This Insight is based on our podcast episode with Casey Armstrong, the Chief Marketing Officer of third-party logistics partner ShipBob. Casey shares some of his tools of the trade and expert guidance on when you should consider hiring outside support for your fulfillment process. Listen to the full episode here:
There are a few things that all ecommerce businesses have in common. One of them is the need to ship physical goods through the fulfillment process.
How effectively you accomplish this depends on your investment and commitment to creating an excellent customer experience.
We spoke to fulfillment expert, Casey Armstrong, about his top advice for mastering your fulfillment process. So, if you’re struggling for efficiency in how you pick, pack, and post your orders to customers, this article is for you.
We’ll be covering:
- Why invest in the order fulfillment process?
- The three stages of the fulfillment process
- When to DIY and when to outsource
- 10 ways to optimize your fulfillment process
Why invest in the order fulfillment process?
Why should you be emotionally or intellectually invested in improving your shipping experience?
Because there’s a 100% open rate on the goods that you ship out.
Every customer will be experiencing your fulfillment services, so it is an opportunity to nail the experience and create a positive interaction with your brand. It will influence whether or not people become repeat customers and it will impact the recommendations they make to their peers.
Nielsen research shows that 92% of people trust recommendations from family and friends over any other type of advertising. There’s no better marketing than word of mouth. And one of the key ways to build positive buzz around your brand is to create an excellent start to finish experience for your customers.
When done properly, the order fulfillment process improves the customer experience. It then increases customer lifetime value. It increases loyalty. It raises your Average Order Value.
You need to have the right approach, the right strategy, the right tools, resources, possibly the right partner.
Many businesses consider fulfillment as a cost center where they sink profits. Instead, you should be looking at how you can leverage this process as an asset for your business and understand how it can be a revenue driver.
Once you shift your mindset from thinking of it only as a cost and seeing it as an opportunity to create value for your business and for your customers, that’s when you begin to make real gains and see returns.
The three stages of your fulfillment process
For each order you receive, there are three distinct periods of the process: point of sale, managing the order, and post-receipt. Using these phases, you can build an order fulfillment strategy.
Each of these periods gives you an opportunity to connect with your client, add value, and build a relationship that results in future sales.
Stage #1 Point of sale
This is the point when your customer is choosing whether or not to purchase your goods.
Shipping options can play a huge part in the decision-making process and can even be the difference between an abandoned shopping cart or an order.
The two factors that impact a decision are cost and speed, both of which you can use as levers to convert browsers into customers and increase revenue.
Offering free shipping or speedy delivery can be used to improve conversions.
This has become a standard lever, typically offered when spending above a certain dollar amount. Here you can see an example from outdoor gear retailer, Patagonia. They offer free shipping on orders over $49.
To offer free shipping as an incentive to customers, you must understand the economics of your business.
- What are your unit economics?
- What does it cost for you to ship standard?
- What does it cost for you to ship and get that two-day guarantee?
Casey suggests first figuring out your AOV over a certain period, say the last 6 months or 12 months, and then adding a percentage on top of that to make the threshold for free shipping.
So for example, if your AOV is $50 then you add 10% on top of that so your threshold for free shipping is $55-60.
But, don’t forget to also consider your fulfillment costs. Your AOV may be $50 increasing to $55, but if your cost of fulfillment is $8 and you are now absorbing that cost, then you could be facing a loss.
Once you know these costs, include fulfillment in your markup with an additional percentage increase on your free shipping threshold.
This promotion could see your AOV jump by $5-10, which week over week becomes a big margin increase.
Thanks in large part to Amazon and the introduction of their Prime delivery, speed is now expected. Best practice has become a 2-3 day turnaround time from order to receipt.
Offering delivery within this window may or may not be possible for your business, based on your size, location, and a myriad of other considerations. Regardless, you should always set the right customer expectations about when they can expect to receive your product.
When considering the delivery timeline that you can offer, you should analyze two steps in your fulfillment process:
- How long does it take you to pick and pack and hand the good off to the carrier?
- How long will it take the carrier to deliver it?
Stage #2 Order management
Congratulations, a customer has made a purchase (perhaps thanks to your free or speedy shipping offer)!
Now it’s your responsibility to communicate with that customer real-time on the status of the online order and when are they will receive their goods.
You can enhance your customer service and improve transparency by additionally communicating information like:
- Where is the item being stored or stowed?
- When was it picked up?
- When was it handed off to the carrier?
- What is the specific delivery timeframe?
This is already going above and beyond what many companies are doing. Yet these are still transactional emails, simply giving facts like the tracking information and shipping method.
Confirmation emails offer the opportunity to increase customer satisfaction and increase average order value.
For example, in between confirming order and pre-shipping, you could email your customer with the option to update their order, suggesting complementary products, other items removed from the cart before purchase:
From his experience, Casey suggests messaging like: “Your order is about to ship, there’s still time if you wanted to add that last item you forgot!”
Further emails could be adding value around the product, providing education on how to get the most out of the item, and building up expectations for when it arrives. For example: “Did you know that your product has won awards for sustainability?”
Ultimately, over-communicating is better for you and your customer. It will reduce customer queries on the status of their order, and improve customer satisfaction and association with your brand.
Stage #3 Post-receipt
The fulfillment process isn’t complete once the product has been delivered.
Returns processing, refunds and exchanges, and items lost or broken all need to be dealt with by your team in a timely and professional manner.
You’ll want a customer support process that is easy and resolves issues efficiently, to keep your reputation intact. In a survey by Microsoft, 95% of respondents said that customer service was important to brand loyalty, so this is a step you don’t want to miss.
Make the process human, with a human voice.
This phase also is the time for analytics and reporting.
Track how often are you hitting your targets for fulfillment times and costs. How many broken products, delays, or lost items are you seeing? This will all feed into your process revisions to ensure you provide the best service for your customers to keep them returning to your brand.
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When to DIY and when to outsource your fulfillment process?
This is the classic story you see on YouTube or Instagram. The Steve Jobs “it all started in my garage” reference.
Casey says “You see ecommerce founders in their garage, packing packages in their apartment, and there are these big stacks of manila envelopes or boxes. They’re printing off the labels and they’re putting them out and they’re putting handwritten notes in it. They’re doing this in the wee hours of the morning because they’ve been running their business all day.”
Fulfilling in-house will get you by for a while, especially at the beginning.
At the start, it’s good to be close to the product, understand the fulfillment process, and have a grasp on the unboxing experience. This proximity allows you to connect with your customers and their experience.
Eventually, though, self-fulfillment is going to lead to burnout. And if it doesn’t lead to burnout, your process will break down as demand grows and prompt negative customer reviews or late packages. All of your effort to create positive word-of-mouth referrals will be finished.
So, when do you know it’s time to outsource or transition to third-party fulfillment?
The best question to ask yourself is: “do you think that fulfillment is getting in the way of you growing your business?”
Casey shared a great example during our conversation from Rainbow OPTX.
Just a few years ago, the founder was staying up until 2:00 AM, especially during the holiday season, every day picking up and packing boxes. That’s all he was doing. He wasn’t doing product development. He wasn’t running tests on sales and marketing. Just picking up and packing boxes.
So one employee after another, he hired support staff. Next thing you know, his team was spending a combined 20 hours every day picking up and packing boxes.
It’s a good problem to have because it meant the brand was making sales, but their entire focus was on fulfilling and order processing rather than growing the business.
Eventually, the founder handed off the fulfillment process. After doing so, he doubled his sales in 12 months. With the time he gained from outsourcing the fulfillment process, he was able to actually focus on growing and expanding his business.
So the answer to “when should I outsource” can be met with another question. Are you pouring your time or money into doing something that could be delegated?
As an ecommerce founder, is your participation in the fulfillment process preventing you from growing your business or investing in sales and marketing? If the answer is yes, you should consider outsourcing order fulfillment to a fulfillment company or fulfillment provider.
10 ways to optimize your fulfillment process
1. Consider your product type
The type of goods you’re selling will hugely impact your fulfillment process and costs. So, the first step to optimizing your fulfillment process is understanding the unique guidelines on your specific product. Potential considerations include:
- Timeliness: Perishable goods will have a short transit time and possibly special requirements like temperature control. This will increase costs and restrict the type of delivery method you can consider.
- State-based restrictions: There are a number of products that are regulated or restricted across state lines, for example, alcohol and prescription drugs.
- Battery-powered products: Different types of batteries can be classified as dangerous goods, so if you have a battery-powered product, these restrictions could impact you. If powered by removable batteries, will you include these with your product?
- Product size: If your product is oversized or heavy, like large furniture items, then that adds another layer of complexity as well.
- International shipping: International laws also vary, for example, Canada has certain restrictions on cosmetics and beauty products. If you’re looking to ship internationally, research the different laws for each country you are shipping to, as well as bodies like the European Union who may have additional restrictions. You will also need to factor in different international taxes to your fulfillment costing.
Once you have analyzed your product type, and an accompanying considerations, you can better optimize your fulfillment process.
2. “Unboxing” customer experience
These days, brands try to create Instagramable unboxing experiences.
It’s a great tool for improving the customer experience and increasing the chances of that customer returning and referring you to others.
However, the detail you put into your unboxing is something you need to think through, especially if you hand it off to a third party.
The more intricate the packing materials and details are, the more it will cost you from a time perspective whether that’s your team packing or a third-party partner.
You need to understand the economics, build your business case, and weigh up what is costing you money versus what will really differentiate your brand.
Here’s an example from Fab Fit Fun, one of the major plays in “unboxing.”
3. Product dimensions
Your fulfillment costs are often based on what is called dimensional way. This is the combined size and weight of the package. There could be a lot of efficiency gains by making your package smaller or lighter.
With an intricate package often comes an extra couple of ounces or inches. That means every single time you ship a product out it costs you that much more. So it will directly eat into your margins.
Let’s compare a laptop versus a lamp. For argument’s sake, both weigh roughly the same amount.
Your laptop is packaged in one reasonably sized box, with some cardboard padding for protection. Your lamp, on the other hand, is shipping in three pieces to be constructed at home.
The laptop clearly has a higher value (unless it’s a very nice lamp or a very cheap laptop) however the intricacy of the packaging means the lamp will have higher shipping costs. It could be just 10 cents, which may not seem like a lot. But if that’s every single package and you multiply that times 12 months a year, that can eat into your margins pretty quickly.
4. Locating your fulfillment process distribution centers
Finding the ideal distribution center is key to mastering your fulfillment process.
In the past brands had a central location, usually in the Midwest somewhere, that was convenient to fulfilling on both coasts.
Now, many companies are distributing inventory across maybe half a dozen or even a dozen locations, with smaller numbers of products at each one. This means that the proximity between the product and the customer is much closer which helps with the reliability of a two day or three day shipping window.
Being closer to your customers also means reduced cost of delivery.
To optimize, you need to conduct time in transit analysis. Simply put, you need to understand where customers are, how long will it take to deliver to them from different locations, and how much will that cost.
From that analysis, optimize your distribution center by choosing a location close to the largest base of your customers. This analysis can help you decide if one central location or several distributed fulfillment centers suit your business best.
5. Managing your inventory
As well as considering customer location, you need to consider your inventory storage. What is your plan for warehouse management?
If you choose to use multiple locations for distribution, this will mean splitting inventory.
Consider what your catalog complexity and sku count look like. What does it cost higher up in the funnel with your supply chain to purchase these goods and have stock across different locations?
Consider your best sellers and order volume. You might have 10 products or a hundred products or a hundred thousand products, but you know that really 5-10% of those are driving a vast majority of sales.
Manufacturing and storing your full range will cost money upfront.
This all adds complexity to your business from an inventory management perspective, so consider whether you could consolidate more to save money.
6. Product storage
As mentioned above, storing goods will cost you.
When considering your fulfillment process, look at lead times for product manufacturing, understand your storage costs and limitations of distribution centers you choose.
During the peak of the pandemic, there were anecdotes of fulfillment centers turning away trucks of goods because they did not have the warehousing storage.
To avoid this, be clear on timeframes and capacity with your manufacturers and distribution centers.
7. Choosing the right carrier for your fulfillment process
For delivery, you can go with national behemoths like FedEx and UPS, or opt for small local carriers.
Large tried and tested organizations will stick to their timeframes. With all the tracking and systems in place, have an established carrier can be helpful for when things go wrong.
On the other hand, these companies are under huge demand, especially during peak season. This could lead to delays, more lost packages, and so on. Also, if you’re looking for that specific personal touch, this may not be the best choice for your brand.
Local carriers provide that more personalized feel, have better margins as they are local to your customer base, and will be less in demand during peak seasons. However, their systems can’t compete with larger carriers’ tracking systems.
Weight the pros and cons of your carrier option, and pick the partner that will deliver the best customer experience.
8. Delivery Method
Should you ship via air or ground transportation? The short answer: for speed and reliability, go air. To be cost-effective, stay on the ground.
9. Factor in annual cost variants
You have your fulfillment process set up and costs accounted for. Then January hits. Each year during Q4, following the peak Holiday season, there’s an increase in fulfillment costs (storage and delivery).
Factor this into your planning, especially for any post-holiday promotions, as this is sure to impact your margins.
10. Find someone to manage and streamline the process
With so many steps to the fulfillment process, from production to distribution to storage, your business may benefit from a dedicated supply chain manager.
These fulfillment experts analyze and identify improvements at each step of the process. This includes the size of goods, the product catalog, complexity, and skus. They can find areas to automate and build that automation into the order process.
Hiring the right person could lead to shaving off margin points in multiple parts of the supply chain. Eventually, you will run a much better business and provide an Amazon-level shipping experience for consumers.
As Casey says: If you can nail down your fulfillment process, there’s so much money to be made in the efficiencies in your business and a better customer experience.
Optimize your ecommerce business beyond the fulfillment process
After you establish and optimize your fulfillment process you should explore other ways to build a better customer experience. The same way you want to create a seamless shipping and distribution process, you’ll want to craft a user-friendly shopping experience in your online store.
We can help with that.
At The Good, we specialize in removing friction points for ecommerce websites so the customer journey is effortless and nurtures customers along the path to conversion. We’re committed to working with brands of all sizes to help achieve the revenue goals they have for their business.
About the Author
Caroline Appert is the Director of Marketing at The Good. She has proven success in crafting marketing strategies and executing revenue-boosting campaigns for companies in a diverse set of industries.