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Improve your bottom line by optimizing your FBA shipments

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In business, there are only two fundamental ways to improve your bottom line:  (1) Sell more, or (2) Spend less.

Regardless of where you are in your business journey – whether you’re just starting out, are scaling up, or are finding ways to outsource and step back – finding ways to control your costs will pay huge dividends.

Many of the costs in your Amazon business are outside the realm of your control, such as Amazon’s selling, fulfillment, and storage fees.  One of the costs you CAN influence is your inbound shipping rates to Amazon’s warehouses.  It may not be the most glamorous topic, but let’s take a closer look at the numbers to see how you can optimize your listing workflow to shave a few dollars off your inbound shipping costs.  After all, every dollar you don’t pay to FedEx or UPS is one more dollar that ultimately goes back into your pocket.  Each of these dollars is another “employee” you can invest back into your business.

In today’s post, we’ll discuss the following:

  • How to minimize your per-pound shipping costs
  • Whether you should use UPS or FedEx
  • When you should consider LTL shipments
  • How location plays a role in your shipping costs, and when to consider “location arbitrage” to save some coin

How to minimize your per-pound shipping costs.

First, there’s a misconception out there that larger shipments quality for cheaper rates:image 1 blur

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Although a 40-pound box will certainly be cheaper per pound than a 10-pound box, there are no economies of scale to be gained by shipping 200 pounds at the same time (unless you get into the LTL or pallet world, which we’ll explore later on).  Here’s a chart which looks at the per-pound shipping rates for shipping weights from 5 pounds all the way up to 150 pounds:

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As you can see, the costs per pound don’t get progressively cheaper as the shipment gets heavier.  They drop as you max out the capacity of a single box (at 50 pounds), and then jump up a bit as you add a new box to the equation.  The cheapest rate (from Denver to Dallas, via FedEx) is $0.28 per pound, and that amount is achieved when you reach exactly 50 pounds in every box.  If you ship 80 pounds of books, your per pound rate will be $0.30, which would cost you $1.60 more for those particular books than if you waited until you had an even 100 pounds and could drive the per pound rate down to $0.28.  It may not sound like much, but a dollar or two on every single batch of books can add up to significant savings over the course of a year!

Since the cheapest per-pound rate can be obtained by maxing out a single box to 50 pounds, this paves the way to do “single box shipments” for every single batch.  If you close out every single batch after you fill a single box, you will eliminate the need to do box level contents and you will lower your chances of having to deal with split shipments.  Both of these benefits will save you time and money, further adding to your efficiency.  If you want to see my single box shipment workflow, check out this YouTube video.  If you use AccelerList or InventoryLab, be sure to use Private Mode to reduce your odds of dealing with split shipments.  Live Mode tends to result in your books getting sent to more warehouses, which slows you down and increases your outbound shipping costs since most boxes won’t have the full 50 pounds when you ship them.

To recap:

  • your best shipping rates will be obtained if you max out each box at the full 50 pounds
  • closing out each batch after filling a single box will help you avoid split shipments
  • stopping after a single box is full will save you time by letting you avoid filling out box level contents

Let’s quickly look at a few other ways to lower your inbound shipping costs, shall we?

UPS vs. FedEx rates.

Up until about a year ago, UPS was the only option available as an Amazon-partnered carrier.  Now you can choose between UPS and FedEx.  Here’s how the per-pound rates compare between the carriers, looking at sample rates from Denver to Dallas and also Dallas to Dallas:

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In both examples, the FedEx rates are 3-5 cents cheaper per pound than UPS rates.  Your rates may vary a bit depending on your origin and destination locations, so play around with your own estimates in Seller Central to see if you can save a few dollars per box by simply switching your package carrier.

Should you consider location arbitrage?

Note how location factors into the two example shipping rates above.  For me in Denver, the best rate I can achieve to ship to Dallas (where the vast majority of my shipments are sent) is $0.28 per pound.  If I lived in Dallas, my rates would drop nearly 50%, to $0.15 per pound.  That may not sound like much, but a single 50-pound box would save me $6.50 in inbound shipping costs if I lived close to an Amazon fulfillment center.  That cost savings certainly doesn’t justify selling your home and moving a few states over, but if you do a lot of online arbitrage it opens the door to a bit of location arbitrage.  Instead of shipping books to my own front door and doing the listing and prep work myself, I can pay a prep company around $1.00 a book to do the prep for me.  Consider the above example, where a company in Dallas would save me $6.50 PER BOX on inbound shipping charges.  If a typical textbook weighs around three pounds, I would actually save $0.39 per book in inbound shipping charges, which would lower my prep costs from around a buck to closer to $0.60 per book.  Not a bad option!  If you live far from an Amazon warehouse and do a lot of online arbitrage, employing a prep company may not be as costly as you think after all!

When to consider shipping pallets via LTL.

If you’re a high volume seller, the very best inbound shipping rates can be achieved through LTL shipments.  Here are some key metrics involved in shipping books by the pallet:

  • an LTL shipment needs to weigh at least 150 pounds
  • each pallet can weight a max of 1,500 pounds

Depending on your location, you may be paying only a dimensional fee where the fee per pallet doesn’t change as the weight changes.  Here’s an example from shipping a pallet from Dallas to Dallas:

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As you can see, a single pallet costs $73.71 to ship – regardless of how much weight is on the pallet.  Remember from the sample single box shipments above that the betst rates for FedEx are $0.15 per pound.  Thus, if your shipment is under 500 total pounds, you’re better off shipping single boxes as outlined above.  Over 500 pounds, you will start to see some savings (perhaps significantly as you get over 1,000 pounds) with LTL shipments.

If your LTL shipment is going farther than across town, your rates will vary a bit as the pallet gets heavier, as shown here in sample rates from Denver to Dallas:

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In this scenario, your best rate is $0.11 and is reached at 1,000 pounds.  Compared to the best FedEx rates from Denver at $0.28 per pound, these rates will save you 61% on your inbound shipping rates.

Conclusion

Although analyzing your inbound shipping rates to an Amazon warehouse isn’t exactly a glamorous task, finding ways to optimize your listing workflow to cut your costs and improve your bottom line may be well worth the effort.

After all, a penny saved is a penny earned!

And if you follow the advice above and save even five cents per pound, those pennies can add up quite nicely over the course of a year.  If you ship just 100 books each week, for a total of 150 pounds, that nickel per pound can add up to savings of $7.50 per week – or $390.00 per year.

And that, my friends, is why knowing your numbers matters.

Cheers to optimizing your business workflows!

 

6 Comments

  1. I am on the west coast(California), and cheapest shipping is to southern California. Even though it sometimes takes shipping 2-3 boxes of books instead of just 1,and more time, it almost always will flip over to California if I ship more books. Amazon frequently wants me to ship early in the shipment process to the east coast warehouses. It costs us $25-26 for a 50 lb. box to ship to the east coast via UPS. It costs $9 for me to ship to California. Do the math. I use InventoryLab right now, and it works more efficiently than Aseller to list, in my opinion. Also, this is probably a no brainer, but be very careful that your shipping scale is accurate. If not sure, check your weight in pounds and ounces against the scale at UPS or where ever. Amazon gets very upset if you pay for 50 pounds, and the box weighs more, even if it is ounces. I can tell you this from experience. My practice is to round up, even though it costs me a few quarters more. It is worth it to keep them happy. This is not that significant of a cost, if you are shipping to your cheapest locations. Anyway, I did not mean to long winded..perhaps it will add something to the discussion.

  2. I live near Seattle and I pack single boxes to about 50 pounds. Amazon has me send almost all of the boxes to Illinois at a cost of about $22.00. Is there any way to choose a cheaper shipping destination, say Seattle?

  3. I am baffles by Caleb’s ability to get the majority of shipments to Dallas FCs. I am in Houston and have never had a shipment go to a Texas FC. No matter what i try, single box multi box , books Cd. they all go to VA, WI or KY. I am envious, and puzzled.

  4. “Baffled” Sorry for typo. this plugin https://wordpress.org/plugins/simple-comment-editing/ allows people 5 minuted to edit their comments

  5. Trying to get a refund on the spreadsheet i just bought. Not going to work for my business and you have no way of contacting you about the refund so guess will just comment on posts until i get a response. Thanks

  6. This is so helpful. Thank you! If a shipment does get split and inventory is sent/stored in multiple warehouses, does this change your need to only have sales tax nexus (in your case) Colorado, to having it in all states that have warehouses? Or is having sales tax nexus in all each state a necessity regardless of the state you are sending your inventory to?

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