Running a successful online retailer entails keeping a tight budget, but many companies make costly mistakes in many areas. The supply chain is one of the most expensive offenders.
How do you keep logistics costs low, especially as business grows, when there’s pressure to be competitive, give excellent service and provide a memorable experience while still being profitable?
Improving your revenue is not as simple as it may appear. Here are some ideas for reducing transportation expenses while increasing sales.
What makes up logistics costs?
The costs of shipment are paid to manufacturers, freight companies, logistics service providers, shipping carriers, freight brokers, and a variety of other suppliers throughout the retail supply chain. Some businesses keep track of logistics expenses in different ways; one firm might be as detailed as calculating inventory depreciation.
What is the cost of logistics to your company? Continue reading to find out more.
Transportation and shipping
Transportation expenses include moving your inventory from the manufacturer to your warehouse and then to your consumers.
Freight shipping is the movement of goods via air, land, or sea between a freight broker and business, commonly across countries.
Online ecommerce sellers may also incur expenses for delivery and management as well, which might be expensive.
Warehouse rent
When it comes to market conditions, tenants in logistics warehouses will see a 10% rate increase beginning in 2021 owing to a growing need for warehouse expansion and development. Renting a warehouse can quickly reduce profit margins.
Warehouses can be expensive for ecommerce companies, especially if they sign a lease and acquire property, which are often long-term commitments.
You’ll need an ecommerce warehouse that fits your specific demands and growth plans, such as loading docks to receive and ship products, among other features.
Inventory storage and allocation
The cost of merely maintaining or storing inventory can be significant, especially if you’re outsourcing inventory storage, because it is a variable expense. The more goods you have, the greater your costs will be.
Inventory accounting is the process of tracking and accounting for changes in the value of inventory over time as they pertain to manufacturing and costs of goods sold. It strives to help you correctly value your assets or goods sold, allowing you to budget for the inventory you’ll need in the future. You can then allocate product effectively this way.
Supplies and equipment in the warehouse
Aside from renting a warehouse and obtaining your inventory, there are many other items required to keep track of all of the moving pieces.
If you want to make the most of the area that holds your goods, you’ll need shelves and pallet racks that are appropriate for it.
You’ll need forklifts, conveyors, and other equipment to move the items in your warehouse.
Packaging materials include boxes, envelopes, tape, dunnage, labels, printers, and other packing supplies.
You must also pay for technology such as a warehouse management system, internet, taxes, utilities, office supplies, and other administrative costs to manage the warehouse.
Staff labor
People must transport products and wrap boxes in your warehouse to execute the “handling” aspect of shipping and delivery. You’ll also need management, customer service, and other team members who will handle inbound and outbound logistics activities depending on your company’s specific requirements.
This bucket covers the expenses associated with employees, such as recruitment and payroll costs for both hourly workers and management. Determining employee benefits, obtaining workers’ compensation and liability insurance, and administering payroll are all examples of expenses in this bucket.
How logistics drives revenue
Most individuals think about supply chain management and logistics as a cost center, but few understand it as or apply it correctly to become a revenue generator. There are several methods that logistic systems may be used to create new income for your ecommerce company beyond lowering delivery expenditures (more on that below!).
1. Reduce cart abandonment rate
Apathy is a major issue in online store improvement. Customers nowadays want low-cost or free delivery, so they will make purchasing decisions based on that information.
You may get back more ecommerce sales if you don’t spend any marketing money by providing low-cost 2-day shipping.
2. Increase average order value
Have you ever spent more money online in order to get free shipping?
Setting a minimum spend threshold on your business allows you to earn more money per order (AOV), while also ensuring that shipping is covered.
Encouraging consumers to spend more than what they usually do in exchange for free delivery is a win-win situation.
3. Happy customers improve your bottom line
Offering something for free that is often a large component of a sale may seem counterintuitive, but hear us out: Free delivery can not only get more consumers to finish their purchases and spend more money, but it can also help them develop into long-term customers.
Shoppers will return if you can guarantee them that you’ll comply with their shipping demands and preferences.
Today, low-cost, quick delivery keeps customers delighted. They become repeat customers, which means they are a lot more willing to purchase than first-time purchasers.