A new merchant's guide to shipping and fulfillment options
Setting up your online store is just the first part of starting an ecommerce business. To really settle into your groove as a new online merchant, you have to solidify a supply chain and develop a strategy for filling and shipping orders in an efficient and cost-effective manner.
A common mistake that new merchants make is to ignore the last of those tasks, either because they don’t know their options or because they fail to appreciate the impact it has on their customers’ buying experience. Shoddy shipping and fulfillment practices can lead to delivery delays, order errors, and a general lack of communication between merchant and customer. Select the wrong strategy and you could also find that your business becomes unprofitable.
In this post, we’ll provide a high-level overview of several options for shipping and fulfilling ecommerce orders, along with the pros and cons of each. Keep in mind that there’s no “one-size-fits-all” approach and what works well for one business may actually hinder another. By knowing your options and choosing the one that fits your store best, you’ll be well-positioned to provide first-rate service to your customers, from checkout all the way through delivery.
Doing it yourself
For many ecommerce entrepreneurs who store their own inventory, shipping and fulfillment starts with a pile of corrugated cardboard and bubble wrap in a garage somewhere. While this might not appeal to everyone, there are some distinct advantages (and disadvantages) to taking it into your own hands.
Pros of DIY shipping and fulfillment
- It’s cheap. Few beginner sellers have the capital to outsource shipping and fulfillment from the get-go. By handling it yourself, you’ll pay only the cost of materials and shipping, making it the most cost-effective option by far.
- Anyone can do it. If you have the ability to assemble boxes and schlep them to the post office, then you can ship and fulfill orders yourself. No special skills or experience necessary.
- You’re in control. If you’re fussy when it comes to right angles and wrinkle-free packing tape, this is the approach for you. Not only does it allow you to inspect each and every order, it gives you complete control over how your products are packaged, branded, and shipped.
Cons of DIY shipping and fulfillment
- It’s tedious. After the initial thrill you get from packaging and shipping your first few orders, you’ll find that the novelty quickly wears off as the orders pile up.
- You need space. As more orders roll in, you will inevitably need the ability to store more stock. Renting additional space might become a reality.
- It takes away from more important stuff. As an ecommerce entrepreneur, you need to wear a lot of hats. Product design, business development, customer support—these aspects are crucial to your success and can be neglected when you’re spending the majority of your time packing and shipping orders.
Outsourcing it to someone else
There will come a time in most successful online stores' lifespans when in-house shipping and fulfillment no longer makes financial and logistical sense. As order volumes increase beyond your bandwidth, you have two options: hire up or hire out.
Since many online businesses don’t have the resources to build up a dedicated shipping team, partnering with a third-party logistics provider is a popular and effective response to growing demand. With outsourced shipping and fulfillment, inventory is stored in an off-site warehouse where employees pick, pack, and ship products on your behalf. You simply forward them the order details and they take care of the rest.
Pros of outsourcing
- It frees you up to do other things. By taking shipping and fulfillment off your plate, you’ll save yourself a ton of time that can be used to grow your business.
- It smooths out peaks and valleys in order volumes. In some cases it’s easy to predict the busy periods and the slow ones. But you're hit with an unexpected surge in orders, a third-party service comes in handy. They can scale up and down much faster and more easily than you can. It’s nice to know that even when you aren’t there, someone has your orders in hand.
- You can take advantage of special discounts. Carriers like FedEx and UPS frequently extend discounts to shipping and fulfillment companies that you would never have access to on your own.
Cons of outsourcing
- It can be expensive. Outsourcing doesn’t come cheap. If you’ve been DIY-ing your shipping and fulfillment up until now, the added cost might sting a little.
- You’re at the mercy of your service provider. How products are stored, packaged, and shipped is out of your hands, so you need to trust that the company you’ve hired is working to your standards. This includes everything from packaging quality, to speed of delivery, to salability of returned merchandise. Remember, if any of these aspects aren’t to your customers’ satisfaction, it’s you, not the service provider, that’s going to be on the hook.
If you've already decided that your ecommerce business model will be dropshipping, then you will know that your order fulfillment strategy has been essentially taken care of.
Dropshipping involves listing products in your online store that are actually manufactured, packaged, and shipped entirely by a third party called a dropshipping supplier. When a customer places an order in an online store using a dropshipping business model, the order information is sent directly to the supplier, the online store owner is charged the wholesale price for the product, and the order fulfillment is managed by the supplier from start to finish.
Pros of dropshipping
- It eliminates the headaches of DIY shipping and fulfillment. You don't have to worry about inventory storage, order packaging, or organizing shipping.
- You don’t need as much capital. Because you don’t have to purchase products ahead of time—or pay for storage space—your business expenses can actually be quite low, and the risk you take on quite minimal as you only pay for what you sell.
- You can offer a wide variety of products. Instead of having to buy large quantities of inventory you’ve never sold before, dropshipping allows you to test out new products on your customer base risk-free.
Cons of dropshipping
- It can hurt your margins. When another company is assuming so much of the risk and performing a valuable service for you, it’s no surprise that they expect a substantial cut of the profits. Plus, since you’re only ever ordering one product at a time instead of buying in bulk, you’ll never benefit from wholesale discounts that can boost your bottom line.
- You need industry contacts. It’s easy enough to connect with dropshipping suppliers with a simple internet search, but finding the right products in the right place at the right price point is a tall order if you don’t have any insiders guiding you.
- It can get complicated fast. When you’re working with multiple suppliers and dropshippers, all of whom have different rates, practices, and standards, it can be difficult to keep on top of everything—especially when your customers assume that everything ships from a single warehouse. Remember, it’s your reputation on the line if an order goes awry, so do yourself a favour and partner only with a select few reputable dropshippers.
Finding the right shipping and fulfillment approach for your business is one of the most important steps you'll take as an online merchant. None of the options outlined in this post is without complexities and challenges you'll need to tackle in order to be successful. Invest the time to develop a strategy that best meets the your needs and capacities, remembering that as your business evolves, so will your shipping and fulfillment approach.
Find more helpful articles in The ultimate guide to starting an online store.