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3 Tips to Increase Profits on Shipping

In today’s competitive market, buyers want to save money on their shipping costs, but your company can still turn the shipping department into a profit center or at least break even.

Many companies, especially in the B2B (Business to Business) sector choose to charge the shipping cost to their customers. The question is: are you charging the published (or list) rate, your negotiated discount, or a hybrid of the two (for example, adding either a fixed or percentage handling charge on top of the negotiated discount).

Companies that charge published rates will gain the most profit in shipping. And if the customer does not specify the carrier and service level to use to ship their order, then it is up to your company to choose the least cost carrier based on your contracted rates at the time of shipping.

Companies that charge negotiated rates can still gain a profit in shipping because the negotiated rates loaded into the shipping software only reflect the base discount and not the rolling-average volume discount.

Tip #1

Using a mix of national and regional carriers will yield the most profitable results by rate shopping your negotiated rates using a multi-carrier shipping solution. In many cases the regional carriers are less expensive and cover a larger next day delivery area. Most software will eliminate any carriers or services during rate shopping that are not eligible to the destination – this is the perfect way to include regional carriers in the mix. The key is using your negotiated rates to rate shop and if it makes sense, add “time in transit” calculations to take advantage of guaranteed ground shipping for next day and second day shipments.

Tip #2

For customers that are invoiced product plus the shipping charge, make sure to account for all accessorials at the time of shipping (i.e. Residential Delivery, Large Package Surcharge, Additional Handling, Dimensional Weight). If these fees are not accounted for at the time of shipping, you will be footing the bill for these extra charges. It is very rare for a company to invoice a customer after the fact for missing or miscalculated shipping charges.

For ecommerce orders where the customer pays for shipping upfront this can be difficult to calculate especially if you do not have logic in your web store that can pack product and determine the number of packages, the size of each package and accurate weights. Add address validation software in your ecommerce store to automatically correct the address and to flag the address as Residential. Invest in a packing algorithm to accurately rate the cost of shipping when the customer places the order.

Tip #3

If you have a customer that demands to pay the lowest shipping and wants to be billed accurately for what the carrier charged you, this will present some difficulties. Unless you are willing to create an accounting nightmare to bill your customer the freight charges after you receive the carrier invoice, then you may want to consider shipping on their account. Many companies will opt to use the customer’s account and “Bill Third Party” but there is a better way if you want to retain your customer.

Most carriers will provide a unique shipper account that can be manifested from your shipping software where the customer is the billing address and your company is the pickup address. Every time you ship the customer’s order you just need to pick their carrier account number and they will automatically get the freight bill. This is better than just getting permission to bill their account by selecting “Bill Third Party” at the time of shipping. Having the customer setup a special account number for you means they see your relationship as permanent and are less likely to switch over to another vendor.

There is an added benefit to either shipping directly on the customer’s account or using “Bill Third Party” – your company does not have to temporarily come out of pocket to pay the carrier invoice. Typically you will have your repeat customers on some sort of terms such as Net 30 or Net 45 and the carrier invoice is due upon receipt once the shipment has been delivered. You may be paying out of pocket the freight charges and carrying this expense for 2-3 weeks.