Profit is a vital ingredient in the success formula of any business. Without profit, your business cannot be deemed successful—it is also profit that keeps the business running and growing.
To determine the profitability of your business, you’ll have to learn financial management. Financial management is the strategic planning and execution of financial operations in an organization. By doing this, you ensure that you have enough funds to supply and properly distribute. Analyze the current financial status of your business and build effective strategies to improve your business further; this includes measuring profit.
Proper financial management is crucial. Business owners often start by finding which of the many factors affecting cost they should put effort into. Small businesses or startups may have more difficulties determining essential factors than more established companies. They often forget one or two areas that can hugely impact business operations.
Shipping, in particular, is one such factor that is often overlooked or underestimated. For various reasons, many do not consider shipping to have massive effects on costs. Now more than ever, the demand and reliance on shipping have drastically increased. Many companies have started to prioritize boosting eCommerce sales. We can’t ignore that shipping services are critical; they are essential components of costs in modern businesses.
Main Factors that Determine Shipping Profitability
As a beginner, you should first understand what factors influence shipping profitability. You need that knowledge in order to build an effective shipping strategy, and the essential factors you should consider are listed below.
Degree of Competition in the Market
Competition is always an early and potentially long-term obstacle for beginners in the business industry. Naturally, well-established companies have shipping strategies that are hard to compete with. For example, a company like Amazon is one tough competitor for a small business such as yours.
Based on a report from Statista, the shipping costs of the platform reached 61.1 billion U.S. dollars in 2020. Looking at previous years, the costs have only been continuing in one direction: upwards.
Amazon is the choice of many because of its fast and free shipping services: all of this is possible because of the billions they spend and the billions they get in return. That’s just how effective their shipping strategy is (again, fast and free shipping), and no one in the world is on the same level as them.
Customer Shipping Demand
The next factor that affects shipping costs is customer expectation. According to a 2018 eCommerce report, two-day delivery is the standard shipping expectation. It continues to be the standard today, and Amazon is still leading the game. More things you should know about current customer demands include:
- Three-day shipping is still acceptable
- 55% of online customers expect up-to-date delivery statuses
- 75% expect free delivery, including on orders under $50
These demands can be challenging, especially for companies that don’t make huge revenues and aren’t established yet. The faster the shipping, the higher it costs. If you’re not a company like Amazon, these expectations aren’t easy to meet, but that doesn’t mean it’s all over for your business. We will discuss what you can do below.
When it comes to shipping, there are no fixed rates. Shipping costs are determined according to (but not limited) to:
- Shipping method
- Package dimensions
- Shipping requirements
- Shipping-related charges
- Taxes and duties
Rates can be quite complex since they also vary on how much money you would like to spend and get in return. Learn more with a shipping guide to the USA from Canada. Customs fees and guidelines vary according to destination, which is why it’s necessary to learn about them first. Search online to find the guide that applies to your situation, as there are guides out there that specify shipping rates for every possible destination you have in mind.
Trends influence how an industry works. Companies are often left with no choice but to adjust to them. Regardless of whether it makes work harder or not, the goal is always the same: profitability. When it comes to the logistics industry, here are some top trends that drive the shipping market.
Sustainable business practices are one of the things that people look for today. Green logistics are earth-friendly, cost-effective, and increase customer loyalty. Take a look at DHL’s GoGreen program. They created a mission: by the year 2050, they should reduce all logistics-related emissions to zero.
Goals include improving carbon efficiency, conducting clean shipping solutions, training employees as certified GoGreen specialists, using e-vehicles, using renewable energy for electricity, and more.
Drones are now used internationally in delivering packages. It makes for faster delivery times, enhances the overall safety of the packages, and may also reduce costs for shipping and operations. While there are still some concerns about tech issues, security, and unemployment because of technology, prominent companies have already started using drones as a strategy.
According to recent data from Reportlinker, some of these companies are Amazon, UPS, DHL, FedEx, Drone Delivery Canada Corp., and more.
Automation for Warehouses
Due to the pandemic’s health risks and cost challenges, more companies have started to rely on technology for efficient operations. The supply chain is now more transparent and traceable, increasing the workflow.
An example of this is the shoe company Zappos, which delivers orders within 24 hours of purchase. Their automated warehouse also provides full-time customer service.
Focus on Your Brand
Now that you’re familiar with the factors, you can start planning your first shipping strategy. You most likely already have an idea of your strengths and weaknesses. Ask yourself, “What can I do to gain profit despite all of these inevitable factors?”
The beginner mindset you should develop is an understanding that you can’t be like those big brands. We don’t mean that you’re never capable of gaining large profits; instead, we mean that you should focus on the uniqueness of your brand. Forget the competition for now and concentrate on developing a feasible shipping strategy.
Your shipping strategy is the key to profitability. Since it dominates a large part of your business costs, finding ways to save money on shipping services is essential.
Choose the Right Shipping Company
Many shipping carriers vary according to the way they work. Each has its pros and cons. It is your responsibility to choose which one is right for your business. Here’s an example comparison among the top three shipping companies worldwide.
There are many more logistics companies out there with benefits to offer. Find the team that matches your needs and capacity.
Other essential strategies you should consider that affect shipping profitability include (but are not limited to):
- Cost-effective packaging options
- Limiting customer returns on a small budget
- Free shipping restrictions (selected locations or free shipping for a certain amount)
- Negotiating shipping costs (based on shipping method)
- Tracking trends on sales
- Efficient inventory management
- Collaborating with third-party logistics (3PL) for international shipping
- Real-time shipment tracking for customers
- Insurance for damaged packages
- Working with multiple carriers to maximize customer demand satisfaction (and also developing your network)
While you can’t control the continuous rising of shipping rates, you can do something about the way you deal with it. When it comes to shipping costs, it’s essential to know what fits your business. You don’t have to be as big and efficient as a well-established company to profit. What you need as a beginner is to identify your profit goals, calculate based on factors that influence them, build a strategy, and find the right team to work with. Work on the situation correctly, and you can save costs and earn loyal customers at the same time!
Diana leads the growth marketing initiatives at Stallion Express, Canada’s #1 eCommerce shipping company offering the best rates for the US, domestic & international shipping. As a personal trainer turned digital marketer, Diana is obsessed with equipping online sellers with everything they need to scale their online businesses.