The True Cost of Shipping – How It Can Break the Bank for Direct Sales Businesses

Marc Andreessen correctly observed that “today’s leading real-world retailer, Wal-Mart, uses software to power its logistics and distribution capabilities, which it has used to crush its competition.” Such is the case in smaller circles for many direct sales companies. Formerly successful businesses are finding themselves upended by competitors that have learned to reduce their costs of shipping. With marketing and operations costs lower than ever due to the automation and virtualization of the Internet, shipping is usually the huge line item in the expense report.
In order to understand how to fix the problem, you must first understand the true cost of shipping. Let’s take a look at some of the things you need to know.


Consumers are no longer impressed by any air of exclusivity. If a product or a service is difficult to obtain, a consumer can find a replacement with little more than a mouse click. [Read: If your shipping is too expensive, you may find customers bouncing away from your final sales page!]
The immediate access to goods will only improve as the Internet takes great pains to bring precision search results to its audience. A high bounce rate will also cause your site to be punished in search rankings, meaning that you lose out on new customers who have not pledged loyalty to anyone just yet. The solution is to make sure that your shipping costs are the lowest they possibly can be, because consumers will not tell you this is the problem. They will simply leave without a trace!


Direct sales in the US alone were well above $30 billion in 2011, and that number has trended upward ever since. More people are finding their way out of the corporate space and into the direct sales environment, meaning that your business will face new competition every day. One of the major advantages that more established brands should be able to maintain is the leverage over shipping costs. It is very difficult for a new, single employee business to compete against your brand in terms of shipping because of your established volume. However, you must constantly seek out the lowest shipping avenue available, because they are getting better every business cycle.


Many competitors are realizing that simply reorganizing the cost structure of a product will cause a potential customer to look at the item more favorably. For instance, marketing your site as a “free shipping!” site while incorporating the shipping costs into the prices of your products is an old, yet still very effective, trick. It tends to work for products that are aimed at older consumers with less Internet experience or people who value convenience over price.
Younger people are beginning to sniff out these rats, however, and Millennials will soon make up the majority of online consumers. You must be more cunning when you start moving numbers around without reducing the overall price. In most cases, it is in your best interests to simply find a better shipping option for your customers, because your competition will only employ these tactics as long as they have to. Once they move into a space with an improved profit margin, you can bet that someone will begin to market their infrastructure as organically superior to yours, and they will be right.


If you limit your shipping options based upon blind loyalty, you are sure to incur higher costs than you should. For instance, UPS has recently announced a price hike across the board. By December 26, 2016, the ground rates for UPS shipping will go up by an average net of 4.9%. UPS Freight increases will take hold much sooner, with a 4.9% hike coming into effect on September 19, 2016. Can you afford these price hikes?
The real question is not whether you can afford these hikes or not, but rather, if you should pay them at all. UPS is relying on its position as a market leader with tens of millions of dollars poured into its marketing to cover its back as it rolls out these changes. In effect, they are expecting to retain customers simply because their marketing blankets out most of the competition. Smart companies see through this – they know there is plenty of competition for UPS, and they will seek it out. If you do not, then you will be reducing your profit margin by at least 4.9% for no good reason, and possibly losing customers as your competitors lower their prices to undercut you.
Note: You will be affected the most by these changes if your business is located in the southern United States. The United States Department of Transportation reports that the southern US has the most economic activity that requires freight and has experienced the largest rise in population since the year 2000.
Scott Davis, CEO of UPS, has been quoted as saying, “We’ve continued to transform our business every time there was a new technology challenge.” However, UPS is well behind the curve this time. What does this mean? Everyone in the US should be looking for a new solution, and possibly looking outside of the country!


Ottawa Logistics is your 3PL solution for lower shipping costs. Whether you are trying to move pound for pound with your competition or just increase your own profit margin, we have the streamlined distribution that you can count on. We have built our reputation on low prices and high quality. There is no reason to let your shipping costs break the bank. Give us a chance to show you how we can help – call, email or visit our website for more information.