You're Ready to Sell. Now What?
Congratulations! Your website is live, or your social media shop is set up, and you're excited to begin selling your products online. However, a crucial part of your e-commerce journey that often gets overlooked is shipping. The world of shipping might seem complicated, but with a few basics in place, you’ll be shipping your products across the country in no time.
In this guide, we’ll walk you through everything you need to know as a new e-commerce seller about logistics and shipping. From packaging to cash on delivery (COD), to understanding Return to Origin (RTO) and shipping costs—let’s get started!
The Importance of Packaging
When it comes to shipping, packaging plays a crucial role in your product’s journey. The right packaging not only protects your product but also serves as a branding opportunity. In some cases, the packaging design, by itself, leads to a customer sharing the unboxing video on social media.
Durability: Secure packaging prevents product damage during transit.
Branding Opportunity: Unique packaging offers an opportunity to leave a lasting impression on your customers.
Cost Factor: All packaging comes with a cost. It’s important to include it when calculating product cost. If repackaging is necessary, include it in RTO cost.Â
To dive deeper into how you can optimize your packaging strategy, check out our comprehensive guide on the impact of packaging.
Cash on Delivery (COD): Should You Offer It?
Offering COD can be a great way to attract customers who prefer to pay upon delivery. However, it's important to weigh the benefits against the potential drawbacks. Here's a breakdown:
Pros:
Increased Sales: COD encourages customers who may be hesitant to pay online.
Larger Customer Base: It appeals to a wider audience, including those who prefer traditional payment methods.
Cons:
Increased Costs: COD transactions can add costs ranging from INR 21-35 per shipment or 1.5-2% of the product value. The complexity of cash handling and risk of cash leakage are also significant considerations.
Increased RTO (Return to Origin) Rates: Customers may refuse to accept the package upon delivery, leading to losses. Chances of this happening increase with an increase in lead time from order placement to delivery attempt, and also depend on how much the customer needs the product.
Delayed Cash Flow: You receive payment only after the order is delivered and accepted, which can strain cash flow.
While COD remains a dominant payment mode, especially in tier-II and III cities, its operational complexities and costs can’t be ignored. However, faster remittance cycles and better cash handling, can help manage these challenges effectively.
Understanding Total Logistics Costs
Logistics costs are a crucial factor in determining your profitability. Here are the main components of logistics costs:
Freight Costs: The cost of physically transporting your goods.
Packaging Costs: The cost of materials used for shipping.
COD Costs: If applicable, the additional charges associated with COD orders.
RTO Costs: The cost incurred when an order is returned to you due to failed delivery.
Logistics costs can range from 5-15% of revenue depending on the product category and delivery model. Managing these costs effectively is key to maintaining a profitable business. Take a look at the chart below to see how Vamaship helps lower your costs by reducing RTOs and preventing lost sales.
To learn more about how to calculate your total logistics cost, and tips on reducing it, check out our detailed blog post on the math behind logistics costs.
Return to Origin (RTO): What It Is and Why It Matters
RTOÂ refers to when a shipment is returned to the seller, typically due to failed delivery attempts or customer refusal. This can be a costly part of your logistics, especially when you enable COD. Monitoring your RTO percentage and identifying trends (e.g., particular regions with higher RTO) is essential to minimize losses.
Challenges of High RTO Rates:
Financial Impact: Returns can significantly affect your profitability. As per a KPMG Report Return rates for e-commerce businesses can range from 15-20% of total shipments, and can go upto 40% for COD orders.
Operational Complexity: High RTO rates can lead to operational inefficiencies and increased workload for customer support.
Root Causes: Poor infrastructure, incorrect addresses, and failed delivery attempts, along with customer-initiated returns, contribute to high RTO rates.
Reducing RTO Rates:
Accurate Address Verification: Using advanced systems to ensure addresses are correct before dispatch.
Proactive Customer Communication: Letting customers know when the delivery will arrive and giving them the option to cancel or reschedule.
Stricter Return Policies: Implementing return policies that encourage responsible purchasing decisions.
The impact of high RTO can eat into your profit margins, but with careful tracking, analysis, and proactive communication with customers, you can significantly reduce RTO incidents.
Vamaship Advantage: Keeping Shipping Profitable
At Vamaship, we aim to provide new sellers with an edge over the competition. Here’s how we help you lower your logistics costs and boost profitability:
Industry-Best Rates: By aggregating multiple courier services, we help you get the most competitive shipping rates available.
Automated RTO Reduction: We offer address validation and customer communication tools to help lower your RTO rates.
Flexible Shipping Options: We allow you to ship across the country, with multiple service providers via Air & Surface, ensuring you always get the best deal.
Cash Flow Solutions: Our solutions include faster payment cycles to help you deal with delayed COD payments more easily.
The industry benchmark places logistics costs at 15% of revenue, with Vamaship you can drive this down, making your business more profitable from day one.
Final Thoughts
As a new seller, shipping may seem like a daunting task, but with the right logistics partner, it can be a seamless part of your operations. Vamaship not only helps you reduce costs but also provides the tools you need to manage NDR, COD and RTO effectively.
Whether you’re shipping your first order or scaling up, we’re here to help you every step of the way. Happy shipping!
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