Fast & Free: How to Price (or “Unprice”) E-Commerce Shipping to Perfection

James Hsu

August 30, 2022September 30, 2022

Insights

According to the zero price effect, traditional cost-benefit models cannot account for the psychological effect of getting something for free. “Free goods have extra pulling power.” (source)

A store could be offering a free ice cream cone or even a free sticker worth less than a penny. Regardless, there we are waiting patiently, grinning ear-to-ear for the opportunity to get something for nothing.

There’s no better example in e-commerce than “free shipping.”

Let’s discuss the arguments for and against providing free shipping from an e-commerce merchant’s perspective.

Shoppers hate add-on fees, and speed matters

According to recent research by The Baymard Institute and shared by Shopify, the #1 reason why shoppers abandon checkout is because “extra costs [like shipping and taxes] were too high,” accounting for 55% of total cart abandonment.

A 2021 global consumer insights survey conducted by PWC showed “fast/reliable delivery” as consumers’ #1 overall consideration when shopping online (ranked top three by 41% of respondents), beating out eleven others, including “in-stock availability of items I want (35%),” “ability to quickly and conveniently navigate the website to find products I’m interested in (30%),” “availability of online customer reviews (26%),” and “a good return policy (31%).”

Want to reduce cart abandonment (and increase conversions) for your online shop? The research is clear: offer your customers fast order fulfillment, and don’t charge them for it.

Despite the body of evidence, many e-tailers remain skeptical about the merits of offering “fast and free” delivery, with “erosion to profit margins” being among the most common reasons given.

There’s a cost to “free” shipping

While free shipping is a proven way to get customers to buy from you, providing it isn’t exactly “free” for retailers.

E-commerce shipping can sometimes be a very significant expense for retailers, particularly when it comes to expedited deliveries (learn how Ohi keeps fulfillment costs low for sub 2-hour, same-day, and next-day delivery) or heavier/bulkier goods.

But what if you can generate ROI from offering “fast and free” delivery? Might there be a scenario where you’d want to eat free shipping costs in order to reduce cart abandonment (or increase conversions) and even increase customer satisfaction (i.e. through a better and faster delivery experience), leading to improved customer lifetime value?

To understand that scenario better, we need to first establish the ROI of fast shipping (or what Ohi calls “instant delivery”).

The ROI of instant delivery

Previous research from Ohi (based on actual anonymized client data) demonstrated a substantial boost to repeat purchase rates and customer lifetime value (CLV) for customers whose orders were delivered in less than two hours (via Ohi 2-hour instant delivery) versus those whose orders were fulfilled with standard UPS/FedEx 3-5 day ground.

Because immediacy and convenience are so valuable, instant delivery helps merchants grow in a major way.

BUT (and this is a big “BUT”) – it can only do that if customers select instant delivery at checkout. And therein lies the rub.

Brands that charge for instant delivery consequently have fewer customers choose instant delivery at checkout—thereby forgoing the retention/growth boosts they would have otherwise enjoyed.

Does it make sense to charge for instant delivery?

New research from Ohi shows that Ohi-enabled merchants that price instant delivery either (1) free, (2) free above an order amount threshold, or (3) in line with their standard shipping, have instant delivery picked five times more often than when instant delivery is priced higher than standard shipping (e.g. 3-5 day ground).

What’s more, merchants that (1), priced instant delivery this way (i.e. free, free above a threshold, or in line with standard shipping), and (2), had been optimized* on the Ohi platform, saw on average a 26% increase to repeat purchase rate (when orders shipped via Ohi 2-hour/same-day/next-day instant delivery vs. standard delivery), while those that priced instant delivery higher than standard shipping saw no improvement in repeat purchase rate.

When you consider how cost-effective instant delivery can be for many brands (e.g. learn how Greater Than saves 20% with instant delivery versus standard ground shipping), it’s not hard to see that charging more for instant delivery is counterproductive to increasing profits.

If this loss in potential ROI from not getting selected in checkout and the cart abandonment mentioned earlier aren’t enough to dissuade you from marking up e-commerce delivery, consider this piece of research: when retailers charge a high shipping fee relative to product price, shoppers believed retailers did so to earn additional profit (rather than simply to pass shipping costs on to the customer). It’s not a great look for any brand that aspires to be customer-first.

The overall implication here is that brands should strongly consider offering “fast and free” e-commerce delivery, allowing more customers to enjoy the best customer experience and setting the stage for increased retention and business growth.

How to offer free shipping

Now that we’ve established that “fast and free” shipping is great for conversions, amazing for customer retention, and can more than pay for itself, here are some pointers on how to make free shipping work for your brand.

Streamline the number of shipping options you offer in checkout to prevent choice paralysis and to ensure your customers easily find the option that’s best for them

OLIPOP has seen a 150% increase to CLV through “fast and free” Ohi instant delivery. This simple and clean shipping screen is optimal.

Too many choices can lead to abandonment, and the lack of an Ohi instant delivery option here results in cost-prohibitive expedited shipping costs.

If margin is a concern, consider including your average shipping cost as part of the product price, especially if you primarily sell DTC or if you are selling hard-to-find or highly unique products. This allows you to benefit from the “zero price effect” with free shipping and avoid preventable cart abandonment. Plus, your customers may not “feel” the additional dollars as much when they’re baked into the product pricing.
Free shipping with order minimums: If you’re concerned about losing money by giving away free shipping for low-value orders, you can simply set an order minimum for free shipping. Free shipping above a basket threshold can serve as a powerful incentive for customers to buy more from you, while protecting your bottom line.
Promote free shipping. (“If a tree falls in the forest…”, etc.) If the goal is to maximize sales, you need to be committed to letting shoppers know you offer free/”fast and free” delivery. A few common places to highlight this: website ticker (a horizontal announcement bar at the top or bottom of the screen), homepage leaderboard or box banner, product page (near add-to-cart button), in checkout, marketing emails/SMS, on social posts, and in paid advertisements.

At Ohi, we’ve flipped the script for e-commerce fulfillment, transforming it from what is traditionally seen as a cost center into a growth engine. Brands join the Ohi platform to deliver powerfully fast, brand-focused, and memorable post-purchase experiences that enable them to grow. Want to learn more about how Ohi enables instant commerce? Get in touch today.

_{*Merchants “optimized on the Ohi platform” are those with at least 200 orders shipped via Ohi instant delivery in the last 30 days and an efficiency rate greater than 30%. Efficiency rate is the percentage of Ohi clients’ orders within Ohi’s serviceable zips that Ohi does fulfill.}

E-commerce Shipping 101: A Guide to Fulfillment Pricing, Costs, and Key Strategies

Aiza Chaudry

August 5, 2022December 9, 2022

Insights

What are e-commerce order fulfillment services?
What are e-commerce order fulfillment costs?
How to calculate your e-commerce order fulfillment and delivery costs?
Need faster e-commerce fulfillment? Choose an instant delivery platform.

At a glance, e-commerce order fulfillment and delivery may not seem like the most significant cogs in your business, but that is where much of the post-sale magic happens. You can have the best product in the world, but without an optimal fulfillment/delivery solution, your business will soon be out of the running.

There is a wide range of fulfillment providers and solutions to choose from, from third-party logistics companies (or 3PLs) and carriers like FedEx to instant delivery platforms like Ohi. Therefore, understanding the spectrum of different fulfillment solutions and how much they will cost you is crucial to your e-commerce success.

Whether you’re a fast-growing brand that’s ready to expand nationwide or you’re just getting started, this guide will help you understand several of the most popular approaches to e-commerce order fulfillment and how they differ from a cost standpoint.

1. What are e-commerce order fulfillment services?

Fulfillment services entail a bunch of steps carried out by one or more fulfillment companies to get orders delivered to the end customer.

Typically, if you hire a 3PL or a fulfillment partner, your business will be charged fees for each of these services and will be invoiced as part of the total fulfillment cost. Some services, such as pick and pack, may be further subdivided into different charges depending on your business needs.

Want to learn more about e-commerce order fulfillment services? Check out our straightforward guide.

2. What are e-commerce order fulfillment costs?

Put simply, it’s all the money you’ll spend on delivering an order to the end customer. The cost of fulfilling an order is determined by various factors such as receiving and storing products, processing orders, and shipping orders.

Typically, order fulfillment costs will vary depending on the provider, order pricing models, and any additional services.

The fulfillment fee comprises the following bulleted workflows:

Receiving/storing inventory
Order processing
Picking/packing
Shipping
Reverse logistics

Many popular third-party logistics providers charge an additional surcharge on top of the standard fulfillment fee for SKUs that contain batteries or hazardous materials.

3. How to calculate your e-commerce order fulfillment and delivery costs?

Fulfillment and shipping costs can seem like a black box at first, but understanding how your costs accrue and what each cost is will offer you better control over your budget and enable you to confidently use fulfillment as a growth lever.

In addition, you’ll have a better sense of where and how to distribute your inventory and which fulfillment solution(s) will be the most business-friendly, given your specific product and demand characteristics.

Let’s take a look at the pricing models for some of the most common e-commerce fulfillment and shipping options out there.

3.1 Pricing model for traditional 3PLs (third-party logistics companies)

Fulfillment fees vary from 3PL to 3PL depending on the services (you choose), their billing system, and their rates. But some fulfillment companies charge on a monthly or time-based basis, and many others charge on an order-by-order basis. For example, with Amazon, your biggest expense might be storage fees, which are typically premised on bin, pallet, or size and can add up quickly if products are left in the warehouse for an extended time.

A traditional 3PL houses your inventory in their warehouses or fulfillment centers, picks, and packs, and delivers products to your customers. If reverse logistics is a part of your contract, then they manage product returns as well.

When choosing a logistics partner, remember to base your decision on the services a 3PL offers and carefully consider its pricing model. These days, many modern 3PLs deliver orders from several distribution centers to minimize travel time and costs, enabling delivery in 2-5 days, for example. Here’s a leading 3PL’s approach to pricing, for reference:

Delivery fees: These costs will vary based on the following order/parcel characteristics. This variability can make it hard to forecast and plan expenses, especially if there is great variability in the product mix and/or demand patterns:
- destination
- weight and size
- dimensions
- shipping speed, etc.
Pick & pack fees: These costs are often rolled into fulfillment costs but can be a standalone expense too. The fees will vary from standard packaging (e.g., generic poly mailers and boxes) to branded packaging.
Storage fees: Storage fees are determined by the amount of space required to keep your items safe in the warehouse. The pricing model may differ depending on the fulfillment provider and the product.
- The per-pallet pricing model is considered the most cost-effective option. (With monthly rates ranging from $5 to $20.)
- When you need to avoid ’empty space,’ the per cubic foot of space model is used. (The monthly cost for this particular example ranges between $.30 and $.60.)
- The per bin model is used for quick fulfillment and costs between $1 and $2.50 per month.

Some other fees associated with fulfillment

Setup fees: there’s usually a one-time onboarding fee. Some companies charge a flat rate while others base the setup fee on the type of inventory they need to deal with, along with other factors from intake to delivery.

3PLs often calculate an item’s monthly storage fee by cubic foot, which is important to consider if your products are large. Besides that, fulfillment services may charge additional fees for temperature control (cold chain, for example) or fragile items in some cases.

Inventory receiving and intake fees: typically cover the process of receiving a new inventory and sorting it at the warehouse. These fees can be charged in two ways:
- Per hour
- Per-unit basis
Kitting fees (if applicable): the fee associated with bundling individual products into ready-made sets or ‘kits’. Kitting is provided as an add-on by many 3PLs.
Reverse logistics fees: costs associated with restocking or disposing of returned items. Some 3PLs accept returns on your behalf, while some don’t.

3.2. Pricing model of carriers (i.e., UPS/FedEx)

If you decide to fulfill your own orders and partner with a carrier such as FedEx or UPS for last-mile deliveries, bear in mind that each carrier service provides a smorgasbord of e-commerce shipping solutions with varying pricing, giving you different options based on your budget and requirements.

Here’s how a carrier typically calculates charges:

Your shipment’s origin and destination
- Generally, the farther your shipment needs to go, the more zones it has to travel to reach the end customer, the more you’ll pay to ship it.
- FedEx, USPS, and UPS create their zone lists by dividing the country into seven shipping zones (as shown in the table below) to calculate the distance a package travels from origin to destination.
- These zones impact both the cost and delivery speed of your packages. Here’s a breakdown of shipping zones for FedEx and USPS:

Shipping Zone	Mile Radius (from origin)
Zone 1 (local)	50 mile radius
Zone 2	51 – 150 mile radius
Zone 3	151 – 300 mile radius
Zone 4	301 – 600 mile radius
Zone 5	601 – 1000 mile radius
Zone 6	1001 – 1400 mile radius
Zone 7	1401 – 1800 mile radius
Zone 8	1801+ mile radius

Package type, dimensions, and weight
- The delivery service you pick will decide the price you pay.
- The size and weight of your package also impact your shipping cost.
- Carriers such as FedEx and UPS calculate prices using either the dimensional weight (dim weight) or the actual weight of the package—whichever is greater.
- Usually, the bigger and heavier your shipment is, the more it will cost.
Other factors that affect shipping rates
- Shipping/delivery prices can be affected by factors like:
  - Fuel costs – carriers such as UPS and FedEx apply fuel surcharges to the base transportation rate.
  - Delivery and pickup conditions such as any areas outside the carrier’s range (rural, hard-to-access, or remote), or weather constraints causing the delay.
  - Special handling requirements for products that are fragile, large, heavy, climate-sensitive, or have special storage needs.
  - Holiday package volumes.

Now that you have a better understanding of how carriers price shipping, below is a list of shipping calculators for some of the most popular shipping carriers to help you find the most cost-effective option for your business needs.

But before you choose a shipping carrier, it’s helpful to know the answers to the following questions:

Where are you shipping to?
Where are you shipping from?
What products are you shipping? Are your products heavy?
What type of packaging will you use? Standard or branded?
Have you determined a budget? Do you intend to offer free shipping, flat-rate shipping, or exact-cost shipping?
What do your customers anticipate from your delivery policy? Do they want their order to be insured, or do they have specific delivery deadlines?
How will you handle the other aspects of e-commerce fulfillment, including storage, pick & pack, and more? Will you need to team up with third-party logistics (3PL) providers?

Once you have the answers to these questions, you can then move on to select a carrier to ship your e-commerce orders—or several, if that’s what you think will work best for your business. Many businesses employ a mix of several carriers to improve coverage, keep an aspect of cost competition between carriers, and optimize delivery speed.

One important thing to keep in mind with regard to traditional carriers like UPS/FedEx is that despite relatively mediocre delivery speeds (3-5 day ground, for example), prices can quickly get expensive based on distance traveled (related to fuel costs). And if you’re looking to ship expedited via UPS/FedEx, jet fuel costs can often catapult shipping costs into the $100+ range per order, particularly if your products are heavy/large.

That’s why micro-fulfillment based platforms like Ohi exist – to offer instant delivery (2-hour, same-day, next-day) at a reasonable cost. Ohi achieves great speed and efficiency by forward-positioning inventory in major cities, near the end customer.

Need faster e-commerce fulfillment? Choose an instant delivery platform.

If your e-commerce brand already enjoys substantial nationwide order volume, you could be eligible for an instant delivery platform like Ohi’s, enabling much faster deliveries and setting the stage for improved conversions, customer lifetime value, and repeat purchases. A successful e-commerce business is a consistent orchestration of pre and post-sale operations. With delivery standards continuously being raised by the likes of Amazon and customers demanding faster shipping, your direct-to-consumer business might consider adding instant delivery to your existing fulfillment strategy.

For instance, with Ohi’s instant delivery platform your e-commerce business will enjoy the following:

Ultrafast two-hour, same-day, and next-day delivery
Simple, flat-rate pricing, regardless of weight, parcel size, etc. for deliveries in Ohi metro areas, due to hyperlocal micro-fulfillment centers
‘Pay as you go’ monthly storage fees
Fewer fuel surcharges (since last mile fuel consumption is very low)
Competitive per-order pricing inclusive of pick & pack, last-mile delivery, and live ops/CX support/account management
Reduced packaging costs due to micro-fulfillment (i.e.: less travel distance)
Keep your current 3PL; Ohi can layer on to your existing fulfillment strategy to provide delivery speed where it matters most.

If you want to learn more about Ohi, get in touch here.

Oh, Hi Florida

Ohi Team

July 26, 2022July 26, 2022

News

We’re excited to announce that two-hour, same-day, and next-day delivery are now live in Florida.

Ohi’s latest expansion initiative brings instant delivery (next-day or faster service) to the majority of residents in the Sunshine State!

If you have any questions or would like assistance enabling instant delivery for your Florida customers, please reach out to your assigned Ohi rep or contact us here.

Checklist: How to Create the Ultimate E-Commerce “Post-Purchase Experience”

Ohi Team

June 15, 2022June 24, 2022

Free Resources

DOWNLOAD FREE

Increasing retention rates by just 5% can increase profits more than 25% in some markets. (source: Frederick Reichheld of Bain & Company)

In e-commerce, optimizing the “post-purchase experience” – or what happens after checkout – is critical to turning first-time customers to repeat buyers, growing order frequency and AOV, and subsequently reducing operating costs.

Download our checklist to understand best practices relating to:

How to set up post-sale communication/engagement
How to create a delightful delivery experience
How to offer a high-end customer service and support
How to win customers with gifts and incentives

Ohi Accelerates Expansion with Launch of Ultrafast Delivery in Four New Markets

Ohi Team

May 11, 2022December 12, 2022

News

Company Grows Its Network of Micro-Fulfillment Centers to Serve Seattle, Philadelphia, Dallas And Austin.

NEW YORK–Ohi, the next-generation instant commerce platform that enables brands to meet their customers’ expectations of superfast delivery in under two hours, today announced that it has expanded into four new markets: Seattle, Philadelphia, Dallas, and Austin. The company has identified significant demand for ultrafast, hyperlocal delivery of its brand partners’ products in these cities and has grown its network of micro-fulfillment centers to offer quick, convenient delivery options to customers in these areas.

“We’re committed to helping power our brand partners’ growth by providing an excellent, on-brand instant commerce experience that includes quick and convenient delivery options,” said Ben Jones, Founder and CEO of Ohi. “To help our partners reach and convert new customers, and drive loyalty and engagement among their existing customers, we’ve expanded our instant commerce platform into four new markets where our technology has identified exceptional demand for instant commerce.”

With its recent expansion, Ohi now offers instant commerce services in 12 major US metro areas. The company’s inventory and order management platform provides SKU-level demand intelligence that allows its brand partners to optimally position inventory closer to their end customers. Ohi is committed to providing carbon-neutral delivery and its micro-fulfillment centers ensure that e-commerce orders travel only a short distance to arrive at consumers’ doorsteps. Ohi further minimizes its carbon footprint by using reusable, sustainable packaging and bike, e-bike, scooter, and foot couriers whenever possible. The company also offers a carbon-neutral e-commerce fulfillment option to its merchant partners and their customers.

“Ohi’s asset-light platform enables us to expand into new markets with minimal overhead costs,” added Jones. “This is just the start of our aggressive expansion strategy that will enable us to provide an instant-commerce experience that covers close to 45% of an e-commerce company’s overall demand by the end of the second quarter.”

Ohi’s instant commerce platform allows brands to offer best-in-class post-purchase experiences while retaining complete control of their brand story, data, and customer relationships. For more information, visit Ohi.com.

About Ohi

Ohi is the leading instant commerce solution for direct-to-consumer and enterprise brands looking to grow their business by enabling powerful post-purchase experiences. Leveraging its proprietary, data-driven inventory management technology and robust micro-warehouse platform to forward position inventory within city centers, Ohi enables brands to offer a premium, environmentally responsible, instant, or scheduled delivery experience to their customers.