This is the first in a three-part series on Funding Growth: Mining for Gold Behind Your Buy Button. The Newmine team spends hundreds of hours working with retailers and brands each week. Our clients face real challenges and our team gets results. To capture our knowledge and share our experiences with you, we have developed this blog series on where to look within your own organization to find opportunities for growth, because after all, that is what we do!
Every online or omni-channel retailer, big or small, global or startup, is challenged to find the budget required to fund the initiatives necessary to meet aggressive growth objectives and stay competitive. Newmine consultants have spent their entire careers in retail operations, and we know the retail enterprise of today is far more complicated than it was even two years ago. Moreover, the retail enterprise of tomorrow will be even more complicated.
There are always new opportunities to reach your customers, personalize their experience, and grow your business. All of these possibilities require investment in technology, people, and processes. You have to invest to stay competitive and grow. The question is: where do you look? How do you find funding when facing competitive priorities and rapid response opportunities?
Our experience has proven that you can look right in your own backyard. There are often piles of GOLD right there!
The first place we recommend taking a look is inside your Outbound Shipping Costs!
Outbound Shipping Costs
In our experience, outbound shipping expenses have proven to be one of the greatest opportunities to save money. Driving cost savings requires regular review and change of package and carrier strategy. Why? Because carriers want to make money. They bank on retailer’s loyalty, and the simple fact that the retailer may be unaware of their options.
Shipping expenses are often one of the largest line items in the P&L. On average, an online retailer’s outbound shipping expense ranges from 5-8% of their net sales. The good news is, that in today’s market, you DO have options. These options have evolved through carrier partnerships , carrier competition, and geographical delivery zones. The bottom line here is that you can save significantly if you know what to look for. Determine which factors are driving your costs; size, weight dimensions, service level and seasonality. Next, negotiate shipping terms that provide you the greatest return without compromising brand and customer experience. With free or heavily discounted shipping now being the norm, outbound shipping costs demand regular analysis and action. You might believe you have a rock-solid contract with your outbound carrier(s), however, is it relevant to your shipping profile? Does it keep pace with changing carrier terms and pricing (EX: DIM charges). Carriers, their rates, discounts and special charges frequently change so you need to keep pace. This is NOT a policy that you can set and forget! It’s a constantly changing landscape that needs regular review and fine tuning.
The analysis starts with understanding your current shipping profile. This is typically organized by weight, service level, zone, and of course, the carrier you use. Then, you must factor in accessory charges such as residential delivery, DIM, and net rate tables. You may find that you are getting a good deal in a weight category that represents a small percentage of your shipments, but, not so great a deal in a category that represents a large percentage of your shipments. This is an opportunity to reduce cost without sacrificing service level. In addition, alternate carriers may provide a better rate for specific weight classes and service levels. Regular analysis is the key to developing an optimized strategy, as the variables will change.
So, let’s summarize what we’ve shared:
- Determine which factors are driving your costs.
- Negotiate shipping terms.
- Understand your current shipping profile.
What is the potential?
We recently worked with an online retailer with net sales of $50MM and a current outbound shipping cost of $3.5MM (7% of net sales). We helped them to find a cost reduction of 10% which added $350K to their bottom line. A significant amount to fund their growth initiatives.
So, where do you look next? Be sure to check out Part II of this series.
- Nailing Omnichannel in the Pandemic Age: BOSS and BOPIS - September 1, 2020
- Why Aren’t Retailers Able to Reduce Returns? - August 5, 2020
- Why Anomaly Detection is a Strategic Enhancement For Retailers - October 1, 2019