In this article:
- What is order fulfillment?
- What you need to know about the order fulfillment process
- Creating a profitable shipping and handling strategy
- How to accurately calculate shipping costs
- Shipping pricing options for eCommerce stores
- Shipping carriers
Whether you plan to run a brick-and-mortar shop with a supplemental online shopping cart, or whether you’re considering going fully eCommerce, your efficacy with shipping and handling will have a huge impact on your customers’ overall experience.
If their online purchase experience doesn’t go as expected or there’s a mishap with their order, you’re not likely to keep them as a customer unless you go over and above to make amends.
Help your business keep more opportunities by following our guide to fulfilling online orders.
What is online order fulfillment?
Order fulfillment is everything involved in the process of ordering a product. Storing your inventory, taking and organizing orders, packaging, and properly shipping the product to your customers are all a part of the process.
Ensure that your customers have a good experience with your business by strategizing your order fulfillment process. Whether you are business-to-business or business-to-consumer, your order fulfillment process will factor greatly into how they view your company.
What you need to know about the order fulfillment process
Order fulfillment is more than simply shipping items to a customer. A lot of strategizing is involved to ensure a satisfactory buying experience. From tracking orders, to making sure you have the inventory you need to fulfill orders quickly, to having a profit-positive, yet customer-pleasing shipping and returns system in place, you have a lot to think about.
Inventory receiving and storage
Before you can ever provide a product to a customer, you need to have the inventory from which to pull that product. How are you getting the product yourself? Are you renting warehouse space or are you drop-shipping?
Go deeper: How to set up an online store
If you manufacturer the product or order it to yourself first and keep your inventory on hand, you obviously need a place for storing and organizing your inventory (also known as warehousing) while waiting for shipment.
This will help you keep your products secure and organized, and help you to know what is available for your customers’ immediate purchase.
On the other hand, maybe you’re choosing the dropshipping method. Dropshipping is when you use a third-party manufacturer or warehouser to store products and ship them directly to your customers.
No matter which of these methods you use for your inventory storage it will be important to have plans for these next parts of the order fulfillment process.
Order processing involves physically retrieving the product and packaging it (whether you are doing this or you’re using a dropshipper). Basically, this step involves preparing the item to be shipped to your customer.
A few things to include in your order processing procedures:
- Examining the product to ensure it’s not broken or defective
- Selecting the appropriate packaging material that will be used (boxes, bubble wrap, paper, packing peanuts, etc.)
- Packaging the product securely
- Adding a shipping label with the correct address
- Determining how much shipping will cost (if this hasn’t been done already)
If you are dropshipping your products, make sure you have an approved process and clear instructions in place with the company that will be processing and shipping your products for you.
When your product is ready to send to the customer, it’s time to get it into the possession of the carrier that will be delivering the product. How will you make this happen?
For smaller shops, you might be running the products to the post office yourself.
For larger and more regular orders, you might schedule a daily carrier pickup at your location, or wherever your orders will be prepared for shipping.
We’ll talk in more detail about shipping in the sections below.
You need to be prepared to process returns. Not every person will be satisfied with their product.
Maybe they ordered the wrong size or purchased a gift for someone and found they already had a similar item. Whatever their reason for the return, you should be ready.
Come up with simple, clear, and profitable return policy. Good things to consider when developing your return policy include:
- Duration of time during which you will provide a full or partial refund
- Terms that qualify a refund
- Will you accept returns on merchandise that has been removed from its original packaging (not the shipping package)?
- Do you charge a “restocking” fee?
- Which party is responsible for return shipping fees (you or your customer)?
- Do you provide refunds as store credit or do you refund the original fund-transfer method (credit/debit cards, PayPal, electronic check, etc.)?
Then, depending on the quality of the product when it is returned, you need to decide if you will restock it or dispose of it.
Creating a shipping and handling strategy
We’ve talked about some of the main factors that go into the order fulfillment process, and now it’s time to get strategic and create your shipping and handling plan.
The resources you have available will largely determine how you will handle the shipping and handling of your products.
What is your order volume like?
If you have a low amount of orders coming in, you may choose to fulfill the orders yourself. Then you need to determine if your home will work for this or if you’ll need to rent a storage space to handle your inventory.
Larger order volumes may require you investing in your own storage space or outsourcing the work to a third party.
Determine what your order volume will be and how you plan to scale to help you in deciding how to ship your products.
Your location will definitely factor into the cost of shipping your products and may even factor into where you are willing to ship your products.
Longer distances and overseas or over country borders impact shipping rates, so you’ll want to keep these things in mind when putting your order fulfillment strategy together.
Will only ship locally? Will you only ship to the continental U.S.? Will you ship wherever people are willing to buy from you?
Think about the type of shipping rates that you want to offer your customers. If you want to offer free shipping or a flat rate, shipping products out of the country isn’t going to be a viable option for you. (We’ll go over shipping options later in this article so you can decide which works best for your business.)
The traits of your products will have a large impact on your shipping strategy. Are your products heavy, fragile, hazardous materials, temperature-sensitive, over-sized? All of these attributes will contribute to how your products need to be shipped and what the cost of that will be.
What kind of technological resources do you have at your disposal? Integrating your online store with your shipping and handling processes will help you run a more efficient order fulfillment operation.
Some functions that can help:
- Alerts for your shipping and handling team when an order is placed
- Providing tracking information to your customers
- Digitizing your inventory levels and keeping them available to all shipping locations
- Having a reorder point formula when stock levels get low
How to calculate shipping costs
Several factors contribute to your overall shipping costs. Along with everything that we’ve discussed already, you need to identify a few additional pieces of information to calculate your shipping costs.
How quickly can you get your products to your customers?
You may need to experiment with this one a little bit. Determine the time it will take for a product to get to your customer after they place an order.
Many US customers today have been spoiled by Amazon’s 2-day shipping (or even same-day shipping!) and expect the same from other companies. Is that something that you could try?
Shipping items quicker also results in higher costs and more complicated infrastructure, which should be reflected on the customers’ costs.
Bottom line is there’s no way you can compete with Amazon on shipping costs for common goods, so you need to determine how you will differentiate your store from the monster eCommerce players.
Take all of these things into consideration and determine a reasonable time frame to ship your products to your customers. Set clear expectations for your customers as well so they aren’t surprised by the time that it takes their order to arrive.
Get estimated costs
Get estimated costs of shipping your products from different carriers. Most major carriers—USPS, FedEx, and UPS—will calculate costs accurately based on the size and weight of the item and the shipping origin and destination.
Do some comparisons with different carriers to see what your costs might look like and use that to help you find the best rates. You may also ask about bulk shipping rates or special discounts if you meet certain terms.
Shipping costs factored into the product price?
Will you factor any shipping costs into the cost of the product? If you choose to offer free shipping, you will have to make up the cost in other ways.
Will you need to raise the price of your product a little bit? Can you save money elsewhere in your business to help you absorb the cost of shipping?
After all, the most customer-satisfying shipping experience in the world won’t help you much if you’re not profitable at the end of the day.
Also, “free shipping” is a lot more appealing to customers than even $5 shipping. So if you have a product that sells for $30 and shipping costs you $5, it will likely be more attractive to your customers if they purchase the product for $35 and get free shipping than if you price it at $30 and charge them $5 shipping—even if their actual out-of-pocket cost is the same.
Handling costs are important to consider if you are using a fulfillment center or have extra employees you are paying to assist you with order processing, packing, and shipping.
It may be difficult to determine the handling costs for each individual item, so let’s take a broader look at this.
Let’s say you are spending an average of $1,000 each month on your shipping and handling operations and you send out around 200 orders. Your handling cost per order would then average $5.
Of course, there’s a little more that goes into it than that, but this is a good start to determining your costs. Be sure to take these into account.
Shipping price options for eCommerce stores
Customers expect options when it comes to selecting how to ship their orders. What’s more, you don’t want them to be surprised and disappointed when they get to the checkout process and see how much their shipping is going to cost.
We’ve laid out several common shipping options for you so you can determine which one/s will be the best option for your business.
Free shipping is self-explanatory. We’re all familiar with Amazon Prime’s free 2-day shipping. But there is a lot to consider if you are going to offer free shipping to your customers.
It is not free for you to ship your products, so how are you going to balance out your cost of shipping and handling customer orders?
A common solution is to raise the cost of the product to cover the cost of shipping. This way, your customer is satisfied that they “don’t have to pay for shipping” (even though they technically are in a way) and you don’t have to absorb that cost.
However, on less expensive items, it doesn’t always make sense to raise the cost to cover shipping expenses. It will make more sense from a customer perspective to pay a flat rate for shipping several low-cost items rather than getting free shipping on items that cost a few dollars more than they “should.”
Flat rate shipping
Flat rate shipping is when you have a specific, stated shipping cost no matter how many items a customer orders. Let’s say you have a flat rate of $4.99 for shipping orders of any amount. Your customer might order 1 product or 10, but their shipping rate would remain that same $4.99.
Real-time quotes take the size, shape, and weight of your products and, in real-time, calculate the costs necessary to ship them.
Real-time quotes are a great shipping option if you sell an assortment of products of varying sizes and weights. This helps to ensure that the customer is getting a fair rate and that your costs are covered.
Two-day or same-day shipping
If you’ve determined through market research that your customer base is intent on getting rapid shipping, then it might be a good idea to offer two-day or same-day shipping.
You don’t have to offer free shipping on these options either, and if you do, be aware that the costs will be significant.
Determine your costs to ship your products in this time frame and add a shipping option with a higher rate for quicker delivery times. You might be surprised how many customers are willing to pay significantly more to see their orders a few days sooner.
Rate-by-order allows you to offer your customers deals for paying more at your store. For example, you could charge for typical orders but offer free shipping on orders over $100 (or whatever threshold you determine will be profitable for your store).
Shipping carriers to consider for your online fulfillment
If you are managing the shipping and handling for your business, it’s a good idea to become familiar with the different carriers that are available to you.
Research local, national, and international carriers (depending on where you will ship your products to) and find the best rates for your product offerings.
Some of the common carriers include:
- DHL (international)
After you’ve successfully delivered a product to your customer, be sure to follow up by asking them how you did.
Let them know that you appreciate online feedback and reviews on your website, Facebook page, or Google listing to help convert even more customers.
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