Empowering E-Commerce Success

The Value of Speed – “The Cost to Ship Vs. The Cost to Serve”

About two years ago, I started hearing an increasing number of brands ask me questions about customer experience with shipping, specifically regarding the delivery speed to the customer. They would ask questions such as:

  • How can we afford to go faster when everyone gets free shipping?
  • Can I improve my conversion rates if I offer faster shipping?
  • Does the customer care how long it takes if I’m offering free shipping?

I had anecdotal answers to all of these questions. However, the more I kept having these conversations, the more I knew there was a way to quantify the value of this scenario at a customer level.

Value of Speed

After many discussions with customers, a light bulb went off in my head: maybe there is a true value to delivery speed. And thus the ‘Value of Speed’ was born, and we’ve been discussing this with several customers and studying this with countless brands since then.

There are two sides of the logistics coin, the cost to ship and the cost to serve. The cost to ship is the rate chart of the fulfillment and the shipping. The cost to serve is the cost to service the customer on the backend after the order ships caused by shipping challenges or delays. Most organizations focus on the cost of shipping due to having to offer low flat rate or free shipping. While they have driven pennies per shipment out of their costs, they have been adding dollars to their cost to serve on the backend.

Through customer feedback, we have seen the backend costs come out to around $1 – $3 per outbound order depending on order value, order volume and service level used. The blended average of the brands we have studied, has been $1.38 per outbound order.

One notable stat reported by research company, Access Development, reported that nearly 80% of customers would take their business to a competitor within a week of experiencing poor customer service…So if you are going to spend money either way, should you invest it on the front end of the customer experience or the backend?1

Examples of ‘cost to serve’ drivers:

  • Contact center calls, chats or emails
  • Cancelled or returned orders
  • Appeasements (discounts, shipping charges credited, credits, gift cards, coupon codes, etc.)
  • Reshipments
  • Customers go viral with negative feedback or reviews
  • Customers don’t reorder

Examples of ‘cost to serve’ solutions:

  • Use faster delivery methods

– Mode optimize
– Multi-carrier rate and service shop

  • Regional fulfillment – get inventory and shipments closer to the customer
  • Provide tracking and communication along the way
  • Get orders processed faster in the fulfillment center
  • Focus on click to delivery vs. business/transit days

While there is more to this discussion, we at DHL eCommerce, have built some models to help analyze this. The major takeaway is that speed does matter and it’s important to invest in the consumer experience.

For more information on how DHL eCommerce can be your trusted partner to help grow your business end-to-end, locally or globally, please visit https://www.logistics.dhl/us-en/home/our-divisions/ecommerce.html.

1. https://blog.accessdevelopment.com/customer-loyalty-statistics-2016-edition

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