If you run a direct-to-consumer brand, chances are you’re constantly looking for ways to lower shipping costs—one of your biggest expenses. There are dozens of ways to reduce fulfillment costs overall, but to save on shipping specifically, data analysis is critical.
To lower shipping costs, you need to understand your ideal order fulfillment configuration: how many warehouses you use, where they’re located, and what shipping carrier and method best suit your needs. These variables depend on unique elements of your business, like your average package weight and dimensions, customer distribution, and whether you choose to optimize your shipping configuration to minimize cost or delivery speed.
Crunching all of those numbers poses a challenge: it’s time-consuming, complicated, and most DTC brands don’t have access to all the necessary data to conduct a useful analysis. Luckily, fulfillment providers like Airhouse have shipping analysis tools that can pinpoint the best way to ship your orders and continually build on your strategy to keep costs low as your brand scales.
Ahead, find ways to lower shipping costs to ensure you’re running an efficient, cost-effective operation.
When figuring out how to lower your shipping costs, there’s an abundance of data to take into account. Analyzing this information poses a challenge for DTC brands for two primary reasons:
Airhouse’s Shipping Optimizer takes all of these variables into account to find the cheapest—or fastest—possible combination of warehouses, carriers, and shipping methods for your unique brand. And for Airhouse customers, this data is analyzed continually, so you can make strategic changes as you scale your business.
Shipping costs will always be volatile, and some fees like carrier surcharges can be unpredictable. Yet there are four primary variables that have the largest impact on shipping costs:
The most obvious variable when it comes to calculating shipping costs is the package’s real or dimensional weight. The ideal shipping method for a particular item will vary based on the product, so finding ways to optimize packaging is an important first step. Crunching the numbers is the best way to kick off that optimization.
A robust data analysis can do a few things to help. First, Airhouse’s data tools can easily identify the ideal package size for a product to minimize its dimensions, and in turn, lower shipping costs. It will take more than SKUs into account, calculating weight on the average order (rather than solely on the SKU) and optimizing your business’s spending.
This data analysis will also find the optimal number of warehouses to employ based on a product’s weight. For example, larger or heavier products will benefit from more warehouse locations since the product won’t have as far to travel. Lightweight products, meanwhile, may benefit from using fewer warehouse locations to minimize freight shipping costs and potential storage fees. The resulting calculation is the most ideal and cost-effective route from warehouse to warehouse.
Finally, a data analysis can suggest the best shipping methods for products with specialized requirements, like temperature control or hazardous material restrictions. It will eliminate the need for extra time and money spent on shipping those products.
Each shipping carrier will have slightly different strengths for you to capitalize on, depending on your business’s priorities. You might be most invested in minimizing time to delivery, for example, which would make a difference in who you choose to ship with. There’s also the factor of the unknown: Many 3PLs will also have different negotiated rates with their carriers, something that would be impossible for your business to account for on its own.
That’s why a robust data analysis can also help when it comes to optimizing the shipping carrier and method. The most important part of such an analysis quickly calculates the cost of delivering your typical package in all possible scenarios, like via each shipping method and to each shipping zone. Tools like Airhouse’s Shipping Optimizer will also consider your various package sizes rather than using an average. For example, if some of your orders are sent in a poly mailer while others are sent in a box, our analysis will take that into account, rather than simply relying on one or the other—or taking an average of the two.
Once all avenues are explored, the data identifies the most cost-effective method for shipping a product. Consider it a silver bullet on a silver platter.
Another important factor that feeds into the data analysis is customer distribution. Where are your customers located? Understanding customer distribution can help your business identify the best locations for warehouses to minimize the number of shipping zones a package will need to travel through. To significantly reduce shipping costs for each order, you can strategically place warehouses closest to the maximum number of customers possible.
Doing that requires a holistic analysis of location data, which helps in several ways. First, Airhouse can analyze the destination of every order to identify customer concentration hotspots. Once that’s completed, we can research nearby warehouses to identify the best one for a given business based on the customer distribution and concentration.
In tandem with customer distribution, we can also take product dimensions into account to make an informed determination about how many warehouses a business should use. Even though using multiple warehouses can cut down on transit time and shipping costs, the ideal number of warehouses truly depends on what kind of product is being shipped. Something that’s lightweight won’t necessarily reap the same benefits of using multiple warehouses, since the baseline shipping cost is lower and traveling to higher zones matters less. Larger, heavier products, on the other hand, see a huge benefit from being close to their customers, because they’re expensive to ship. The cost to ship heavy items grows exponentially with every extra mile traveled.
Where you choose to place your warehouses has an enormous impact on your shipping costs.
Why? Because it involves taking all of the other variables—product size, shipping methods, and customer distribution—into account. Additionally, two main aspects of warehouse locations can drastically affect the cost of shipping an average order: the number of warehouses a brand employs and the location of each of those warehouses.
Above all, understanding the optimal number of warehouses to use is critical for a DTC brand looking to optimize and reduce shipping costs. Airhouse’s Shipping Optimizer can pinpoint that number, since it considers the average package dimensions and weight, combining that information with the ideal shipping carrier and method, as well as the product’s customer distribution. Then, it identifies the optimal warehouse type for your business.
Similarly, the data analysis suggests the ideal locations for each warehouse based on both package size and customer distribution. In the case that your business has preferred warehouses, Airhouse can also quickly calculate the cost savings of using any number of warehouses you choose. The added benefit is easily understanding when additional operating costs outweigh the benefits of employing more warehouse locations. It’s an important distinction to make when you’re sending inventory to multiple locations, thus incurring a larger cost of freight. Your cost savings in shipping should always outweigh the increase in freight costs.
A business owner’s priority is to deliver an excellent product. Getting that product to the customer in the most efficient way possible comes next. The thing is, it’s not always possible for business owners to have access to every single variable that would allow them to optimize their shipping operations as a whole. Calculating and identifying a product’s optimal shipping configuration depends on several important variables, some of which business owners can’t determine on their own. Data analysis ultimately helps brands optimize their warehouse and shipping configurations. The result is a scalable business that pays less in shipping costs.
Airhouse can examine product type and size, shipping carrier and method, warehouse location, and customer distribution to lower shipping costs with accuracy and ease. The real value, however, is in Airhouse’s ability to calculate the optimal conditions for shipping your product again and again. In a fast-moving and ever-changing market, it’s the ability to be quick and nimble that will help your business stay ahead of rising shipping costs.
Could your shipping strategy be more efficient? Get a free shipping analysis on your historical order data from Airhouse today.