Shipping costs drain profits out of orders and kill lighting showrooms. Most retailers make less than 10% Net Profit (though lighting showrooms that are exceptionally efficient can get up around 15%-18%). Paying even 5%-6% for shipping can literally chop away as much as half (or more) of your bottom line.
Here are some not-so-obvious ways to reduce shipping costs (consider these in addition to basic things like ordering on vendor free-freight days, consolidating purchasing to hit free freight, etc.):
- Email Printed PO’s… Not Faxed or Hand-Written
This may seem disconnected from shipping, but it’s not. First, if vendors must pay someone to retype PO’s into their system – and faxes are sloppy while hand-written PO’s take the longest to decipher (nobody’s handwriting is as good as they think it is) – that raises costs. Raised costs means vendors can’t be as generous on shipping terms. Helping partner’s (i.e. our good vendors) cut costs comes back to help us showrooms.
Another reason not to fax or send hand written PO’s is the probability for data entry errors and the lag time in getting PO’s processed. Analysis of my showroom’s shipping costs showed that the biggest percentage of shipping costs come from mistakes (i.e. a single item must be shipped because of a mistake) and rush-ship orders.
Faxing or hand-writing PO’s adds delays, costs, and errors to both sides.
- Get Homeowners in Earlier
Getting clients to pick lights and confirm their order even a week earlier can slash shipping costs because you have more time to consolidate PO’s.
That’s not the only benefit though…
Every homeowner overspends their budget. The later in line we are, the lower our share of the budget. Think about it, how many times have you had a client come in and pick out lights only to come back later to trim down the order size because they overspent elsewhere?
Note: In next week’s post I’ll go into more depth and give two strategies for getting clients in earlier.
- Give Clients a Shipping Guarantee Option
We tell clients that normal lead-time is three weeks and has free shipping… and while most orders arrive on time there are sometimes back orders.
We recommend a small upgrade to guaranteed shipping. It adds only 3% to the order but guarantees all items will be in within three weeks or they win the “back order lottery”. If an item won’t arrive on time, they get to pick an up to 20% more expensive fixture at the original item cost!
Many vendors will do a swap-up upgrade for you at no extra cost if they have an item on extended back order. Even if they won’t, the cost of upgrading to an available fixture that’s a bit more expensive is usually a fraction of the cost that goes into dealing with a long back order (a bunch of status calls, 2nd delivery for a single item, getting electricians back to install, angry project managers and customers, etc.)
- Rush Shipping
We also offer clients different options for rush-shipping. Less than two weeks is 5% and less than one week is a 17% up-charge.
if you have a client that needs to rush an order, in my experience they know that they’ll likely pay for that rush. Giving them rush shipping options allows you to either recoup your rush shipping costs… or at the very least lets clients know you’re doing them a favor if you waive or reduce the charge (which leads to higher client satisfaction and future orders/referrals).
NOTE: Never pressure, but present rush and shipping guarantees as potentially useful options. I usually recommend guaranteed shipping as a smart idea (construction delays are costly and back orders are more common than we’d all like). Many homeowners are already frazzled by delays and appreciate the option to pay a fraction more for peace-of-mind.
Jason Petersen owns Hansen Lighting Inc. a lighting company with multiple showrooms in Utah.
Jason acquired Hansen Lighting out of near-bankruptcy in 2004 and turned the company around by implementing outside-the-box systems and ideas. The company is now one of the fastest growing companies in America (#3087 on the Inc. 5000 Fastest Growing Companies list) and has been recognized as one of the most profitable privately-owned retailers in North America.
Jason is also the co-founder of XOLogic and Lit Living Inc.