One of the biggest expenses facing Ebay and Amazon sellers is postage costs. However, reducing this costs almost always seems near impossible.
We all know that FREE postage is actually NOT free.
As it’s included in the product price which in fact has a negative buyer experience especially if they are buying more than one product. However, Ebay and Amazon will tell you otherwise.
Do you really think Amazon and Ebay are doing this for the good of the customer?
I have my own views on this and something which I have argued with Ebay and Amazon for years. However, I am small fry to them, and my opinion will never count.
My view is that Amazon and Ebay are looking to protect their own interest and that is the final percentage fee they charge on the sale of the product.
To the customer is seems like a great deal but in fact it’s False advertising.
We all know that it’s much more profitable to have multiple purchases in a single transaction. The reason behind this is because one transaction normally means one package, one invoice, one label, one mail bag or box and one postage cost.
But by offering free postage you are over pricing your product, and it’s less likely to attract a multiple quantity purchases.
Before you jump down my throat to say this is not true.. Let me explain a little bit more.
If you are selling a product which has a RRP of £3.99 + postage. Postage may vary depending on the weight and the size of the product. But for the sake of this example lets say it’s a small package. Currently you will be looking to pay around the same price for postage depending on how you post your packages.
So the if the customer makes one purchase of £3.99 + £3.99 for postage they are paying £7.98 in total.
Straight away the product price does not seem attractive especially if it’s something you can buy locally. Ok, we can take into the account the time it would take you to do so. So, taking into account comfort shopping than it’s worth it.
If the customer wanted to purchase 3 of the same items and they all could fit in the same box the price would be: £15.96.. Now the customer is really getting something of good value and is more inclined to make a multiple purchase of the same product as he or she is only paying one postage cost.
Now let’s add free postage into the mix.
Free postage would not make any difference to the single purchase.
However, if the customer wanted to purchase 3 of the same product the price will look like this: 3 x £7.98 = £23.94
You have now overcharged your customer by £7.98
Ok you could refund the difference to the customer.
However, Ebay and Amazon both offer punishments for high refunds rates!
So, not very advisable form of action!
As you can see postage plays a big part in the overall success of all the businesses involved.
Postage costs for Ebay and Amazon sellers are normally the second largest business expense they face each and every year.
Royal Mail for one has had to make changes to it’s internal structure in order to deal with the ever increasing packages. Don’t forget Royal Mail was a letter delivery service not that long ago. Now, they deliver more packages than anything else.
Hat’s off to them as they have done a great job in making the necessary changes to keep up with the ever changing online world.
What changes can you make to decrease your second biggest business expense?
Let’s start with your inventory.
What are your most profitable and least profitable items?
You might straight away think – it’s the ones which have the highest margin!
Let me STOP you at this point as this is not always that true.
The profit of the product is measured in many different ways – especially if you are a high volume seller operating on very tight margins. However, it does also apply to most other business models on Ebay and Amazon.
The product profitability starts from the first point of purchase.
Some of the questions you have to ask yourself:
- How long does it take me to source this product
- The area the product takes up in your warehouse
- The time and effort required to unpack, and re-pack the product
- Shelf-life of the product
- The Price V Quantity at which you have to purchase the product in order to stay competitive
- The time it takes to pick, and pack ready for dispatch
- The quality of the product based on product complaints, returns and refunds
As you can see it’s not a simple process to determine if the product is profitable!
This might be much easier to spot if you are a low volume seller. However, for sellers who are pumping out 1000s of package each month – than these figures are easily lost in the large numbers of transactions.
It’s much better to work smarter than harder.
The best solution is to create a spreadsheet with a formula to keep track of your overall product expenses. If the product has a low overall profit margin – than it’s time to either drop it or look for an alternative.
Another biggest issue facing online sellers when it comes to postage costs is the size of the package and the complexity of packing it.
If you are large volume seller than pumping out packages quickly and cost effectively is the best way forward.
How can you achieve this?
I recommend you start by working out the cost per minute of your packer or yourself. For example if you pay someone £10 per hour to pack. You would divide £10 by 60 minutes to get £0.16p per each minute.
If the package takes 3 minutes to pack than it will cost your business £0.48p extra to get that package out to the customer. Did you calculate these figures into your selling price? Probably not!
On the other hand you might have packages which only take 30 seconds to pack costing you £0.08p in packing time based on the above hourly rate. This means you can complete 6 packages in the same time it would take you to complete 1 package which takes 3 minutes to pack.
Can you see where I am heading towards?
To conclude it’s much better to have products which can easily drop into a mailbag within few seconds than the ones which require extra packing materials and protection. This costs money in the packing materials as well as the packing time.
Always work smarter and look to drop products which are to complex to process. It’s much better to focus on a smaller number of products with high profitability than 1000s with smaller margins.
As I am on the subject of packing I would also like to cover the difference between Large Letters and Small packet costs.
I am sure you already know it’s much cheaper to post a Large Letter, than a Small Parcel via Royal Mail. Well, this is another important aspect of cutting back your overall postage expenses.
It’s much easier to post 100 Large Letter, than it is to post 100 Small Parcels.
Would you not agree?
By optimising your inventory to include more Large Letters than Small Parcels you will automatically start to see a reduction in your postal costs. This is working smarter rather than harder!
Do you have the right account in place for your postage needs?
I know many of you will still be dropping your packages off at your local post office. This is very time consuming, and not very cost effective.
If you are serious about your business and want to grow than you really need to contact Royal Mail Business and open a OBA account. They look for a turnover of around £5000 per year. Which is very easily achievable and normally they are not very strict if you don’t meet this target in the first year.
If you don’t have a Royal Mail Business OBA account you are throwing money down the drain.
If you do have Royal Mail OBA account than you need to make sure you are getting the best prices possible.
Speak to your account’s manager and see what targets you need to achieve to get reduction for your large letter and small parcels. You might be very close to this target – so it’s worth knowing and working towards this discount.
Another benefit of Royal Mail Business account is that it’s much easier to get your packages out.
For one you don’t have to go to your post office and wait for each and every package to be processed.
With Royal Mail Business OBA you will get your stamp which will have your own PPI number. You work out the average weight of each package or large letter and complete a very simple Order Form via your OBA account.
You can than either drop the packages at your local post office, or arrange a collection from your office.
The benefits of Royal Mail OBA account are just massive. If you don’t have one – than you are missing out big time.
Another important factor in cutting back your postage costs is 1st or 2nd Class Stamp.
This really depends on your business model and what you see fits your customers demands better. However, in most cases as long as advertised correctly posting via 2nd Class stamp is much more cost effective, and will usually not have a massive impact on your overall turnover.
The best way to test this is – do a trial test on a selection of your products, and see the outcome. You might be surprised!
I hope this article has been helpful to you and please feel free to subscribe to my blog to receive even more great articles such as this.