Calculate shipping for FBM
You need to calculate shipping for FBM before you can really consider the switch. Right now a lot of FBA sellers are thinking the same thing, and it can be a bear to navigate. This is the first in a series of posts by our CEO to share real world knowledge about making the transition.
Calculating shipping costs before listing a product is a great idea, but how exactly? I‘ve seen advice telling people to use USPS’s website… and that’s just flat wrong. I’m sorry, but that’s about as useful as an elevator in a single-floor house.
Amazon’s rates are just too competitive, right? There’s no way to compete… That’s only partially true. In this article we’ll cover some of the finer points of shipping your own merchandise. We aim for this article to be useful for anyone curious about shipping, whether on their own or with a fulfillment center. You may find the Amazon FBA advantage is more marketing content than you realize.
Use the right software and tools
Many people are flocking to the basic USPS, Fedex, or UPS websites to calculate shipping for FBM. This isn’t useful. It’s worth the time to set up something like GoShippo or Shipstation that will help you compare rates. GoShippo costs practically nothing for the base tier and ShipStation is free to try. Both tools will allow you to bring your own negotiated rates, integrate with your Amazon store, and help manage the shipping process.
The author is not promoting these tools for any reason other than they work. We use both of them at LDR, and we’re not receiving anything for mentioning them.
We’ll dig into what software is best for FBM, pros and cons, in a future article. For right now, anything is better than nothing for comparing rates.
Prices and Cost Comparison
Without getting into a detailed comparison between GoShippo and Shipstation, there are a couple major differences in their cost structure.
GoShippo charges you $0.05 for each label you generate, but does not have a monthly fee. It also comes with a built-in USPS Commercial Plus account that auto-bills you after you buy postage.
Shipstation doesn’t charge a per-label fee, but they charge monthly based on how many packages you ship. You have to bring your own USPS account (but stamps.com makes that easy). It’s a small difference but if you’re shipping hundreds of packages every day it might matter, so do your math.
Negotiated rates: what they are and why you need them
Negotiated rates are specially structured pricing plans with a carrier based on shipping volume and characteristics. Put simply, there are retail rates and negotiated rates for just about every carrier. Retail is what you’ll see advertised online, and what you’ll pay at a post office, UPS store, or most carrier websites. These retail rates aren’t for commercial use! Do not use them for calculating your costs, or you’ll just scare yourself! Even the worst negotiated rates are usually 20-30% better than retail.
Retail rates factor in a whole bunch of customer service expenses you won’t be incurring for the carrier. They’re paying for the desk clerk and a multitude of other things you don’t need. Negotiated commercial rates are for you, a professional shipper.
What’s a negotiated rate look like?
I ship a lot of the same size package every week to the same place in Texas, using Fedex. Fedex gives me a specially discounted rate for those shipments. It’s sort of like a frequent shopper discount. When I ship packages of that size range anywhere in North America, but especially Texas, I get a discount much lower than retail. My contract with Fedex prevents me from revealing how much of a discount, but I can say it’s very good.
How do I get negotiated rates?
If you’ll be shipping very small items using USPS, skip this section for now. USPS works a little differently.
The first thing you need to do is contact UPS or Fedex and open a commercial account. They’ll put you in touch with a sales rep who’ll ask a lot of questions about your volume, and it can be like a chicken and egg situation. They will try to negotiate about the current volume you have, which is probably zero since you’ve been using FBA. They’ll want to know how many shipments per day, average package sizes and weight, and other things.
Just be honest with the rep and explain what’s going on. Offer to show them your Amazon FBA sales volume and explain you’re considering switching. They may be more excited to hear this than you expect. If possible, have the shipping dimensions of your products on hand. It’s even better if you can generate a spreadsheet listing everything you’ve shipped through FBA over the last 90 days. UPS and Fedex don’t care about the revenue you’re making, they only want to see size, weight, frequency, and destinations.
Generally, they’ll give you a grace period discounted according to the volume you’re promising. It’s usually about 30 days. If that happens, get your account set up and start shipping! As long as you prove you can really hit the volume you say, you’ll get deep discounts compared to the retail rates. If you exceed the volume you promised your rates will improve, too.
How fast can I move forward?
In my experience, this is not a super fast process. From the time you contact a carrier to the time you’ll first be able to ship is not usually less than a week. That’s why you should get started. There isn’t really a risk, as the carrier contracts don’t typically bind you to anything if you decide not to use the service.
Getting the best rates
The best rates come with a shared shipping address and homogeneous volume. In layman’s terms, the best rates are for packages all shipping from or to the same place, and all about the same size and weight. This is the real reason fulfillment centers often have the lowest rates, and why they may use multiple carriers. Amazon doesn’t offer a choice between carriers for customer convenience. It’s because they have different negotiated rates based on package characteristics and delivery times. If you ever wondered why they ask about carriers in Seller Central, but not when you purchase items… now you know!
The part about packages all shipping to or from the same place… that’s why a lot of people use fulfillment centers. A fulfillment center, in the simplest form, is one shared point of origin used by a lot of people. Many companies offer this as a service, but it’s also something you could do with Amazon sellers in your neighborhood. Trying times lead to interesting solutions, as they say.
One thing for sure: do not try inflating your volume or over-promising to your carrier. It’s a zero-sum game and just wastes everyone’s time.
USPS: the odd duckling
USPS isn’t like UPS or Fedex. They don’t really have negotiated rates. Instead, they have three tiers of service called retail, Commercial Base, and Commercial Plus. Something about their government charter prevents them from having negotiated contracts with individual business, except under very special circumstances. So, how does that help you?
just about anyone can get the best USPS rate tier, Commercial Plus, in under 20 minutes
Just about anyone can get the best USPS rate tier, Commercial Plus, in under 20 minutes. Unlike UPS and Fedex, USPS has no issue with 3rd party sales. If you sign up to Stamps.com or GoShippo.com you can access Commercial Plus rates right away. GoShippo can even integrate into your Amazon store directly, and Stamps.com works well within ShipStation.
Your largest barriers to entry will probably be learning new software and getting the post office to pick up your packages in a sane fashion.
USPS: Pickups will be fun
In my time, I’ve operated warehouses in four different locations… each time, USPS has been it’s own special kind of fun to deal with. Every post office seems to have it’s own quirks. Just know going into this, you may need to relentlessly hound your local post office about your needs. To really illustrate what I mean, allow me to share a short story.
In 2017 I managed a warehouse for another company who decided to start shipping FBM, and we were totally slammed during quarter four. I’d expected this and spoken with our postal carrier, who said they offered no pickup services at all. We were just supposed to give him the packages every morning. That didn’t make a lot of sense, but he insisted it was impossible to handle it any other way. I called the post office and asked about the situation, and they told me they’d send a second driver in the afternoon. That sounded fine to me… until it didn’t happen.
Around 5pm every day we’d all load up cars and drive down to the post office, and start carrying packages into the lobby, leaving them on the counter. There wasn’t any reason for us to wait in line, because it was all prepaid. They even had a sign confirming that. After about the 3rd time we did this, they gave us access to their rear loading dock. Some more fun went on, but eventually we got them to start picking up the mail like they’re supposed to. A long campaign of shifting the inconvenience back onto them was how we achieved that.
Your experience might be different, and I hope it is… Just know going into it, there could be more hiccups than you expect.
USPS: The special circumstances
Under special circumstances USPS does offer lower rates to businesses who offload some of their work. This is what UPS Mail Innovations, Fedex SmartPost, and DHL eCommerce are. The carrier is handling some part of the initial sorting process and some leg of the shipping, so they get a discount from USPS they can pass on to you. These services are complicated to use, and you should probably avoid them until you’re more experienced.
Each of these services follows some variation of this:
- You have to specially sort packages before you give them to the carrier
- The carrier delivers them to the regional post office closest to the destination
- The local post office delivers
Due to that process alone, your packing process is more complicated and tracking shipments can be a nightmare. Lost packages will be a blame game between the carrier and the USPS, and you can be stuck with the consequences.
All that said, if you’re shipping a few hundred packages daily the savings can add up quickly. In my experience, DHL eCommerce (they call it Expedited Max, if memory serves) can be 50 cents or a dollar cheaper than USPS First Class in some cases.
How do I calculate rates before listing to FBM?
You will need a few things: access to negotiated rates of some sort, the size and weight of your product when packed for shipping, and an address clear across the country from you. It’s not a bad idea just to use the three largest cities farthest away from you to get a decent range of expected prices.
If you’re unsure how you’ll pack your product, there are a few ways to handle that. 3dBinPacking.com has a great tool for this, but you have to input a list of all the packing materials you have available. Their algorithm can help you figure out the most efficient way to pack your items, so you have something closer to a real plan. Alternatively, LDR offers a front end to 3dBinPacking’s service that comes with a lot of common materials (and costs) built in, and it’s available to our customers upon request.
A few things to be aware of when calculating rates:
There are many things I see people get wrong starting out, so here’s a list of what to be aware of. If you don’t pay attention, these things can make or break you.
Carriers have a concept called dimweight. You might be familiar with “billable weight” in Seller Central… this is the same thing, and the industry term is dimweight. Basically, postage is calculated based on the weight or physical size of your package, and the greater is always used. Each carrier has their own formula to calculate this, and it’s worth learning.
Commercial vs. Residential
Delivery to commercial addresses is cheaper than residential, another thing Seller Central and FBA typically hide from sellers. When shipping to an address, be sure to correctly select whether or not it’s residential. Fedex uses the same truck for both, but if you buy cheaper commercial shipping for a residential address you’ll get a surcharge on your invoice.
Don’t fudge dimensions
Many people will round down on dimensions or input lower ones to achieve a lower up-front price. In the long run, this hurts you. First of all, you’ll still have to pay the full price for it most the time. Besides that, Fedex or UPS will raise your rates or ding your account if you do it very often. USPS will refuse to deliver your packages unless your customer pays the difference in cash… not something that generates great reviews!
Make sure your packages are hard to crush
A crushed package can cause an instant delivery surcharge. Make sure your packages are sturdy enough they don’t bulge out or flatten significantly when weight is stacked on them. If your package is deformed before it goes through a laser dimming machine at a carrier hub, you might get flagged for a higher rate.
Consider pickup fees
You will to schedule regular carrier pickups with the carrier(s) you use. This costs about $100 a month for each carrier, and the rate can change based on your volume. You will want to do this, because taking your packages to the local carrier store yourself is usually a waste of time.
Should I make the switch?
I can’t answer that for you. Right now, while FBA is backed up, it can be a choice between sales or no sales. In that environment, it’s a simple decision for many. You might not be able to match Amazon’s rates, but you can still get product to your customers. Feel free to reach out to us about any questions you have! We’re here to help.
At LDR we are rapidly scaling out our fulfillment capabilities for those who want to outsource, but we can’t help everyone. Let us know your struggles, and we’ll do the best we can to help. If you’re doing this from your garage or own warehouse, we can help you get the equipment you need and share some valuable knowledge.