You are losing money from shipping.
Shipping costs play a crucial role in e-commerce profitability, as the difference between winning and losing often hinges on them. If shipping costs exceed $18, the product will no longer be profitable, given $30 in revenue and $12 in COGS. Traditional packaging is not only redundant in weight and space, but also results in many shipments being break-even or loss-making.
E-commerce brands are now having to reimagine packaging due to the shipping cost crisis. Businesses are finding ways to reduce shipping expenses by 40% and they are changing their business model to make their businesses more profitable and more competitive to the slower ones.
Looking at the exact cost breakdown allows one to understand how this is possible to achieve this 40% and why smart e-commerce brands are implementing it right now!
Identifies the challenges of shipping in e-commerce.Identifies problems associated with shipping in e-commerce.
The current e-commerce shipping is based on weight and dimension pricing.
Freight carriers use actual weight, and dimensional weight to calculate rates. Dimensional weight is used to determine the space a package takes up. Many packages are priced by dimensional weight (not their true weight) because they take up more space than they weigh.
A three pound product, packaged in a 4,000 cu. in. box, would be charged on dimensional weight at 25 lbs. This pricing regime severely punishes inefficient packaging. Old packaging is a major space consumer, driving dimensional weight charges to escalate.
If packaging is inefficient, the cost of packaging can mount into a disaster, especially for brands that ship 10,000 packages per month. Optimized packaging can save 40%, which equates to $40,000-$80,000+ per month for the medium sized e-commerce business.
The driving force of savings is weight reduction.
About 50% of the total savings in shipping achieved is due to weight reductions.
Traditional Packaging Weight Analysis
- Pre-assembled box: 0.35 lbs
- The total weight of padding and cushioning: 0.15 lbs
- Demonstrates a basic ability to use tape and secure materials: 0.05 lbs
- Total packaging weight: 0.55 lbs/package
Optimized Flat-Pack Packaging
- When assembled and flat-pack, the container weighs: 0.18 lbs
- Integrated cushioning: 0.04 lbs
- Tightness of secure closure: 0.02 lbs
- Average weight of packages: 0.08 lbs
- Savings: 56% per package (or 0.31 lbs per package)
If a brand is sending 1,000 packages per day:
- Traditional model: 10,000 packages × 0.55 lbs = 5,500 lbs monthly
- Optimized model: 10,000 packages × 0.24 lbs = 2,400 lbs monthly
- Weight reduction: 3,100 lbs = 56% reduction
- With average freight rates of $0.80 per pound for e-commerce shipping:
- Monthly weight savings: 3,100 lbs × $0.80 = $2,480
- Annual weight savings: $2,480 × 12 = $29,760
Dimensional Weight Impact: The Hidden Savings – 17 pages of facts, figures, and data that will captivate your interest.
Dimensional weight pricing is a calculated savings on weight combined with a savings on box dimensions.
Dimensional Weight Calculation
As the name implies, formula measures length x width x height and then divides that product by 166 (also known as the DIM factor).
Traditional packaging example:
- The box’s volume is 480 cubic inches.
- 480 ÷ 166 = 2.89 lbs dimensional weight
- Net Weight: 2 lbs.
- Use dimensional weight (dW) if greater than: 2.89 lbs
- The following is an optimized example of a reverse tuck end box.
- The volume V is 189 cubic inches.The volume V is 189 in³.
- 189 ÷ 166 = 1.14 lbs dimensional weight
- Actual Product Weight: 2 lbs
- Charge based on: 2 lbs (actual weight below)
Reverse tuck end boxes are more dimensional efficient, which typically means substantial reduction in dimensional weight charges. This, along with a reduction in actual weight, reduces total shipping weight by 40-45%.
The following example illustrates how the real-world costs will be divided.
Let’s take some real numbers for a typical e-commerce company that ships 10,000 units per month.
- Current State (Traditional Packaging)
- Actual package weight: 2.5 lb (average)
- Weight: 3.2 lbs (Average)
- Uncharged weight: 2.6 lbs (higher of two)
- Monthly shipping cost: 10,000 packages × 3.2 lbs × $0.80 = $25,600
- Annual shipping cost: $307,200
This is the most optimized State (Reverse Tuck End Box).
- Gross weight (not including packaging): 2.6 lbs.
- Dimensional weight: 1.9 lbs average
- Charged weight: 1.9 lbs (higher of two)
- Monthly shipping cost: 10,000 packages × 1.9 lbs × $0.80 = $15,200
- Annual shipping cost: $182,400
- Total annual savings: $307,200 – $182,400 = $124,800
- Savings percentage: 40.7%
Benefits of Reverse Tuck End Box
These reductions are achieved through the engineered design efficiency of reverse tuck-end boxes.
Design Characteristics
The dimensional weight is significantly reduced with flat-pack assembly. Smart closure mechanisms eliminate excess securing materials. Integrated cushioning helps minimize padding needs. Optimized dimensions exactly match the product size.
Reverse tuck end boxes offer best protection with minimum size. Tuck closure mechanism is present that does not require tape and external securing. The benefit of material efficiency is that it allows for thinner walls without compromising strength.
The cost of implementation and ROI.
You need to invest in optimized packaging, but you will get a quick return.
Implementation Costs
- Design consultation: $1,000-$2,000
- Die production: $2,000-$3,000
- Sample production: $500-$1,000
- Staff training: $500
- Total implementation: $4,000-$7,000
ROI Timeline
- The annual shipping savings for brand are $124,800.
- Payback period: 1-2 months ($124,800 ÷ $4,000-$7,000)
Implementing the changes will increase annual net savings from $117,800 to $120,800, when costs are taken into account.
You can start making a profit from your reverse tuck end boxes within a few weeks, not months.
It is possible to get more money back than you ship, too! There’s more money back than the cost of shipping, too!
Reducing shipping costs isn’t the only financial benefit.
- Warehouse Savings
- Compression: 60% (as discussed)
- Monthly warehouse cost savings: $5,000 to $10,000 for medium-sized companies
- Annual warehouse savings: $60,000-$120,000
Assembly Labor
- Fewer assembly hours due to reduced assembly time
- Quick turnaround allows for same day delivery more often
- Faster order turnaround, which should improve cash flow.
Returns and Damage
- The more effective the packaging design, the less damage that will occur.
- Fewer returns/ refunds due to lower damage
- Return cost savings: 10-15% savings = $10,000+ per year for most brands
E-Commerce Specific Advantages
- Shipping optimization is particularly beneficial for e-commerce brands.
- Competitive Pricing
- Reduced shipping costs allow for lower prices without sacrificing margins.
- Competitive pricing is correlated with higher conversion rates.
- Any shipping cost savings are more than offset by market share gains.
- They value quicker, cheaper shipments to their customers.
Customer Satisfaction
Shipping is one metric that is impacted by fulfillment efficiency and thereby increases customer satisfaction.
- Reduced risk of damage due to lowered package weight
- Optimized design for a better unboxing experience.
- Repeat purchase rates increase
This is the final step in implementing a brand.
The brands that want to achieve 40% shipping cut are on the right track.
Step 1: Assess existing shipping expenses.
- Estimate true expenses to shipping common products
- Identify optimization opportunities
Phase 2: Pilot testing
- Optimize packaging with single product line.
- Track actual cost savings and performance
- Verify customer satisfaction
Phase 3: Full rollout
Move any remaining product lines to the reverse tuck-end boxes.Implementing the scale at fulfillment centers around the world.Scaling up to the scale at fulfillment centers globally.
Ensure new procedures have been trained throughout all staff.
Phase 4: Continuous optimization
- Take an active look at shipping metrics on an on-going basis.
- Look for other gains to be made from optimisation.
- Make packaging design improvements based on performance data
Final Thoughts
Systematic optimization of weight, dimensions and material efficiency is the way ecommerce brands reduce shipping costs by 40%. The breakdown of costs is transparent. The ROI is rapid. Easy to implement.
Reverse tuck-end boxes are the most promising end-box solution for delivering all desired improvements at once. The profit that can be gained from optimized packaging directly impacts profitability, competitiveness and customer satisfaction, which is 40% of the reduction that can be obtained.
For ecommerce brands, it’s a survival tactic rather than an option to optimize, considering that shipping costs play a major part in their viability in competitive markets.
