Fulfillment costs and methods (how much do different options cost?)
– Inventory management options (do they help you efficiently manage inventory?)
– What other providers do they integrate with, and how?
– Customization & special services (e.g., assembly, packaging)
The best Shopify fulfillment services are built for fast & free eCommerce – that means they’ll enable fast delivery for your customers, but do so in a low-cost way. They should have pre-built integrations with Shopify and eCommerce platforms to make your life easy. Finally, you should look for a provider that helps you intelligently manage inventory to optimize capital.
Source: LearnWoo
For more in-depth guidance on how to choose a 3PL, use our 3PL RFP template to easily collect the information you need to make the right choice.
Cahoot – Your Best Option for Shopify Order Fulfillment
Cahoot’s fulfillment network is built for eCommerce. We’ll help you level the playing field with marketplaces and delight your customers with a stellar, Amazon-like delivery experience – right on your Shopify store.
Price: Our innovative peer-to-peer model offers low-cost, fast fulfillment by design. As a result, our pricing is typically lower than that of traditional 3PLs, 3PL networks, and even marketplace fulfillment solutions like Amazon Multi-Channel Fulfillment.
Cahoot also offers the option to ship on your existing carrier accounts, allowing you to maintain your purchasing power and volume discounts.
Speed: Cahoot’s Shopify fulfillment service will enable you to turn on conversion-boosting fast and free shipping badges. We’ll strategically distribute your inventory to a few of our locations across the country so that no matter where an order comes from, it’ll be fulfilled by a nearby warehouse. The customer gets their item in one to two days, but you pay cheap ground shipping rates.
Reliability: Our barcode scanning technology powers 99.95% on-time delivery and a 99.99% accuracy rate.
Easy Onboarding: With Cahoot, you can go from sign up to shipping in just two weeks. Our pre-built integration with Shopify makes setup a breeze.
Customer Service: You’ll have a dedicated customer support team that is always ready to help you every step of the way.
Cahoot is committed to helping Shopify sellers grow their businesses with our fast and affordable eCommerce fulfillment service.
If you’d like to find out how Cahoot can help your business, please get in touch with us. We can’t wait to show you how Shopify fulfillment was meant to be.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Podcast: The Uber of the Shipping and Delivery Industry, Manish Chowdhary, Founder and CEO at Cahoot
Ecommerce Innovators is a podcast hosted by John LeBaron, Chief Revenue Officer at Pattern, that explores innovative strategies and trends in global ecommerce by bringing together experts in the industry. The podcast features a special guest, Manish Chowdhary, Founder and CEO of Cahoot, the world’s first peer-to-peer order fulfillment services network. In the podcast, Chowdhary explains that Cahoot is an ecommerce network where ecommerce brands and retailers can join as order fulfillment partners and monetize their spare warehouse capacity, similar to Airbnb. Brands and retailers that are looking for order fulfillment services can benefit from a lower cost structure and a large scale warehouse network. Cahoot provides a fully managed order fulfillment service, much like Uber, and ensures all stakeholders are participating and being successful. Chowdhary got into this space in 2002 when he discovered a significant number of identical products crisscrossing coast-to-coast, causing shipping inefficiencies in delivery and costs. He then applied for his first patent and started Cahoot.
Speaker 1:
Welcome to Ecommerce Innovators, a podcast that brings together the brightest minds in the industry to explore innovative strategies and trends in global ecommerce. Our host is John LeBaron, chief Revenue Officer at Pattern, the premier partner for global ecommerce Acceleration.
John LeBaron:
Thank you so much for joining the show today. This is Ecommerce Innovators. I’m your host, John LeBaron, and I’m the Chief Revenue Officer at Pattern. And we have a special guest today that I’m very excited to introduce to you. Manish Chowdhary is the founder and CEO of Cahoot. And it says this is the world’s first peer-to-peer order fulfillment services network. So welcome to the show today, Manish.
Manish Chowdhary:
Thank you, John. Thanks for having me.
John LeBaron:
Yeah, you bet. So Manish, I got to meet you in person a few weeks ago at our Accelerate Summit. I don’t know when this will air, but it was really fascinating. You’re clearly very bright and you know a lot about this industry, I think you spend a lot of time studying it. And so I’m excited to introduce you to the listeners of this show and have them learn a little bit more and share some of the goodness that you have spent your whole life kind of dedicated to. So you’re a crazy serial entrepreneur and a little bit of a mad scientist. Tell us a little bit about what a peer-to-peer order fulfillment services network is.
Manish Chowdhary:
Thank you for your kind words, John. You’re giving me more credit than I deserve, but I’ll take it for now. peer-to-peer order fulfillment or peer-to-peer network is essentially brands and retailers helping other brands and other retailers. And in context of fulfillment, what Cahoot has done is created a large scale network where a brand can join Cahoot as a fulfillment partner, so if a brand or a retailer has a warehouse or multiple warehouse, and they have spare capacity, they can actually monetize their spare capacity for the very first time. Similar to if you were to put up your spare bedroom and your house on Airbnb.
And on the other side, we’ve got brands of retailers that are looking for order fulfillment services. They get to benefit from a lower cost structure and a very large scale network. That is essentially what a peer-to-peer network is, and Cahoot is the governing body so that it provides a fully managed service, and I’ll use the Uber example. So the seller or the brand that’s looking for fulfillment services doesn’t have to negotiate directly with the driver. If you are an Uber driver, Cahoot provides the entire service in a box and ensure that all the stakeholders are participating and being successful.
John LeBaron:
Yeah, that’s amazing and I think it’s so innovative. And we look at order fulfillment and logistics, crazy amounts of innovation. Every time I look at the fastest growing inc., 5,000 type companies, it feels like 50% or more of them have something to do with last mile delivery, or freight forwarding, or anything, direct import, all that sort of stuff. So I think the reason why it’s so expensive and it’s only getting more complex and more expensive, and that capacity just really comes back to bite you if you have too much because there’s so many fixed costs.
So how did you get into this space? And obviously you have to be very, very smart to figure out the world’s toughest problems, at least ecommerce’s toughest problems. How did you get into this? And tell us a little bit about your career trajectory.
Manish Chowdhary:
Thank you, John. The way this journey started, believe it or not, this was long before Amazon Prime existed, long before the consumers were ever demanding two-day or one-day free delivery. This is back in, I take you back to 2002, and I’ve been involved in ecommerce since 2000. So my other company is an ecommerce platform and we were studying consumer order fulfillment data. So if you may recall in early 2000 the transition, the industry was making transition from film cameras to digital cameras and digital cameras was the hottest thing, if you recall. So essentially what we did was we took sales data or order data from about 70 or so top ecommerce vendors, and this is back at a time when there was an incentive for people to buy out of state because you don’t have to pay sales tax.
John LeBaron:
Absolutely, yeah.
Manish Chowdhary:
So when we plotted that data off these digital cameras, I remember Canon L or one of those Nikon COOLPIX cameras, those were two popular products.
John LeBaron:
Yeah. Of course, yeah.
Manish Chowdhary:
And when we plotted that, what we saw, it was fascinating. What I saw was a 30% of the time a consumer in California was ordering that Nikon COOLPIX from a vendor in New York. And at the same day, a customer in New York or New Jersey, was ordering the same identical product from a vendor on the West Coast. And just a light bulb went off in my head is like 30% of the time, these two shipments are crisscrossing coast to coast, that makes no sense. At the time, it was taking eight days to deliver the item using UPS Ground, it was costing a lot of money, and consumers were waiting 16 extra days. And everybody, it just did not feel to me, I went back to first principles and say, “This should not happen. This is just not natural.”
And that’s where I applied for my first patent at that time, that what if I were to create an exchange where all these vendors could pull their orders and Cahoot would, at the time the word Cahoot didn’t exist, the company didn’t exist, and we would act as a clearinghouse for the orders and facilitate most optimum delivery keeping competitors and allowing competitors to collaborate in an anonymous manner. That is the origin of where the idea came from.
John LeBaron:
Oh, that’s fascinating. So really getting Cahoots with one another and try to co-mingle the inventory that they… Almost, from a blind standpoint, right?
Manish Chowdhary:
That is exactly right, because if you take an example from a parallel industry, like a stock market, you have clearing houses and stock exchanges which do settlements of trade at the end of the day or whatever the closing period is, why could we not apply the same principle to ecommerce? And fast-forward 10, 15 years, this has become a necessity now because when you think about the macro problem that how do you speed up delivery? You need to think from first principles, rather than thinking how something has been so far along and this is how we’ve done things, but true innovation is really thinking outside the box as you refer to.
John LeBaron:
Yeah. Well, and again, a parallel from a different industry, super nerdy too. But again, I spent a fair amount of my career in telecom and yeah, there was always this real big challenge of, I think about Netflix, every user trying to stream and the loading times of how long it takes. At the end of the day, it’s all zeros and ones anyway, but it’s got to get across all the way across that network. And how do you get people from Phoenix and Philadelphia and Seattle all trying to binge-watch their favorite shows and reduce the buffering? And the solution truly was push it closer to the metropolitan areas, push it what we call the edge of the network and allow that transit time to be more instantaneous and almost just again, reduce that buffering.
And technology has eased some of that just in terms of capacity in the network, but I’m with you. And it’s like, it’s so obvious, it stares you right in the face. But that’s kind of why Amazon I guess is one in a way, is because they become that centralized clearing house as a whatever, aggregate platform, but it doesn’t really work in a fragmented world of all of the different retailers trying to ship, the e-tailers trying to ship, and the brands themselves, all the D2C brands. And I think that’s, yeah, ultimately that’s probably where I would love to steer the conversation. We’ll get to some of the quote, unquote, “Canned” innovation type questions that we always kind of cover because you get a different flavor no matter what.
But going down this path, I guess, how do you as a brand or what are some of the big challenges, all these peripheral players outside of Amazon face in trying to get goods to the customer? I’ve got to think Amazon has set this standard that you talked about of same day, overnight, next day, whatever you want to call it, delivery. How can other folks, besides obviously using your service, I’m trying not to be too objective here or subjective.
Manish Chowdhary:
Yeah, of course.
John LeBaron:
Yeah. What are the biggest challenges they face in trying to keep up or compete with a behemoth like an Amazon?
Manish Chowdhary:
Frankly, John, I think a lot of ecommerce brands and retailers really are not up to speed perhaps on the solutions that already exist. If you break down the last mile fulfillment or trying to achieve Amazon-esque, Amazon-like fulfillment experience or consumer experience from the checkout all the way to getting the product in the hands of the consumer, at a high level, first and foremost, you need to… Let’s compare a DTC site, if you’re on a DTC site and in your shopping cart, you need to display when will the product arrive, what I call date-certain shipping, and technologies exist even now. Yes, it may not come all from one single player like Amazon, but I know that some of the bigger ones like Target and Best Buy have done a fabulous job.
And frankly, for a couple hundred bucks a month, you can implement this date-certain shipping. So that’s number one, because consumers do not convert when there’s uncertainty. It’s just like you can see what’s happening in the stock market. The world is not going to come to an end, but because we don’t know when the war is going to end and so on, and therefore there’s a lot of uncertainty. So the solutions exist. Step one, add date-certain shipping to your shopping cart. Number two, bring the shipping on parity with Amazon. It is easier than they think. If you’re spending 15% commission on Amazon, that’s 15% for you to play with and apply that to the shipping subsidy or whatever you want. If you want to think of that as a subsidy, I mean FBA is not free. The consumers are paying a membership fee and all of that, so that’s step one.
And then distribute order fulfillment if you break it down, you got to get your inventory closer to the consumers. So if you want to target a two-day guarantee delivery, if you place your inventory strategically in five warehouses, you can achieve that and you can provide the guarantee. Don’t worry about that one order that you need to overnight are 2% of the orders, it’s retailers and ecommerce brands get too caught up into the exceptions and the 1% to 2% problem, and they throw the baby out with the bathwater and say, “Oh, it’s not possible.”
That is the reason, if you go back to FedEx, the original of FedEx guaranteed delivery at 10:30 AM or your money back. And I can assure you that FedEx did not give a lot of money back and the day they put that guarantee, that’s when the sale just took off. And same thing with Domino’s, pizza delivery within 30 minutes or your money back. I guarantee you Domino’s is still existing, they didn’t go out of business because of the guarantee. So that guarantee is crucial, and then having the technology to ensure and execute against the lost mile delivery.
And then customer communication, that’s another place where we find brands and retailers are not totally up to par. Okay, you’re doing a great job, you’ve distributed your inventory and the order goes out. If you don’t communicate as frequently about the progress of that order fulfillment and delivery along the way, it’s like free-falling in the forest. In fact, we know from data and from anecdotal evidence, Prime does not live up to its promise. I don’t know how many orders you’ve ordered, John, that by Prime it says it’s going to arrive tomorrow, it doesn’t arrive. I would argue that at least double-digits failure in that promise exists, but they communicate with the customer through the text messaging, through the email, and they communicate frequently.
And then finally, the icing on the cake is when you get a picture of the item outside your front door and people think, “Wow, only Amazon can do it.” If you piecemeal all of these solutions together or go to a provider that can offer, I can assure you that you can offer a Prime-like experience.
John LeBaron:
Yeah, I think that’s amazing. So let’s keep going down this path because I think it’s, to your point, a lot of ecommerce brands and a lot of listeners by extension on the show may not truly understand what’s available. And if you’re the world’s first, that is kind of tricky. So I don’t know if you have a public customer you can talk about, or we can just use the example of a drone or a digital camera or whatever, but how does it work? If you are a brand… Well, we could go through both examples, the person with extra capacity or the person on the demand side of the network or the fly side of the network with a brand. Give us an example of how this works, how they use the software, what it looks like, how much of the inventory are they pushing into the quote, unquote, “Edge” versus kind of keeping consolidated? How does it work?
Manish Chowdhary:
Right, great question. So let’s talk about a real example. I’ll use one of our clients, Cali’s Books is one of our client. They’re a brand, they’ve created innovative children’s books that are audiobooks. Think about Cinderella, and you can actually play that book in different languages. So if you want to learn Spanish, your kids want to learn Spanish, it’s Cinderella in Spanish. And also, people can record. So if you were away from home, John, you could record it and you can send that as a gift to your kids or your loved ones. So it’s a very brilliant concept that they have created. So great demand, they have their manufacturing overseas, and they bring in container loads and they would, first step is to bring it into West Coast because the product comes from China and other places.
So we would first house it just like Amazon into a centralized warehouse, and then we would distribute that inventory across the, in this particular case, Cali’s Books inventory is sitting in six to seven different Cahoot warehouses, strategically located greater New York area, Southern California, Midwest, upper Midwest, the Chicago area, the Dallas region, and somewhere in the Middle North Carolina, and one more. So now you’ve strategically moved that inventory based on demand planning. What is the movement of inventory? You don’t want to send same 10 units to all locations equally because the population and demand is not equal. So that is crucial.
And then in their case, we connect directly to the sales channel, whether the order is coming from Shopify, Amazon, or Nordstrom. So they sell B2B and B2C, so they need the ability to ship both wholesale and retail. And right now with the inventory fully distributed, we are doing Seller Fulfilled Prime (SFP) for this customer so that they’re achieving the Prime target. And in fact, as you know, Amazon holds Seller Fulfilled Prime (SFP) merchants even more accountable than themselves and FBA, and they have had no issues whatsoever, they have been operating flawlessly.
And then, because that Seller Fulfilled Prime (SFP) is being offered on Amazon, they are now in the process of implementing that same guaranteed two-day, one-day delivery on Shopify, on other marketplaces like Target, Walmart, and all the others. So you can see that delivery once you’ve got the infrastructure in place, you can tackle all the sales channel very easily.
John LeBaron:
Yeah. No, I mean it’s really innovative and super fascinating. I guess going back to your comment and the way the business model works, are those actually your warehouses? Or to the other side of it they’re… When you say a Cahoot warehouse, it’s basically someone who’s partnered with you that has spare capacity and they’re doing both the fulfillment and the inbound receipt and all that other stuff, right?
Manish Chowdhary:
That’s right. The reason why we call them a Cahoot warehouse is because Cahoot takes accountability on behalf of the seller because the seller, it’s akin to Uber driver, that driver is driving for Uber. It’s very similar to these are independent warehouses that belong to other merchants that are super successful. The average tenure of these merchants is over 10 years selling online themselves, so they know what it takes to manage and maintain good standards in Amazon because many of them are doing it themselves. And in many cases, Cahoot warehouses are both an order fulfillment provider and also a client. So they have a warehouse in California that is providing fulfillment services. They also need order fulfillment services in New York, so it’s such a symbiotic relationship that they understand that they cannot let Cahoot down, they cannot let our clients down because if that happens, somebody could let them down and Cahoot acts as the governing body ensuring that that doesn’t happen.
John LeBaron:
Yeah, I love that. Well, again, this is just so great. I love your expertise, I love your passion, enthusiasm, it’s definitely coming through here. If you think about on the flip side, there is Amazon, Amazon’s been building like crazy, they definitely had their work cut out for them once COVID hit and trying to scramble and build capacity into the network as quickly as possible. And I’m sure they did not have Cahoot, they should have leaned on you guys. You guys could have given them instant capacity, but they built it out themselves, we’ve now heard in Q1 that they overbuilt capacity. What does that mean for Amazon sellers? What does it mean for other channels?
Manish Chowdhary:
So it means two things. One, the good news is Amazon is unlikely to provide to apply capacity constraints on inbound inventory as they did last year because they were struggling last year, this capacity really just opened up a lot this year. So a lot of the sellers are very concerned about not being able to send enough inventory for the holiday season, the Q4 and so on. So I don’t expect any such bottlenecks this year, so that’s the good news. The not so good news is they have very publicly stated that this over-building is what resulted or partially resulted in them making a loss the first quarter of this year. And Amazon hasn’t had that big of a loss in many, many quarters. So they attributed that to that loss.
And of course, it is safe to say that FBA is somewhat subsidized people, their shipping is very affordable, but I expect because of Amazon’s focus on profitability, sellers should brace for price increases in FBA at least once or two times between now and end of the year. So the good news is you will not have capacity constraints. The not so good news is prepare to pay more for FBA services.
John LeBaron:
Yeah, absolutely. Not only shipping fulfillment, I would say storage as well. Someone’s got to pay the piper if you’ve got too much warehouse capacity, storage fees will likely go up as well, so I think that’s a great observation. And as you look forward to, I often look toward Asia as this harbinger of things to come. I look at JD.com, they’ve got six-hour delivery across like 90% of China. So it’s I think the notion of two days now, one day to same day, to in fact we have an order fulfillment center in Salt Lake City now for Amazon. And back to your point, it’s kind of interesting to watch what Amazon is doing. I’ve lately seen, especially near the weekend, that Amazon will push Prime deliveries out to, if you order even late on a Thursday night, you may not get it until Monday, but there’s this new option that says you can pay $2.99 more and get it in four hours, or you’ll get it overnight, it’ll be on your doorstep.
So it’s kind of fascinating to look at how different things are getting subsidized, but a big piece of what Amazon is doing in many markets is they’re kind of creating their own delivery network as well, all hours of the day and night. And back to your Uber analogy, is that something your company is doing today or do you anticipate it will soon is kind of extend the order fulfillment services network or the notion of the ride-sharing or the Airbnb of storage into the delivery network itself and last mile delivery, is that on the roadmap or is that already happening today?
Manish Chowdhary:
Oh, we are certainly doing a lot more than a traditional third party logistics (3PL) company. So for example, in order to meet SFP, Seller Fulfilled Prime, or let’s just call Prime delivery expectations from Amazon, we need to be fulfilling orders six days a week at least. You need to meet at least 30% one-day delivery targets. And Cahoot is still, Amazon has two decades of lead time over Cahoot, but Cahoot is cashing up fast. So the objective with our peer-to-peer network is this network grows very rapidly and in highly densely populated urban areas, we can achieve same-day delivery using couriers. It’s just a decentralized model versus Amazon’s model is largely vertical integration, which I believe that they’re both, there’s the Apple model and there’s the Microsoft Windows model.
And we believe that we will create more opportunities for partners collectively as part of our network that there will be a large incentive for a lot of folks to participate and also gain from that experience. So when an order fulfillment partner joins Cahoot network, they’re getting a line share of the revenue that we collect, and so there’s an incentive for them to promote that. And also, it’s sort of like if you’re an Uber driver, you want to do a great job so you get a high rating because if you don’t get high rating, then Uber will not select you for the next ride. So Cahoot implements a very similar principle and model.
So I believe that both can coexist, there is room for both of them. And from our perspective, Cahoot is a more capital efficient and it’s a more cost-effective model because you can achieve any target you want, John, you can achieve 30-minute delivery if you want to send a charter plane from Salt Lake City to somewhere.
John LeBaron:
Right, absolutely. Well, that begs the question then Amazon with excess capacities is still trying to figure out how do I use this? How do I increase my strangle hold? Prime penetration is massive in the US. You just saw this announcement with Grubhub yesterday of like, how do I get either more loyalty because they’re raising Prime prices? How do you get more stickiness? How do you bring new people onto the platform? It does feel like D2C or other non-marketplace customers are one of the last few frontiers that they haven’t completely dominated. And so you see strategic initiatives starting to emerge, like buy with Prime. So now D2C brands can opt into this buy or e-tailers can opt into this thing. Is that a good idea? What’s your opinion on that?
Manish Chowdhary:
It’s a horrible idea, it is absolutely a DTC killer in my opinion. And that was the topic of my speech at the Accelerate Conference, and it’s not meant to be self-serving, because essentially this is an attempt by Amazon to infiltrate the entire consumer journey. And I know that the talk is going to be published on your website shortly for those folks that are interested in learning more, essentially the way I see this is if you allow Amazon into your DTC site, what’s the difference between selling on Amazon and selling on your DTC site? Who owns the customer? Who controls that customer journey?
And it’s actually, I’ve called it the Trojan Horse. It’s essentially a Trojan Horse that, let’s take a very simple example. If the shopping cart belongs to Amazon and Prime, for long, DTC brands have always encouraged consumers to increase their average order value, the higher cart size by putting free shipping on orders over $49, over $99, but move over to Prime, there is no minimum. So now all of a sudden, if you were Lucky Heart, the popular cosmetics company, if you have a minimum of $49 and you introduced Buy with Prime, your cart size is going to go down dramatically. Now, if people abandon the cart, that ad is going to show up on Amazon. And if you are not on Amazon, your competitor ad is going to show up.
And we know that every Prime shopper, there are about 200 million Prime shoppers in the US, they visit amazon.com once a week. 85% of them visit once a week and $45, over half of them make a purchase once a week. So the likelihood of your competitor product being targeted on amazon.com to that shopper that actually originated the journey on your site is a lot higher. So jury is still out, the program is still in its infancy, it is by invitation only, but it does not appear to be a good idea for DTC brands to take those leap right now.
John LeBaron:
Yeah, it’s definitely deal with the devil or letting the enemy come sleep in your bed or whatever crazy metaphor you want to make. I think it is eyes wide open for sure, you got to figure out how close you want to get to the potential enemy. And not really enemy, right? But it’s like your dependence, the more Amazon has dependence on you as a consumer and certainly as a brand, the less wiggling room you have to be able to chart your own destiny. And I’m with you, the true kind of gold standard of a D2C brand is owning that relationship, owning the experience, owning everything in that customer journey. And the more you kind of outsource that, the harder it is to truly maintain differentiation in the eyes of the customer and a strong brand.
So while this has been so great, I know we don’t have a ton of time left, maybe a handful of other questions just around the topic of innovation. I know we’ve been speaking about it in the periphery here and so many innovative approaches and thoughts here. What advice do you have for brands that are looking to either reduce their dependency or relationship with Amazon or really just trying to build their brand and double down on the D2C front? What advice do you have for brands that are looking to try to grow their brand via ecommerce?
Manish Chowdhary:
That’s a great question, John. I mean, the way I see it’s not so much about dependency, reduction of dependency on any one party. It’s about chartering your own path, it’s about having more independence. I know we talk about in this new world, employees want more flexibility at work and how they work and so on. So ecommerce brands should hold the keys and they should be the one that should own the customer and own the relationship because that’s the definition of a brand. Because if a middleman controls all the customer data, all the relationships, you can’t market to that customer when you want, you can’t have a direct engagement with that customer. It’s hard to say who is the brand.
And when you look at it, when people buy on Amazon, I’m sure there’s data and stats out there, nine out of 10 times the consumer does not remember or know what product they bought and which seller they bought it from. They just say, “I bought it on Amazon.” I have yet to hear, “I bought it from Acme, Inc. on Amazon.” They say, “I bought it from Amazon.” So my advice is really, if you want to succeed in DTC, DTC is a fascinating world, but it’s also full of graveyards. We know that even the likes of the darlings, like Allbirds, are struggling from a profitability standpoint, but focusing on lifetime value is so important.
Basics, going back to basics, that it’s not just about customer acquisition, it’s about customer retention and lifetime value. And that’s why you should be present wherever the customer is, including your website. You cannot have your website not be on parity with marketplaces because marketplaces are a competitive environment. It’s sort of like if you’re competing against others, against other brands, you need to achieve parity. So from an order fulfillment and logistics standpoint, it’s a mandate for brands to take their website with the same level of seriousness and from a fulfillment and logistics, they cannot throw in the towel and say, “Oh, we can’t do it.”
The reality is solutions exist. And believe it or not, in many cases they’re cheaper than FBA and can help you achieve the same outcomes. And I would say that take that really seriously, apply that date-certain shipping, live up to that promise. When you say guaranteed delivery, don’t exclude the few items because again, think about the 2% rule, think about 98% of your outcomes and not worry about the 2%, and I think that will start turning the tide. And then consortium of stores, there will be, I expect innovation where there will be new networks that will be formed. So for example, I know Shopify has been experimenting with Shopify Audiences, and Shopify Promise pay, and so on. So there will be other avenues to tap into, not only on marketplaces.
John LeBaron:
Yeah. Well, it’s so great. So I would just say maybe to close this out, you have been an entrepreneur, again, for a long time. You’ve hired a lot of people, you’ve fired a lot of people, you’ve seen probably a lot of highs and a lot of lows. I always like to ask this question, what is one leadership principle that you particularly love, do you feel like’s been a real big part of your success?
Manish Chowdhary:
I think for me personally, think big and really think and be contrarian. When I started Cahoot with the original idea that I shared competitor collaboration, that really is a highly contrarian. We are taught to compete with each other. Brands or retailers are competing, how do you collaborate? There are ways when collaboration makes sense and there are times when that doesn’t make sense and it actually leads to a greater good and also a win-win relationship. I’ll give you an example. Airlines, we have codeshare. When you want to go from here to Bali, Indonesia, you’re going to probably have to take a flight from Salt Lake City to Los Angeles, and then you’re going to take a flight from there to somewhere else. I know you’re nodding your head.
So if you just take out those constraints that why it cannot be done, and start thinking from first principles and be bold, and if you believe in it and you can prove that it can actually work, then it’s a matter of figuring out how to make it work. And most of us, or most people, and my leadership principle has been challenge your team to think big, think bold, and be contrarian and believe in that self. It’s better to be a monopoly than to be competing in a highly crowded red ocean.
John LeBaron:
Yeah, absolutely. Well, I think you’ve definitely thought big, taking on the world’s biggest logistics company, so to speak, and certainly one of the wealthiest individuals in the world is no small task, and so you’ve definitely thought big. And the good news is it sounds from everything I can see, you’re delivering on it. So where can people find you? Where can they learn more about, help our listeners understand if they want to investigate where should be their next turn?
Manish Chowdhary:
Well, check us out on our website. That’s www.cahoot.ai, that’s Cahoot with no S, C-A-H-O-O-T.ai. And I invite people to come find me on LinkedIn, follow me. I write frequently, I speak quite frequently. And John, thank you so much for having me on this show, it’s such an honor to be here.
John LeBaron:
No, thank you so much. And I’ve learned a lot personally, and that’s what I usually like to do as well. Part of the reason for doing this podcast is just to learn more and get exposure to super smart people that are innovating in this industry. And I think we can all learn a lot from what you shared with us today, so thank you so much for joining. Again, this is Ecommerce Innovators and if you’ve liked what you’ve heard today, go ahead and subscribe on your favorite podcast player and feel free to send feedback as well. Send some comments or shoot me a line at john@pattern.com and we will look forward to hearing you on the next one. Thank you so much, everyone.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
At the company’s quarterly earnings call, CFO Brian Olsavsky disclosed that Amazon is working to shorten its promised two-day shipping on Amazon Prime to one day. It’s going to cost the company a lot of money, however.
At the company’s quarterly earnings call, CFO Brian Olsavsky disclosed that Amazon is working to shorten its promised two-day shipping on Amazon Prime to one day. It’s going to cost the company a lot of money, however.
Olsavsky said it would cost about $800 million, which will likely eat into Amazon’s bottom line in the coming quarters.
“We’re trying to take advantage of the fulfillment capacity and transportation capacity . . . that we have,” the CFO said. Amazon’s push for faster delivery has put a lot of pressure on other retailers to speed up their ecommerce order fulfillment.
As for a timeline, Amazon wouldn’t give too many specifics. “We expect to make steady programs quickly and through the year,” Olsavky said, but wouldn’t say whether it would be fully rolled out by the holidays.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
