How to Reduce Shipping Costs as a Small Business

Free and fast shipping are not only customer preferences—for many, they’ve turned into expectations. But, it’s difficult for many small businesses to accommodate these expectations within their operations without decimating their bottom line or putting themselves out of business entirely. There are ways, however, to reduce shipping costs, no matter the type of products you’re shipping or the volume of shipping that your business does.

In this guide, we’ll cover how to reduce shipping costs for small businesses through a variety of approaches and strategies. Some methods will provide more savings than others, but when it comes to shipping, every penny can help.

Why Shipping Costs Matter

Though it may seem like a little thing in the holistic picture of your small business, shipping is extremely important to customers. It can determine whether or not a customer decides to purchase from you—and, often, is a major reason why customers abandon their carts.

Over the years, the expectations around shipping have quickly changed. In one survey, nearly 80% of respondents said they expected free, fast shipping.[1] Findings are consistent across multiple surveys.

A major catalyst for this shift in customer desires is the emergence of Amazon Prime, which includes free, two-day shipping on orders from the platform. In other words, customers have come to expect their orders to arrive at their door in a fraction of the time it used to take—and they expect to get their shipping for free.

Of course, this is very difficult—if not impossible—for small businesses that can’t shoulder the cost of free or expedited shipping. Still, there are ways to reduce shipping costs to help mitigate the burden of this expense on small business owners, and, ultimately, help better accommodate customer desires.

Understanding Your Small Business Shipping Needs

In order to determine the changes you can make to cut shipping costs, you first need to have a better understanding of your business’s shipping needs.

Here are a few questions to ask yourself to help find the right approach:

  • How much is my shipping cutting into my margins, and what would I like to reduce that to?
  • What do my customers expect from a cost and speed standpoint?
  • Where am I shipping to most often?
  • What are my current shipping services? How long have these relationships been in place?
  • What kind of shipping options are my competitors offering?
  • How frequently am I shipping, and how many of the parcels that I’m sending out cost the same rate?

The answers to these questions can help give you direction as you’re looking at the strategies we’ve listed below on how to reduce shipping costs.

8 Ways to Reduce Shipping Costs as a Small Business

Although you might not be able to offer free, two-day shipping, there are some changes you can consider making in your current operations to help you reduce shipping costs.

1. Look Into Different Carriers

The first approach is the simplest—look into different carriers. Many small businesses set up relationships with shipping companies and don’t explore other options that can potentially be less expensive. There are varying national carriers (FexEx, UPS, DHL, etc.) that might compete for your business if they know you’re currently working with another carrier—and you won’t know if you don’t ask.

You can also try local and regional carriers. These are often lesser known, and can, at times, be less expensive, especially if you mostly do business in the same region.

It could also be most cost-effective to choose a shipping comparison software, like ShipStation or Shippo, instead of exclusively doing business with one carrier. These platforms will compare the best rates across a host of carriers so you can choose the cheapest option.

Lastly, you can consider fulfillment centers, which may have less expensive pricing than packing and shipping your orders yourself (and might be able to help with other supply chain logistics). 

2. Build Shipping Costs Into Your Prices

Another common solution to cutting shipping costs is to build the cost into your prices. You might not be able to add the entire cost of shipping, but you can increase your profit margins if you’re able to put at least some of the cost back on the consumer.

Of course, this doesn’t work for everyone—some consumers are extremely price-sensitive and will push back if you’re upping your prices. But some are less so, meaning it might be worth experimenting and seeing if you receive customer feedback.

You should also check out competitor pricing to see how far you’ll potentially be able to raise prices. 

3. Look Into Packaging Changes

As you know, there’s a direct relationship between the dimensions and weight of your product and your shipping cost. Packaging is a big part of this, as it determines the size of the box or envelope you’ll need. Reevaluating your packaging could be a way to reduce shipping costs for your small business if you’re able to find packaging with smaller dimensions, which enables you to use a smaller shipping vessel.

Of course, it’ll take some time to work on different packaging. It might even include an upfront investment for a bulk order of new packaging, which might trigger sticker shock for some small businesses. However, if you’re able to reduce your shipping costs by using smaller packaging, you might find that your cost reduction in shipping can pay for this switch in packaging.

4. Negotiate Bulk Rates

Depending on the volume of orders you’re shipping, you might be able to negotiate bulk rates with shipping partners. Here’s where it’s important to have conversations with multiple shipping services to find the best deal. (As an aside, as long as you’re shipping in bulk, you should also make sure you’re buying your shipping supplies in bulk to get the best prices.)

Another way to get bulk pricing is to see if your raw material suppliers are willing to use your shipping account numbers, instead of invoicing you for shipping, to up the volume of how much shipping you’re doing. This might be able to trigger your eligibility for bulk discounts or even enable you to qualify for an even larger discount due to more volume.

5. Reduce the Distance of Your Shipping

In many cases, the distance that you’re shipping can influence how much you’re paying in shipping costs. Although you can’t choose the addresses to which your customers are shipping, you might be able to find shipping partners in different areas of the country that can help you reduce the distance your product travels.

For instance, if you’re located on the West Coast, but often find yourself shipping in high volume to the New York metropolitan area, you could potentially save on shipping costs if you work with a fulfillment partner on the East Coast. It will cost money to set up and maintain a fulfillment partner in another location, but if you’re able to dramatically reduce shipping costs, then it could be a worthy investment.

6. Check out Platform Discounts

If you use an ecommerce platform such as Shopify, you might be able to receive discounts through your vendor. Some ecommerce platforms have agreements with shipping companies that provide discounts to merchants on their platforms.

If you’re unsure about what your ecommerce platform offers, it’s definitely worth checking in with their customer service team to see if they have any deals or suggestions for reducing shipping costs.

7. Consider Prepaid Shipping

Prepaid shipping is also an option. With prepaid shipping, you buy a certain number of shipping labels upfront instead of generating them each time you ship. Because you’re promising the vendor a certain amount of volume by purchasing labels in advance, they often provide discounts for your business.

This method isn’t a fit for businesses whose shipping rates vary dramatically among the packages they ship. But, if you tend to ship many of the same packages for the same rate, you might be able to get a discount from a shipping partner.

8. Buy Third-Party Insurance

Does your company frequently fulfill and ship orders that you insure? As you probably know, insurance costs can add up, especially the more valuable the items are. Third-party insurance companies, such as Shipsurance and U-PIC Shipping Insurance, might be able to help you reduce your shipping costs.

These third-party companies often charge less for insurance (generally calculated per $100 of coverage) than you would pay if you were buying insurance from your usual shipping partner.

The Bottom Line

Shipping is a major expense for many small businesses and finding savings can be a big boost to your bottom line. Plus, by figuring out how to reduce shipping costs, you may be able to streamline your logistics operations in the process.

That said, as you start looking into different ways to reduce your small business’s shipping costs, make sure you pay attention to things such as your shipping volume, how often you ship packages of the same size, and the destinations to which you’re shipping—all of which can help you get discounted rates and ultimately pay less for shipping.

The biggest takeaway here? You’ll be rewarded for doing research and having conversations with partners and suppliers. And don’t forget to listen to your customers—they’ll give you valuable feedback on your shipping policies so you can best meet their needs.

Article Sources:

  1. GetConvey.com. “Last Mile Delivery Wars: How To Keep Retail Promises and Win with Reliability

Sally Lauckner

Sally Lauckner is the editor-in-chief of the Fundera Ledger and the editorial director at Fundera.

Sally has over a decade of experience in print and online journalism. Previously she was the senior editor at SmartAsset—a Y Combinator-backed fintech startup that provides personal finance advice. There she edited articles and data reports on topics including taxes, mortgages, banking, credit cards, investing, insurance, and retirement planning. She has also held various editorial roles at AOL.com, Huffington Post, and Glamour magazine. Her work has also appeared in Marie Claire, Teen Vogue, and Cosmopolitan magazines. 

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