October 31, 2018
You’re starting a business. It’s the most exciting way to turn your passion into your living. We’re moving faster and faster into a gig-based economy, and resources like crowdfunding platforms make it easier than ever to take your idea viral.
However, with great opportunity comes great challenges. Despite the excitement of being your own boss and starting a campaign, as a company that produces goods rather than services, you need to ship a physical product. While order fulfillment and shipping aren’t usually top of mind, and while branding and audience targeting are a lot more fun to think about, it’s never too early to think about logistics. Supply chains and operations can be complex, so we’ve come up with a few pointers to help the new generation of entrepreneurs.
Logistics Is a Must From Day One
If you’re dreaming of starting a company, you’re probably thinking of creating and selling a product (imagining how that product will get from Point A to Point B isn’t usually part of the dream, in our experience). Before you get into the nuts and bolts of bringing your product to life, it’s worth spending some time thinking about the logistics and what has to happen behind the scenes in order to deliver your future product. Focusing your attention here early on can save you huge headaches down the road.
Getting your product from the factory floor into the hands of customers in a cost-effective, efficient way requires a host of considerations and decisions. Factors such as shipping batteries and dimensional weight come with extra challenges and can blow up shipping costs. Even certain countries are much easier than others to ship to/within. By taking variables like these into account now, you can get a ballpark figure of what it will cost to ship your product. This is critical because you can use it to determine your profit margin, which ultimately will influence the retail price of your product. Things to think about:
- Consider who you want to make the product available to and what it takes to get the products to that customer, including shipping costs, local customs and duties, taxes and other regulations.
- Keep fulfillment in mind during the design stage, taking care to understand that dimension, weight and product composition (if hazardous or containing batteries) will have a direct and possibly heavy impact on your fulfillment costs. Evaluating packing and box size factors early on is also smart.
Learn to Price Like Amazon
As you know, shipping costs from entrenched retail companies like Amazon and Newegg are very low, even for small-ticket items. Startups can learn a thing or two from these examples and set their own prices accordingly. There’s a lot that we as consumers don’t see about these companies’ pricing models, but understanding how they work can help you price effectively and sell more.
People like free shipping or $5 shipping, but that’s not actually how much shipping costs. When shipping is cheap, it’s because the cost of order fulfillment is accounted for in the cost of the product — it has to be. If costs were distributed, a product might retail for $20 + $10 shipping. However, making a purchase that’s straightforward, where the product is interpreted as having more value and shipping is perceived to be free is more attractive to shoppers. So rather than a $20 product with $10 shipping, list the price at $30 flat with “free” shipping and customers will feel like they’re getting a better deal. Put simply, bake fulfillment costs into the asking price of your product.
Your New Mantra: Shipping Is Critical
Simply realizing how critical shipping is to the equation of being an entrepreneur is an important step toward success. You might be building the most incredible product in the world, but if you cannot fulfill customer orders professionally and expediently, it’s all for naught. Set realistic expectations from the start, be honest and realistic about product delivery timelines when communicating with campaign contributors or advertisers — and be flexible. Maybe it makes sense to hire one fulfillment provider to handle your initial batch of backorders and to use another provider for ongoing post-campaign orders. Even if you don’t use a crowdfunding platform to launch your product, it’s wise to be judicious when dealing with shipping and fulfillment and many of the tips above are still applicable. Figuring out your shipping and logistics plan may not be the most enticing part of starting a new business, but it might be the most important. Set yourself up for success by giving shipping attention it deserves, right from the start.