This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/profit-margin

Your business is likely going through a few stressors right now, like tackling cash flow management, keeping customers happy, and finding ways to increase profit.

When it comes to improving profitability, managing and increasing profit margins are key to your company’s financial success. It’s an essential small business accounting strategy for those wanting to run a successful business both online and in-store.

The only problem? Profit margins are a challenging world. It’s easy to get lost trying to figure out profit margin ratios, operating profit margins, net versus growth, and more. It can be tricky to overcome the information overload and actually learn how to increase profit for your business.

In this guide, you’ll learn how to find the ideal profit margin formula for your business, plus create a profitability strategy that can keep you thriving and successful during uncertain times.

Table of Contents

What is gross margin?
What is a good profit margin?
What is a good gross profit margin?
How to increase profit margin
Finding the ideal profit margin for your business
Profit margin FAQ

What is gross margin?

Gross margin is the difference between a company’s revenue and cost of goods sold (COGS) divided by revenue. It’s shown as a percentage.

Gross margin helps a company figure out how much money it keeps after incurring the costs related to making the product it sells and/or the service it provides.

The formula for gross margin is:

(Total Revenue – Cost of Goods Sold) / Total Revenue

The higher your gross margin, the more money a company keeps on each dollar of sales. Higher margins can indicate whether your company is running a profitable operation and if sales are good.

What is a good profit margin?

If you’re asking yourself, “What is a good net profit margin?” then you’re on the right track. It’s safe to say that a good profit margin for your company depends on your location, industry, and personal circumstances.

For example, in 2019, industrial banks had the highest reported profit margin, with an average of 51.8%. While average profit margins in manufacturing hovered around 8.5%, according to the same research.

Retailers usually have a low profit margin compared to other sectors:

Brick-and-mortar retailers tend to have profit margins between .5 and 4.5%.
Web-based retailers generally have higher profit margins, while building supply and distribution retailers have the best margins⁠—reaching as high as 6.5%.

The rise in shopping online has played a big role in keeping retail margins low. As a general rule of thumb, a 10% net profit margin is deemed average, while a 20% margin is deemed high and 5% low. If you want to compare your company’s performance based on profit and merchandise margins, check out the average profit margin for your industry.

What is a good gross profit margin?

A good gross profit margin for online retail is around 45.25%, according to NYU Stern School of Business. To reach a higher gross profit margin, you’ll need to develop a pricing strategy for your business.

Shopify’s profit margin calculator can help you find a profitable selling price for your product. It’s easy-to-use and leverages a simple profit margin formula to calculate what price you should charge customers for your product for an optimal merchandise margin ratio.

Determining the best profit margin formula for a single product can help you figure out how to find net profit margin and improve profitability for your business.

How to increase profit margin

Reduce operating costs
Don’t obsess over per order profits
Increase the trustworthiness of your store to generate sales
Increase your average order value
Create a customer loyalty program
Raise your prices

1. Reduce operating costs

Reducing operating costs is a quick way to increase profit margin and improve profitability.

The tricky part to reducing operating costs is knowing what to cut, because these expenses—like utilities, payroll, and rent—vary from business to business.

Start by auditing everything that’s running your business, including:

Labor costs
Office space and utilities
Employee benefits
Equipment and maintenance fees
Licenses and tax deposits
Insurance

Then look at where you can cut back on expenses and how a premium software package can help. To choose the right technology for your business, ask yourself the following questions:

What can I already do well? (For example, if you’re great at business financing, consider productivity or marketing software.)
What do my employees spend too much time on each week?
If I could take one time-consuming task off my mind, which one would it be?

For example, say you advertise a toll-free sales number on one of your sites, but it puts extra work on your plate without helping improve margins. Would you be willing to reduce your workload by 50% if it meant giving up only 15% of your business?

If yes, you could take that savings—both in terms of time and money—and put it into, say, better serving multiple customers at once with a chatbot or improving your site. Phone support may be a rarity among many online businesses, but a number of ecommerce merchants still feel it’s necessary.

Browse the Shopify App Store for a live chat or Chatbot app.

Try to measure the impact removing an operating cost, such as a phone number on your site, has on margin improvement and customer satisfaction. Small business owners should always look for new ways to reduce operating costs without jeopardizing the quality of their store or making operations more difficult.

2. Don’t obsess over per order profits

Many businesses are unwilling to lose money on an order, even if that means ending the relationship with an unhappy or dissatisfied customer. You may have had a similar experience, which often goes something like this:

“I’m sorry, sir. We only made $X on your purchase, so if we [fill in your reasonable request here], we’d lose money on your business. I hope you understand.”

This is a penny-wise approach and a bad way to do business in today’s highly social and connected world. If you’re not losing money on orders to quickly and proactively resolve customer problems, you’re missing out on the chance to improve profit margin.

Customers are so accustomed to mediocre service that when a business goes out of its way to proactively resolve a problem—without charging them—they’re blown away. Apart from the life-long value of that customer, you’ll receive referral marketing and recommendations that are impossible to purchase.

If you’re running an ecommerce store, here are four ways you can invest in the future of your business and, ultimately, your long-term bottom line:

Did something inexpensive break? Ship customers a free replacement immediately without requiring them to hassle with the return.
If an expensive item needs to be returned, ship them a replacement as soon as they submit tracking confirmation of the return instead of waiting until it hits your warehouse.
If a long-time customer needs something ASAP, overnight it to them at no charge.
If a customer wasn’t happy with a purchase, proactively issue a partial refund to help compensate him for the disappointment.

Serving customers like this will cost a bit more in the short term, but will pay incredible dividends as you build a loyal and highly vocal fan base that results in a very healthy bottom line.

3. Increase the trustworthiness of your store to generate sales

Trust is essential for generating sales and increasing profit margins. Shoppers today have endless options to choose from when looking for a product, most of which are tracked by marketers and store owners. But trust is harder to measure and truly understand.

At Shopify, we want to know what makes an online store trustworthy. In 2019, we ran a series of interviews with North American shoppers, having them review a recent purchase involving a store they were unfamiliar with or a product they’ve never bought before. We also asked them to make a purchase from a Shopify store they’ve never bought from before.

The goal was to find out what makes a new shopper comfortable with buying a new item or buying from a store they were unfamiliar with. There were two patterns that influenced shoppers’ decisions on whether or not to buy a product:

Trust builders. Elements or design details that make first-time shoppers feel more relaxed and confident in their purchase.
Trust breakers. Elements that make first-time shoppers question the quality of a business and create feelings of distrust that their purchase is a safe choice.

These findings also revealed five key ways your online store can build trust with new shoppers and sell more online:

Create a welcoming homepage that makes a good first impression for new shoppers.
Make product information easy to find with thorough product descriptions and precise search results.
Share your brand story to help shoppers feel like you’re an authentic business.
Show customer satisfaction by providing shoppers with social proof.
Make transaction costs and pricing transparent.

Building trust between you and a first-time shopper encourages them to make a purchase in your online store and, in turn, increase profit margin.

4. Increase your average order value

If you want to increase profit margin, focus on increasing your average order value (AOV). Average order value is the average dollar amount a customer spends per transaction in your store.

You can calculate average order value by using a simple formula: total revenue / number of orders = average order value.

Shopify customers reports can calculate AOV for you, or you can use a number of helpful apps in the Shopify App Store.

There are a number of ways you can increase AOV in your ecommerce store:

Add product recommendations to product and checkout pages. By adding popular products, or products that other shoppers purchased in addition to what’s currently in a person’s cart, you can not only increase average order value but also make a shift from low-margin sales to high-margin sales.
Upsell or cross sell complementary products. Rather than suggesting popular items in your store, you can surface products that go well with items in a shopper’s cart. For example, coffee filters for a brewing station or shaving cream with razors.
Provide order minimum incentives. You can also increase AOV and get higher margins by encouraging customers to spend a minimum amount. This could be a 15% discount on orders over $75 or a minimum order amount for free shipping, which is easy to set up in Shopify.
Create product bundles or packages. To get shoppers to purchase more, create bundles of products that cost less when bought together versus individually. When you bundle products, you increase the perceived value of a customer’s purchase and can help create a better shopping experience overall.
Run deals and specials. A great way to generate more revenue for your store is to offer coupons or a special on higher margin products. Since these products make a higher profit per unit sold, you can afford to temporarily lower the price through enticing promotions for shoppers to take advantage of.

5. Create a customer loyalty program

Customer loyalty programs are a surefire way to increase profit margins and improve profitability in retail and the service industry. As many as 84% of consumers say they would keep on with a company that offers a loyalty program. With that, 66% of customers state earning rewards influence their buying behavior.

You can create a customer loyalty program to sell to existing customers rather than spend more money to acquire new ones.

Sephora is known for having a strong customer loyalty program. The program has over 17 million members who make up nearly 80% of the company’s sales.

Members earn rewards for each purchase based on a point system. Once a member accrues enough points, they can choose how to use them—whether through gift cards or discounts to help offset the high prices without cheapening the product.

The best loyalty programs focus on the customer. They provide real value that shows loyal customers you appreciate their business and want to do what’s best for them. While heavy discounts aren’t reasonable from a small business finance standpoint, you can still find reasonable ways to reward customers so they buy more frequently and make a shift from low-margin sales to high-margin sales.

6. Raise your prices

Raising prices is an intimidating idea when it comes to a retailer’s profit margin. If they raise prices, they assume customers will abandon them, sales will dry up, and the business will collapse into the dust heap of failure. If you’re reselling an existing product in your ecommerce store, a small increase in price can do miracles for your bottom line, especially if there’s market demand.

Imagine the following scenario for a popular item in your online store:

Item retail cost: $100
Wholesale cost: $80
Profit: $20
Profit margin: 25% ($20 profit / $80 cost)

Now image that, after being inspired by an article on the Shopify blog, you re-priced this item at $110:

Item retail cost: $110
Wholesale cost: $80
Profit: $30
Profit margin: 37.5% ($30 profit / $80 cost)

Our minor 10% increase in prices resulted in a massive 50% increase in profits and gross margin!

If you’re not sure where to start on raising prices, consider the following information from Statista on the average order value of US online shopping orders in the second quarter of 2019, differentiated by the type of device.

During the quarter, online orders placed from desktop had an average value of $135.07, while orders placed from tablet and mobile device had an average value of $101.95 and $94.85, respectively.

Under the best-case circumstances—assuming you have a strong unique selling proposition and aren’t competing on price—your conversion rates won’t dive and you’ll have achieved an instant 50% increase in your overall profits. Even with a significant 30% drop in conversions, you’d still be making more money than under your old pricing model, but with fewer customer servicing costs to consider.

When implementing this strategy, keep the following in mind: make sure you test different pricing levels. While raising prices is often very effective, you’ll need to confirm it for your market/business.

If you have a large catalog, testing pricing on thousands of products can be a tall task. Start out by performing an ABC analysis to find best-selling products in your inventory, then test their pricing.

This strategy relies on having a unique selling proposition and offering value to your customers. The more price-sensitive your customers, the less effective this will be. If you don’t have a unique selling proposition, you need to get one.

Finding the ideal profit margin for your business

There’s no doubt improving profit margins is a valuable strategy for small businesses. As you go about improving profitability for your business, be sure to check out these tips on how to perform a break-even analysis. You’re bound to quickly figure out if a new product or service will be profitable and can make smarter business decisions for the future.

With these tips on increasing retailers’ profit margins in mind, you can create a strong foundation for your business and weather any economic uncertainty for the long run.

Profit margin FAQ

How do you calculate profit margin?

To find profit margin, divide your gross profit by revenue. To make the margin a percentage, multiply your result by 100. If the margin is 30%, that means you keep 30% of your total revenue.

What does the profit margin tell you?

Since profit margin is the ratio of your company’s profit (sales minus expenses) divided by revenue, it tells you how your company is handling finances and how efficient your operation is.

Is a high profit margin good?

Yes, a high profit margin is good, because it indicates that your company can make a reasonable profit on sales. Compared to the industry average, a lower margin can mean your company is underpricing. Investors typically pay more for a business with higher gross profit.

What is gross profit percentage?

Gross profit percentage, also known as gross margin, is the percentage margin you earn on a product or service after deducting production costs from the revenue. Costs can include labor, materials, overhead, and more.

What is a good profit margin for retail?

A good online retailer’s profit margin is around 45%, while other industries, such as general retail and automotive, hover between 20% and 25%.

What does operating profit margin mean?

Operating profit margin shows how much profit a business makes after paying for the costs of production including wages, materials, and other operating expenses. It’s expressed as a percentage and indicates how efficiently a company controls the cost and expenses associated with operations.

How do I calculate operating profit margin?

To calculate operating profit margin, subtract your total operating expenses from your gross profit to calculate operating profit. Divide your operating profit by gross revenue to calculate your operating profit margin.

Shopify Tutorial

Break-Even Analysis: How to Predict If Your Next Venture Will Be Profitable

Apr 30, 2021 Break-Even Analysis, Elksourcing by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/break-even-analysis

Starting a business often carries risk. As the saying goes, “You have to spend money to make money.”While that’s not always true, there is one very effective way to lower your risk: do a break-even analysis. A break-even analysis will tell you exactly what you need to do in order to break even and make back your initial investment.

If you run a business—or you’re thinking about starting one—you should know how to do a break-even analysis. It’s a crucial activity for making important business decisions.

What is break-even analysis?

A break-even analysis is a useful tool for determining at what point your company, or a new product or service, will be profitable. Put another way, it’s a financial calculation used to determine the number of products or services you need to sell to at least cover your costs. When you’ve broken even, you are neither losing money nor making money, but all your costs have been covered.

For example, a break-even analysis could help you determine how many cell phone cases you need to sell to cover your warehousing costs. Or how many hours of service you need to sell to pay for your office space. Anything you sell beyond your break-even point will add profit.

There are a few definitions you need to know in order to understand break-even analysis.

Fixed Costs: Expenses that stay the same no matter how much you sell.
Variable Costs: Expenses that fluctuate up and down with sales.

Why you must do a break-even analysis

There are many benefits to doing a break-even analysis.

Price smarter

Finding your break-even point will help you price your products better. A lot of psychology goes into effective pricing, but knowing how it will affect your profitability is just as important. You need to make sure you can pay all your bills.

Cover fixed costs

When most people think about pricing, they think about how much their product costs to create. Those are considered variable costs. You still need to cover your fixed costs like insurance or web development fees. Doing a break-even analysis helps you do that.

Catch missing expenses

It’s easy to forget about expenses when you’re thinking through a small business idea. When you do a break-even analysis you have to lay out all your financial commitments to figure out your break-even point. This will limit the number of surprises down the road.

Set revenue targets

After completing a break-even analysis, you know exactly how much you need to sell to be profitable. This will help you set more concrete sales goals for you and your team. When you have a clear number in mind, it will be much easier to follow through.

Make smarter decisions

Entrepreneurs often make business decisions based on emotion. If they feel good about a new venture, they go for it. How you feel is important, but it’s not enough. Successful entrepreneurs make their decisions based on facts. It will be a lot easier to decide when you’ve put in the work and have useful data in front of you.

Limit financial strain

Doing a break-even analysis helps mitigate risk by showing you when to avoid a business idea. It will help you avoid failures and limit the financial toll that bad decisions can have on your business. Instead, you can be realistic about the potential outcomes.

Fund your business

A break-even analysis is a key component of any business plan . It’s usually a requirement if you want to take on investors or other debt to fund your business. You have to prove your plan is viable. More than that, if the analysis looks good, you will be more comfortable taking on the burden of financing.

When to use a break-even analysis

There are four common scenarios when it helps to do a break-even analysis.

1. Starting a new business

If you’re thinking about starting a new business, a break-even analysis is a must. Not only will it help you decide if your business idea is viable, but it will force you to do research and be realistic about costs, as well as think through your pricing strategy.

2. Creating a new product

If you already have a business, you should still do a break-even analysis before committing to a new product—especially if that product is going to add significant expense. Even if your fixed costs, like an office lease, stay the same, you’ll need to work out the variable costs related to your new product and set prices before you start selling.

3. Adding a new sales channel

Any time you add a new sales channel, your costs will change—even if your prices don’t. For example, if you’ve been selling online and you’re thinking about doing a pop-up shop , you’ll want to make sure you at least break even. Otherwise, the financial strain could put the rest of your business at risk.

This applies equally to adding new online sales channels, like shoppable posts on Instagram. Will you be planning any additional costs to promote the channel, like Instagram ads? Those costs need to be part of your break-even analysis.

4. Changing the business model

If you’re thinking about changing your business model, for example, switching from dropshipping products to carrying inventory, you should do a break-even analysis. Your costs could change significantly and this will help you figure out if your prices need to change too.

Break-even analysis formula

Before we start calculating break-even points, let’s break down how the formula works.

Your break-even point is equal to your fixed costs, divided by your average price, minus variable costs.

Break-Even Point = Fixed Costs/(Average Price — Variable Costs)

Basically, you need to figure out what your net profit per unit sold is and divide your fixed costs by that number. This will tell you how many units you need to sell before you start earning a profit.

As you now know, your product sales need to pay for more than just the costs of producing them. The remaining profit is known as the contribution margin because it contributes cash to the fixed costs.

Now that you know what it is, how it works, and why it matters, let’s break down how to calculate your break-even point.

Before we get started, get your free copy of the break-even analysis template . After you make a copy, you’ll be able to edit the template and do your own calculations.

Step 1 – Gather your data

The first step is to list all the costs of doing business. Everything from the cost of your product, to rent, to bank fees. Think through everything you have to pay for and write it down.

The next step is to divide them into fixed costs, and variable costs.

1. Fixed costs

Fixed costs are any costs that stay the same, regardless of how much product you sell. This could include things like rent, software subscriptions, insurance, and labour.

Make a list of everything you have to pay for no matter what. In most cases, you can list the expenses as monthly amounts unless you’re considering an event with a shorter time frame, such as a three-day festival. Add everything up. If you’re using the break-even analysis spreadsheet, it will do the math for you automatically.

2. Variable costs

Variable costs are costs that fluctuate based on the amount of product you sell. This could include things like materials, commissions, payment processing, and also labour.

Some costs could go in either category, depending on your business. If you have salaried staff, they will go under fixed costs. But if you pay part-time hourly employees who only work when it’s busy, they will be considered variable costs.

Make a list of all your costs that fluctuate depending on how much you sell. List the price per unit sold and add up all the costs, or use the spreadsheet which will add them up automatically.

3. Average price

Finally, decide on a price. Don’t worry if you’re not ready to commit to a final price yet, you can change this later. Keep in mind, this is the average price. If you offer some customers bulk discounts, it will lower the average price.

Step 2 – Plug in your data

Now it’s time to plug in your data. The spreadsheet will pull your fixed cost total and variable cost total up into the break-even calculation. All you need to is to fill in is your average price in the appropriate cell. After that, the math will happen automatically. The number that gets calculated in the top right cell under break-even units is the number of units you need to sell to break even.

In the break-even analysis example above, the break-even point is 92.5 units.

Step 3 – Make adjustments

Feel free to experiment with different numbers. See what happens if you lower your fixed or variable costs, or try changing the price. You may not get it right the first time, so make adjustments as you go.

Warning: Don’t forget any expenses

The most common pitfall of break-even analysis is forgetting things—especially variable costs. Break-even analyses are an important step towards making important business decisions. That’s why you need to make sure your data is as accurate as possible.

To make sure you don’t miss any costs, think through your entire operations from start to finish. If you think through your ecommerce packaging experience, you might remember that you need to order branded tissue paper, and that one order lasts you 200 shipments. If you’re thinking through your festival setup, you might remember that you’ll need to provide napkins along with the food you’re selling. These are variable costs that need to be included.

Limitations of break-even analysis

Break-even analysis plays an important role in making business decisions, but it’s limited in the type of information it can provide.

Not a predictor of demand

It’s important to note that a break-even analysis is not a predictor of demand. It won’t tell you what your sales are going to be, or how many people will want what you’re selling. It will only tell you how many units you need to sell in order to break even. It’s also important to note that demand isn’t stable. As you change your price, the number of people willing to buy your product will change as well.

Dependent on reliable data

Sometimes costs fall into both fixed and variable categories. This can make calculations complicated and you’ll likely need to wedge them into one or the other. For example, you may have a baseline labour cost no matter what, as well as an additional labour cost top that could fluctuate based on how much product you sell.

The accuracy of your break-even point depends on accurate data. If you don’t feed good data into the formula, you won’t get a reliable result.

Simplistic

The break-even point formula is simplistic. Many businesses have multiple products with multiple prices. It won’t be able to pick up that nuance. You’ll likely need to work with one product at a time or estimate an average price based on all the products you might sell. If this is the case, it’s best to run a few different scenarios to be better prepared.

As prices fluctuate, so do costs. This model assumes that only one thing changes at a time. Instead, if you lower your price and sell more, your variable costs might decrease because you have more buying power or are able to work more efficiently. Ultimately it’s only an estimate.

Ignores time

The break-even analysis ignores fluctuations over time. The time frame will be dependent on the period you use to calculate fixed costs (monthly is most common). Although you’ll see how many units you need to sell over the course of the month, you won’t see how things change if your sales fluctuate week to week, or seasonally over the course of a year. For this, you’ll need to rely on good cash flow management, and possibly a solid sales forecast .

It also doesn’t take the future into account. Break-even analysis only looks at here and now. If your raw materials cost doubles next year, your break-even point will be a lot of higher unless you raise your prices. If you raise your prices, you could lose customers. This delicate balance is always in flux.

Ignores competitors

As a new entrant to the market, you’re going to affect competitors and vice versa. They could change their prices, which could affect demand for your product, causing you to change your prices too. If they grow quickly and a raw material you both use becomes more scarce, the cost could go up.

Ultimately, break-even analysis will give you a very solid understanding of the baseline conditions for being successful. It is a must. But it’s not the only research you need to do before you starting or making changes to a business.

Strategies to lower your break-even point

What if you complete your break-even analysis and find out that the number of units you need to sell is too high? If the number seems unrealistic or unattainable, don’t panic. You may be able to make some adjustments to lower your break-even point.

1. Lower fixed costs

See if there’s an opportunity to lower your fixed costs. The lower you can get them, the fewer units you’ll need to sell in order to break-even. For example, if you’re thinking about opening a retail store and numbers aren’t working out, consider selling online instead. How does that affect your fixed costs?

2. Raise your prices

If you raise your prices, you won’t need to sell as many units to break even. The marginal contribution per unit sold will be higher. When thinking about raising your prices, be mindful of what the market is willing to pay, and expectations that come with a price. You won’t need to sell as many units, but you’ll still need to sell enough—and if you charge more, buyers may expect a better product or better customer service.

3. Lower variable costs

Lowering your variable costs is often the most difficult option, especially if you’re just going into business. But the more you scale, the easier it will be to reduce variable costs. It’s worth trying to lower your costs by negotiating with your suppliers, changing suppliers, or changing your process. For example, maybe you’ll find that packing peanuts are cheaper than bubble wrap for shipping fragile products.

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Basics of Small Business Accounting: 12 Steps to Get Your Company on Track

Apr 30, 2021 Accounting, Elksourcing by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/15334373-small-business-accounting-101-ten-steps-to-get-your-startup-on-track

If you’ve just launched or are about to start your small business, congratulations! It takes uncommon passion and perseverance to get to where you are today.

However, as you know, business ownership is a constant flood of satisfying milestones coupled with expanding to-do lists. With your launch, you’ll need to get on top of the accounting tasks that come along with owning a store.

This list of small business accounting steps will give you the confidence to know you’ve covered your bases and are ready to move on to the next item on your business to-do list.

How to do accounting for a small business

Open a bank account
Track your expenses
Develop a bookkeeping system
Set up a payroll systems
Investigate import tax
Determine how you’ll get paid
Establish sales tax procedures
Determine your tax obligations
Calculate gross margin
Apply for funding
Find high-quality accounting partners
Periodically re-evaluate your methods

1. Open a bank account

After you’ve legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make life easier come tax time. It also protects your personal assets in the unfortunate case of bankruptcy, lawsuits, or audits. And if you want funding down the line, from creditors and investors alike, strong business financial records can increase the likelihood of approvals.

Note that LLCs, partnerships, and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s definitely recommended.

Start by opening up a business checking account, followed by any savings accounts that will help you organize funds and plan for taxes. For instance, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. A good rule of thumb is to put 25% of your income aside, though more conservative estimates for high earners might be closer to one third.

Next you’ll want to consider a business credit card to start building credit. Credit is important for securing funding in the future. Corporations and LLCs are required to use a separate credit card to avoid commingling personal and business assets.

Before you talk to a bank about opening an account, do your homework. Shop around for business accounts and compare fee structures. Most business checking accounts have higher fees than personal banking, so pay close attention to what you’ll owe.

To open a business bank account, you’ll need a business name, and you might have to be registered with your state or province. Check with the individual bank for which documents to bring to the appointment.

2. Track your expenses

The foundation of solid business bookkeeping is effective and accurate expense tracking. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and legitimize your filings.

From the start, establish a system for organizing receipts and other important records. This process can be simple and old school (bring on the Filofax), or you can use a service like Shoeboxed. For American store owners, the IRS doesn’t require you to keep receipts for expenses under $75, but it’s a good habit nonetheless.

There are five types of receipts to pay special attention to:

Meals and entertainment. Conducting a business meeting in a café or restaurant is a great option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
Out of town business travel. The IRS and CRA are wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
Vehicle related expenses. Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle-related expenses.
Receipts for gifts. For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment rather than a gift. Note these details on the receipt.
Home office receipts. Similar to vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home-related expenses.

Starting your business at home is a great way to keep overhead low, plus you’ll qualify for some unique tax breaks. You can deduct the portion of your home that’s used for business, as well as your home internet, cell phone, and transportation to and from work sites and for business errands.

Any expense that’s used partly for personal use and partly for business must reflect that mixed use. For instance, if you have one cell phone, you can deduct the percentage you use the device for business. Gas mileage costs are 100% deductible, just be sure to hold on to all records and keep a log of your business miles (where you’re going and the purpose of the trip).

3. Develop a bookkeeping system

Before we jump into establishing a bookkeeping system, it’s helpful to understand exactly what bookkeeping is and how it differs from accounting. Bookkeeping is the day-to-day process of recording transactions, categorizing them, and reconciling bank statements.

Accounting is a high-level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements. As a new business owner, you’ll need to determine how you want to manage your books:

You can choose to go the DIY route and use software like Quickbooks or Wave. Alternatively, you could use a simple Excel spreadsheet.
You have the option of using an outsourced or part-time bookkeeper that’s either local or cloud-based.
When your business is big enough you can hire an in-house bookkeeper and/or accountant.

With so many options out there, you’re sure to find a bookkeeping solution that will suit your needs.

Canadian and American business owners need to determine whether they’ll use the cash or accrual method of accounting. Let’s take a look at the difference between the two.

Cash method. Revenues and expenses are recognized at the time they are actually received or paid.
Accrual method. Revenues and expenses are recognized when the transaction occurs (even if the cash isn’t in or out of the bank yet) and requires tracking receivables and payables.

Technically, Canadians are required to use the accrual method. To simplify things, you can use the cash method throughout the year and then make a single adjusting entry at year end to account for outstanding receivables and payables for tax purposes.

American business owners can use cash-based accounting if revenues are less than $5 million USD, otherwise they must use the accrual method.  

Bookkeeping 101

Bookkeeping is something that you either have to learn or outsource when you’re running a business. Luckily, it’s possible to learn how to manage your own books and there are a few notable benefits to tackling it yourself.

4. Set up a payroll system

Many online stores start out as a one-person show. When you’ve reached the point where it makes sense to hire outside help, you need to establish whether that individual is an employee or an independent contractor.

For employees, you’ll have to set up a payroll schedule and ensure you’re withholding the correct taxes. There are lots of services that can help with this, and many accounting software options offer payroll as a feature.

For independent contractors, be sure to track how much you’re paying each person. American business owners may be required to file 1099s for each contractor at year end (you’ll also need to keep their name and address on file for this).

5. Investigate import tax

Depending on your business model, you may be planning to purchase and import goods from other countries to sell in your store. When importing products, you’ll likely be subject to taxes and duties, which is worth noting if you run a dropshipping business. These are the fees your country imposes on incoming goods. Learn about importing goods into the US and Canada, and the associated taxes, so you know the rules from the get-go.

Also, if you’re importing goods, a duty calculator can help you estimate the fees in your own business and plan for costs.

6. Determine how you’ll get paid

When sales start rolling in, you’ll need a way to accept payments. If you’re a North American store owner on Shopify, you can use Shopify Payments to accept credit card payments. This saves you the hassle of setting up a merchant account or third-party payment gateway.

If you want to accept credit card payments without using Shopify Payments, you’ll either need a merchant account or you can use a third-party payment processor like PayPal, Stripe, or Square. A merchant account is a type of bank account that allows your business to accept credit card payments from customers.

If you use a third party payment processor, fees vary. Some processors charge an interchange plus rate, typically around 2.9% + $0.30 per transaction. Others charge flat fees for each transaction, while some have a monthly membership model for unlimited transactions. You can consult this list to help you find a payment gateway that will work for your location.

7. Establish sales tax procedures

The world of ecommerce has made it easier than ever to sell to customers outside of your state and even country. While this is a great opportunity for brands with growth goals, it introduces confusing sales tax regulations.

When a customer walks into a brick and mortar retail store, they pay the sales tax of whatever state or province they make the purchase in, no matter if they live in that city or they’re visiting from somewhere around the world. However, when you sell online, customers may be located in different cities, states, provinces, and even countries.

Canadian store owners only need to start collecting GST/HST when they have revenues of $30,000 or more in a 12-month period. You can submit the GST/HST you collect in installments. If you want, you can collect GST/HST even if you don’t earn this much in revenue, as you can put it toward input tax credits.

Selling to international customers can be easier than domestic sales. Canadian store owners don’t need to charge GST/HST to customers who are outside of Canada.

For American store owners, sales tax gets a bit trickier. You’ll need to determine if you operate your business in an origin-based state or destination-based state. In the former, you must charge sales tax based on the state where you run your business. The latter requires sales tax to be applied based on the purchaser’s location.

International purchases are tax exempt for US-based businesses. This can all get a bit complicated, so check in with your accountant for detailed information about your specific state’s regulations regarding international sales tax.

8. Determine your tax obligations

Tax obligations vary depending on the legal structure of the business. If you’re self employed (sole proprietorship, LLC, partnership), you’ll claim business income on your personal tax return. Corporations, on the other hand, are separate tax entities and are taxed independently from owners. Your income from the corporation is taxed as an employee.

Self-employed people need to withhold taxes from their income and remit them to the government in lieu of the withholding that an employer would normally conduct. For American store owners, you’ll need to pay estimated quarterly taxes if you’ll owe more than $1,000 in taxes this year. Canadians have it a little easier; if your net tax owing is more than $3,000, you’ll be required to pay your income tax in installments.

9. Calculate gross margin

Improving your store’s gross margin is the first step toward earning more income overall. In order to calculate gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both cost of goods sold (COGS) and gross margin.

COGS. These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labor costs.
Gross margin. This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.

Here’s how you can go about calculating gross margin:

Gross margin (%) = (revenue – COGS) / revenue

You can also use our free profit margin calculator to plug in your numbers for a quick calculation.

The difference between how much you sell a product for and how much the business actually takes home at the end of the day is what truly determines your ability to keep the doors open.

10. Apply for funding

There are many scenarios where a growing ecommerce business might need to secure external business financing, be it through a line of credit, investors, a small business loan, or even a business partner.

For instance, you might have an unexpected downturn in sales due to uncontrollable external circumstances, or maybe you need a financial boost during slow periods in a seasonal business. Brands with big growth goals often need to secure funding to make investments in new product developments, inventory, retail stores, hiring, and more.

Remember, to get a small business loan, you’ll likely have to provide financial statements—a balance sheet and income statement at the very least, possibly a cash flow statement as well.

But before you sign off on the debt, it’s important to make sure the numbers make sense. In other words, it’s a good idea to calculate the ROI of the loan. Add up all the expenses you need the loan to cover, the expected new revenue you’ll get from the loan, and the total cost of interest. You can use our small business loan calculator to find out the total cost.

11. Find high-quality accounting partners

Whether doing your own accounts is too much for you or you just want a little external guidance, small business accountants and financial professionals can help you get more control of your money. There are a few individuals you might want to consider enlisting:

Accountant. A small business accountant can advise at many different points, including your business structure, creating financial statements, obtaining necessary licenses and permits, and even writing a business plan.
Certified public accountant (CPA). In case of an audit, a CPA is the only individual who can legally prepare an audited financial statement.
Bookkeeper. The bookkeeper manages the day-to-day records, regularly reconciling accounts, categorizing expenses, and managing accounts receivable/accounts payable.
Tax preparer. Your tax preparer fills out necessary tax forms and may file them on your behalf. Some will also set up your estimated tax payments.
Tax planner. These professionals help optimize your taxes before you file them, helping you learn ways to lower your tax burden.

12. Periodically re-evaluate your methods

When you first start out you may opt to use a simple spreadsheet to manage your books, but as you grow you’ll want to consider more advanced methods like Quickbooks or Bench. As you keep growing, continually reassess the amount of time you’re spending on your books and how much that time is costing your business.

The right bookkeeping solution means you can invest more time in the business with bookkeeping no longer on your plate and potentially save the business money. Win-win!

Small business accounting FAQs

How do you keep accounting records for small business?

You can set up basic small business accounting records in a spreadsheet, though this is more tedious, prone to manual errors, and time consuming than a comprehensive small business accounting software. At the very least, you’ll want to track expenses and income in a secure cloud-based platform.

What is the easiest accounting software for small business?

There are many user friendly accounting software options for small businesses, ranging from free to paid models. In our small business account tools roundup, we recommend checking out easy-to-use software like Quickbooks, Freshbooks, Xero, and Zoho Books. You can also browse the Shopify App store for an accounting software that will seamlessly integrate with your ecommerce store.

How much are accounting fees for a small business?

Accounting fees vary wildly based on your business structure, needs, technology and tools, and hired experts. Some accounting software, like Wave, is free to sign up—though you’ll have to pay to use features like payment processing. Other tools may cost hundreds of dollars per month, though these typically come with additional features like an open API, customer support, and other business management features.

How much is an accountant for small business?

Small business accountants range in price, depending on a number of factors. If you’re hiring in-house, the US Bureau of Labor Statistics estimates accountants make an average annual salary of $70,000. Bookkeepers come in at $17.26 per hour, according to PayScale. If you’re outsourcing to an external contractor or one of many accounting firms, costs vary from a few hundred dollars per month to thousands per month—depending on the level of services provided and complexity of your small business accounting needs, among other factors.

What does an accountant do for a small business?

A small business accountant does many things, including the following:

Form your business
Help write a business plan
Audit your cash flow
Find cost-cutting opportunities
Advise on business strategy
Manage debt
Chase down payments
Write and submit loan applications
Plan budgets
Set up your accounting software
Manage inventory
Recommend business tools
Help open new bank accounts
Oversee payroll
Year-end financial reporting
Prevent audits
Advise on personal finances

What does a bookkeeper do for a small business?

Bookkeepers handle ongoing, administrative duties for small business accounting, including:

Reconcile accounts
Record transactions
Manage accounts receivable and accounts payable
Adjust entries
Prepare financial statements
Send invoices
Set up and manage technology and tools
Stay up to date on laws and regulations
Basic payroll
Work with your accountant, tax preparer, and tax planner

Know your numbers to grow your business

Starting a business can be an overwhelming process, but if you follow this list, you’ll have your new store’s finances in order from the beginning. From opening the right type of bank account to determining how much you’ll bring in per product, these tasks will all contribute to your business’s success, now and as it grows.

About the author: Kendra Murphy is a product designer at Bench, the online bookkeeping service that pairs you with a professional bookkeeper and uses simple, elegant software to do your books for you.

Shopify Tutorial

Add Local Delivery Service to Drive More Online Sales

Apr 30, 2021 Elksourcing, Local Delivery Service by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/local-delivery

According to our consumer trends data, more than half of North American buyers say the pandemic has changed the way they’ll shop going forward.

One breakout trend is increased support for small and local businesses, with more than half of consumers specifically seeking out local, independently owned businesses. Nearly a third of buyers say they’ve bought something online and had it delivered locally during the first three months of the pandemic. Local delivery is a great way to connect with nearby customers, drive sales, and provide a great customer experience.

You may be wondering how to set up local delivery or if local delivery is right for your business. Below, we’ll take you through the ins and outs and how to get started with your own local delivery service.

Table of Contents

What does local delivery mean?
How local delivery can help your business
Figure out your local delivery logistics
Boost sales with local delivery on Shopify

What does local delivery mean?

In ecommerce, local delivery allows customers to buy your products online and have you deliver them straight to their doorstep. Local delivery serves as an alternative to both shipping with a carrier and in-store shopping. It has been particularly impactful for merchants and customers alike in a world where shipping carriers are experiencing increased delays and in-store shopping still carries risk.

How local delivery can help your business

With local delivery, businesses can offer thoughtful shopping experiences for their local customers and help generate sales and revenue. Here are some of the ways delivering locally with Shopify can help businesses connect with customers nearby and carve a place for themselves within their community.

The Local Delivery feature within Shopify is a set of flexible tools that allow businesses to offer a customizable local delivery service at checkout. Business owners can define delivery zones and multiple pricing conditions for each zone, manage and prepare orders for delivery, and create optimized delivery routes for drivers.

Build a connection with the local community

Making it easier for customers to shop locally is a great way to differentiate your brand, attract new customers, and drive sales. It’s also a powerful way to continue to connect with your existing loyal local customers. Not to mention, adding local delivery service can help you attract new customers to your community.

It’s been long said that building a loyal customer following is the best way to foster sustained growth. And we’re living in a time where people are feeling the effects of physical distancing during the pandemic and want community more than ever.

Improve the customer experience

Shipping delays are a natural part of the gig, especially during a pandemic. Shipping costs can also be unpredictable and are a common reason why many customers abandon their shopping carts.

Delivering orders directly to local customers is a way around delays and shipping costs. By delivering the product themselves, merchants can better control the process without relying on shipping carriers—especially with delivery times impacted by the pandemic. And while there are still associated costs to consider, merchants can manage those costs instead of being tied to carriers, who often have peak surcharges during the holiday period.

Increase sales

Data from Shopify shows that online shoppers spend 23% more and have a 25% higher cart size when convenient ordering options like local pickup and local delivery are offered by independent retailers. Furthermore, online shoppers that chose local pickup or local delivery during checkout had a 13% and 19% higher conversion rate than shoppers who selected shipping at checkout. You can also increase your average order value by charging for your local delivery service. With Shopify Local Delivery, you have the flexibility to create multiple delivery zones with multiple pricing conditions for each zone.

On a local scale, not only are customers actively looking to support their local businesses to help sustain their communities and economy. They’re also interested in local shipping options because it offers enticing advantages.

First, for online retailers the unfortunate reality caused by the pandemic is shipping delays—and customers want to avoid it. Local delivery can offer price and delivery speed advantages over shipping.

Second, local delivery offers a way to create a personalized brand experience. Customers who shop locally are looking for that personal experience and because you can’t provide that in-store, local delivery is a way to provide it. You can leverage this to connect with existing customers and attract new customers. For example, you can include a personalized packaging insert and thank them for their purchase or a personalized message in the delivery notification.

Future-proof your business

While local delivery adoption may have been expedited due to COVID-19, the effects on consumer behavior will last well beyond the pandemic. The trend for supporting local business is not slowing down and consumers will continue to expect simple, convenient, and low-cost ways to get their online purchases. Consumer behavior has always evolved, and it will continue to do so. Merchants who step up to the plate, anticipate shopper needs, and offer innovative ways to shop will set themselves up for future opportunities.

Can’t get out and deliver? Offer local or curbside pickup at checkout. Pickup availability complements the local pickup option at checkout by letting shoppers know whether each item they’re browsing is in stock and available for pickup at a nearby location.

Figure out your local delivery logistics

While setting up a local delivery option at checkout is simple, we’ve put together a list of logistical considerations to help you determine the best path for your business.

Where will you deliver from?

Some online store owners also operate brick-and-mortar locations, while others have no storefront and rely on an online-only operation. You’ll need to consider which of your stores will offer local delivery and if you will have enough staff to deliver from multiple locations.

In some cases, especially if you’re doing it yourself, merchants offer local delivery from a single location. But if you have staff members who will be helping out, you might have the bandwidth to deliver to customers who live closer to other locations.

How far will you travel to deliver orders?

Once you know where you’re delivering from, it’s time to figure out where you’re delivering to. You can be very specific about which areas you do and do not deliver to. Define multiple delivery zones and use a list of zip/postal codes to determine how far you’ll travel to deliver orders. Or simply set a radius around each location to identify your delivery areas, but keep in mind this gives you less jurisdiction over specific areas and neighborhoods.

The larger your radius, the more customers who are eligible for local delivery. This could lead to more sales but also means you might need more help with delivery. If you have a few staff members who can deliver, setting a larger delivery area may be ideal. If you’re doing deliveries yourself, you might want to set a smaller area. Either way, start small and adjust as needed.

What will you charge for local delivery?

Amazon Prime was the first to make free shipping the norm, and now 21% of small to medium-sized online businesses always offer free shipping in the US. This has conditioned consumers to expect free shipping, and these expectations often extend to local delivery services too.

But it’s not always feasible to offer free delivery, since you may need to cover related costs, like gas or extra delivery staff. There are two key factors to consider here: your delivery price and your minimum cart value.

You can choose to offer only local delivery for orders above a certain value, which also directly increases average order value (AOV). This strategy works well if you offer local delivery for free or at a low cost. Chris’s Ice Cream, for example, has a minimum $30 order to qualify for free local delivery.

If you don’t want to introduce a cart value minimum, you can also set a fixed local delivery price for all orders within your delivery zone. For example, you can set a lower price for deliveries within a shorter distance and a higher price for deliveries within a longer distance. To make this delivery option attractive to your customers, price local delivery services lower than shipping through a carrier. This cost should be based on a combination of the time it takes you to deliver and how far you’re traveling to deliver orders. The larger your delivery area, the more you may want to charge for local delivery.

It’s easy to set up local delivery in your Shopify store. You can create both local delivery rates and “pick up in store” rates to differentiate between the two options.

When will you deliver orders?

One of the benefits of local delivery is customers can receive their orders more quickly. But this depends on how often you plan to go out on delivery.

If you’re delivering locally and can’t do it every day or as orders come in, define specific delivery days or times. Make sure you communicate this with your customers before, during, and after their purchase.

Some options to consider are same-day delivery, next-day delivery, or two-to-three-day delivery. Anything longer may not make sense for the local delivery shopper. The faster you can get products into your customers’ hands, the more you can charge for this service. You might also want to consider setting up your delivery schedule based on neighborhood, especially if serving a large geographic area.

How will you deliver orders?

There are lots of ways to deliver orders, and it will mostly depend on your location and delivery zone. While motor vehicles may be the first method that comes to mind, you can also fulfill local delivery orders by bike or on foot, which could be faster in some areas, depending on traffic.

If you’re short-staffed or interested in using third-party services, you could sign up for apps like Postmates. These can come in handy when you’re experiencing high volumes or want to get in front of new potential customers. This also takes the actual delivery process off your plate, which makes it easier to execute. However, it comes with extra fees.

Who will deliver your orders?

Again, you can deliver the orders yourself, use existing or newly hired staff, or take advantage of third-party local delivery services—or a combination of any of the three. Whoever the delivery driver may be, it’s important to remember they’re a part of the customer experience. So even if they don’t work for you, they are still an extension of your brand.

Communication is critical. Customers want to be kept aware of when their purchases will arrive. To that end, delivery staff should alert (via text or email) the buyer when they’re on the way and, if possible, provide an estimated time of delivery. Equally important is sending customers a delivery confirmation along with a photo of the product at the delivery location. When using in-house team members to deliver orders, it’s easier to control these interactions. That’s why many of the apps offer tracking options, so customers can see exactly where their order is.

You’ll also need to consider what happens if the customer isn’t available at the time of drop off. Sometimes, it’s as simple as leaving the package outside the front door or in the mailbox. Other times, that’s not possible. Be sure to ask the customer for a phone number, and ensure drivers have it handy so they can contact the customer under these circumstances. It’s also a good idea to ask the customer for delivery instructions at checkout. That way, they can let you know whether it’s OK to leave the order at the door.

In the case of Great Lakes Brewery, customers need to show photo identification to prove they’re of legal drinking age before they can receive their order.

No matter how hard you try, there will be mishaps. Maybe the customer gets the wrong product or it’s damaged when they open the box. You can take a picture of the package at the customer’s door to protect yourself and confirm delivery, but that’s not 100% foolproof. Have a backup plan in place and be prepared to offer replacement products. Be generous in your return policy in these cases and offer free shipping or returns pickup if possible—as well as free delivery for any replacement items.

Hopefully mishaps are isolated incidents, but make note. If you notice a pattern—lots of theft in a certain area, damaged products when delivered by a third-party carrier, etc.—there could be cause for further investigation.

How will you promote local delivery to nearby customers?

First and foremost, you’ll want to put local delivery information on your website. At launch, you might use a pop-up, banner, or marquee to share information with your customers. It’s also a good idea to put it on your shipping policy and checkout pages. Run free shipping campaigns or flash sales and combine the local delivery message to drive awareness and conversions.

There are ways to promote your local delivery options on your website too:

Social media. Post to your organic channels about local delivery, and complement that with paid ads targeting the area where you’re offering the service.
Email marketing. Segment your list and let local customers know about the new option. Consider incentivizing with a coupon code for their first local delivery order.
Search engine marketing. Chances are, customers in your area are searching for “local delivery near me.” Optimize for local SEO to show up in Google search results.
Retargeted ads. Send campaigns to past and current customers or site visitors. Let them know that local delivery is new and they can take advantage of it today.

There are also traditional tactics that don’t necessarily require digital marketing. Merchants can use their understanding of the local community and events to get involved and market to the local customer base. Post flyers in community hot spots and consider collaborating with other local businesses.

How does local delivery work with your other shipping strategies?

While local delivery is great for nearby customers, you don’t want to isolate customers who reside outside your local delivery zone. Carrier shipping services can supplement and even handle some of your local delivery needs for you.

Options like curbside pickup can be helpful for local customers in particular. If customers outside of your local delivery radius want online orders fast and expedited shipping isn’t an option or is too expensive, you can offer curbside pickup as an alternative.

White Rock Soap Gallery has five Texas-based retail stores, along with a significant ecommerce side of the business. It offers local delivery from its retail locations in addition to curbside, shipping, and other options.

Curbside pickup can work even if you don’t have a physical storefront of your own. Turn your warehouse into a pickup location, launch a pop-up local pickup spot, or partner with another local business to leverage their space. Local delivery doesn’t have to compete with other shipping strategies—it can support them.

Boost sales with local delivery on Shopify

Giving customers the choice of how and when to receive their orders removes barriers to completing the purchase, which in turn boosts your bottom line. It also gives you a chance to plug into a community, driving customer loyalty.

When it comes to adding local delivery as an option to your online store, you have to figure out the logistics in a way that serves your business goals now and is sustainable to take your business into the future.

With Shopify Local Delivery, you can set up shop and serve a local base of loyal customers while continuing to promote your online sales to a wider audience.

Illustration by Cornelia Li

Shopify Tutorial

Shopify Shipping Services: Offer Affordable and Convenient Shipping for You and Your Customers

Apr 30, 2021 Elksourcing, Shopify Shipping Services by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/shopify-shipping-services

Getting orders to your customers is a vital part of running your ecommerce business, and there’s a lot involved, from choosing product packaging to planning your shipping strategy.

Underpinning those strategic choices, however, is the fulfillment method that gets your order from point A to point B. Choosing a delivery method, carrier, and shipping services are important aspects of your logistics process. It’s all about finding the right balance between what your customers want and what you can realistically provide, both from an operational and a budget standpoint.

Shopify Shipping works directly with multiple carriers each offering multiple mail classes to make the process as streamlined as possible, so you can get orders into your customer’s hands quickly and affordably, whatever that means for your business.

Table of Contents

What is Shopify Shipping?
Choosing a carrier and a shipping service
Carrier delivery times are impacted by increased volumes and COVID-19
How to ship with Shopify Shipping
Take the next step with Shopify Fulfillment Network
Explore local options
Moving forward with Shopify Shipping

What is Shopify Shipping?

Shopify Shipping makes it easier and faster to fulfill orders, solving many common shipping problems. You can buy shipping labels directly in Shopify, print multiple labels at a time, and get orders out the door quickly.

Shopify Shipping works with USPS, UPS, and DHL in the United States, Canada Post in Canada, and Sendle in Australia, and offers multiple mail classes with each carrier. With Shopify Shipping, merchants can access features like overnight delivery, package pick-ups, shipping insurance, tracking information, international shipping, and more depending on your location, carrier, and mail class. We’ve also worked with carriers directly to negotiate competitive rates for each shipping service, which are automatically included on every plan at no extra cost to you.

Choosing a shipping carrier and a shipping service

When you want to ship an order, your shipping carrier is the company that takes your package and delivers it to your customer. Shipping carriers are companies like DHL or Canada Post that physically deliver packages to your customer’s door or mailbox.

Each shipping carrier offers multiple ecommerce shipping services, giving you different options based on your budget and needs. For example, in order to give options to your customers, you might be able to offer both a mail class that guarantees delivery within five business days and a more expensive one that guarantees delivery within two business days—all using the same carrier.

Before you choose a shipping carrier, it’s helpful to know the answers to the following questions:

Where are you shipping to?
Where are you shipping from?
What products are you shipping?
How heavy are your products?
What type of packaging will you use?
What’s your budget? Do you offer free shipping, flat-rate shipping, or exact-cost shipping?
What do your customers expect from your shipping policy? Do they expect their order to be insured, or have specific timelines they need for deliveries?
Do you need to coordinate with any third party logistics (3PL) providers?

Once you’ve answered those questions, you’re ready to select a carrier and a shipping service—or several, if that’s what works for your business.

You can ship with any carrier, but Shopify has partnered with specific carriers to make the process even easier for you. If you ship through Shopify Shipping with USPS, UPS, or DHL Express in the United States, Canada Post in Canada, or Sendle in Australia, you’ll be able to pay for and print shipping labels directly in Shopify.

Streamline your search for a shipping service: To see all of your options in one place, we’ve put together PDFs of all of the options available through Shopify Shipping in the US, in Canada, and in Australia.

Carrier delivery times are impacted by increased volumes and COVID-19

In “normal times,” carriers have standard delivery times and windows. However, as COVID-19 has driven more online shopping, merchants and carriers alike are facing unprecedented spikes similar to what you see during the holiday shopping season. As a result, many carriers have been unable to guarantee delivery times. You can check our shipping carrier status page to get updated information about rates, delivery times, delays, and more.

United States Postal Service (USPS)

If you’re shipping from the United States, USPS is the most economical way to ship lightweight and less-urgent orders through Shopify Shipping.

✓ Economical

✓ Government post office

✓ Lightweight items (under 70lbs)

✓ Domestic and International Shipping

✓ Tracking information (for most mail classes)

You can use six domestic mail classes and three international mail classes with USPS in Shopify Shipping, and some of them offer tracking information and insurance. You can ship packages weighing up to 70 lbs, and you can create return shipping labels for domestic orders in Shopify as well. When you ship with USPS, all delivery timelines (with the exception of Priority Mail Express) are estimated, not guaranteed.

Regardless of the mail class you choose, USPS doesn’t charge surcharges for fuel, residential delivery, or Saturday delivery. USPS offers both domestic and international shipping options. Here’s an overview of the mail classes available to you in Shopify Shipping with USPS.

Domestic USPS Mail Classes

First-Class Package Service

Delivery time: 2-5 business days

The most affordable way to ship small packages.

Priority Mail

Delivery time: 1-3 business days

Best for fast domestic delivery.

First-Class Mail

Delivery time: 2-3 business days

Best for lightweight items like greeting cards, stickers, and postcards.

Priority Mail Express

Delivery time: 1-2 business days, guaranteed

The fastest and most premium domestic delivery option.

Parcel Select Ground

Delivery time: 2-8 business days

Slower, economical way to ship heavier packages. Only available online.

Media Mail

Delivery time: 2-b business days

Only eligible to ship media like books, records, and DVDs

International USPS Mail Classes

First-Class Package International Service

Varied delivery timelines

The most affordable way to internationally ship small packages.

Priority Mail International

Delivery: 6-10 business days

Offers fast international delivery to 190 countries.

Priority Mail Express International

Delivery: 3-5 business days, guaranteed

The fastest and most premium international delivery option to 190 countries.

United Parcel Service (UPS)

UPS is a reliable and premium way to ship both regular and time-sensitive orders in Shopify Shipping in the United States.

✓ Guaranteed delivery

✓ Premium shipping carrier

✓ Tracking information

✓ Insurance coverage (up to $100)

✓ Lightweight and heavy items (under 150 lbs)

✓ Domestic and International Shipping (220 countries)

There are six domestic mail classes and five international options available with UPS in Shopify Shipping, all of which offer guaranteed delivery. Their premium offerings include tracking information on all shipments, time-definite and day-definite deliveries, and international shipping to 220 countries and territories. You can ship packages up to 150 lbs, making UPS the carrier of choice for shipping larger or bulkier items.

Domestic UPS Mail Classes

UPS Ground

Delivery: 1-5 business days

The most affordable domestic delivery option.

UPS 3 Day Select

Delivery: 3 business days

Best for shipments that need to arrive in a shorter timeframe.

UPS 2nd Day Air

Delivery: 2 business days

Best for shipments that do not require overnight service, but still need to arrive quickly.

UPS Next Day Air Saver

Next business day (afternoon)

Best for shipments that must arrive the next business day. The most affordable of the “next day” services.

UPS Next Day Air

Delivery: Next business day

Best for shipments that must arrive the next business day.

UPS Next Day Air Early

Delivery: Next business day (morning)

Best for shipments that must arrive early the next business day. The fastest and most premium domestic delivery.

International UPS Mail Classes

UPS Standard

Delivery: Day definite by date scheduled

Ships to Canada and Mexico only. The most affordable international delivery for less-urgent shipments.

UPS Worldwide Expedited

Delivery: 2-5 business days

Best for less-urgent small packages to 220 countries.

UPS Worldwide Saver

Delivery: 1-3 business days (end of day)

Best for express international shipments.

UPS Worldwide Express

Delivery: 1-3 business days (morning)

Best for express international shipments to 120 countries.

UPS Worldwide Express Plus

Delivery: 1-3 business days (early morning)

Best for the most time-sensitive international shipments to 55 countries.

DHL Express

DHL Express is a premium way to ship time-sensitive international deliveries from the US in Shopify Shipping.

✓ Premium shipping carrier

✓ Fast international delivery

✓ Tracking information

✓ Lightweight and heavy items (under 150 lbs)

✓ International Shipping (220 countries)

Through Shopify Shipping, DHL Express offers one mail class: DHL Express Worldwide, which provides flexible delivery options for the buyer, tracking information on all shipments, time-definite deliveries of 2-5 business days, and international shipping to more than 220 countries and territories. The maximum weight allowed is 150 lbs.

Canada Post

Canada Post is the most economical way to ship packages from Canada in Shopify Shipping, and offers both domestic and international shipping options.

✓ Economical

✓ Government post office

✓ Lightweight to medium-weight items (under 66 lbs)

✓ Domestic and International Shipping (220 countries)

Canada Post offers three domestic shipping services, four international shipping services to the United States, and six international shipping services to more than 190 countries in Shopify Shipping. You can ship orders weighing up to 66lbs, and some of Canada Post’s services offer insurance, tracking information, and delivery guarantees.

Canada Post’s Domestic Shipping Services

All of Canada Post’s domestic shipping services offer guaranteed delivery.

Expedited Parcel

Delivery: 1-7 business days

The most affordable domestic delivery option.

Xpresspost

Delivery: 1-2 business days

Best for fast shipping for documents and parcels.

Priority

Delivery: Next business day

The fastest domestic delivery for time-sensitive documents and parcels.

Canada Post’s International (USA) Shipping Services

Small Packet™ USA – Air

5-8 business days

The most affordable delivery option to the United States. Ideal for small and lightweight items (under 1 kg).

Tracked Packet™ – USA

Delivery: 4-7 business days, guaranteed

Best for shipping small and lightweight items (under 1 kg). Ideal for e-commerce shipping due to online tracking and insurance coverage.

Expedited Parcel™ – USA

Delivery: 4-7 business days, guaranteed

Best for bigger parcels (under 30 kg).

Xpresspost™ – USA

Delivery: 2-3 business days, guaranteed

The fastest and most expensive delivery option for international shipments.

Canada Post’s International (Rest of World) Shipping Services

Small Packet™ International – Surface or Air

Air delivery: 6-10 business days

Surface delivery: 1-3 months

The most affordable international delivery for less-urgent small and lightweight items (under 2 kg).

International Parcel™ – Surface or Air

Air delivery: 12+ business days

Surface delivery: 1-3 months

The most affordable international delivery for less-urgent larger parcels. Also ideal for shipping to countries that don’t offer Xpresspost™ – International.

Tracked Packet™ – International

Delivery: 6-10 business days, guaranteed

Best for small and lightweight items (under 2 kg) to 31 countries. Ideal for e-commerce shipping due to online tracking and insurance coverage up to $100.

Xpresspost™ – International

Delivery: 4-7 business days, guaranteed

The fastest and most premium delivery option to 70+ countries.

Sendle

Sendle is the best way to ship packages from Australia in Shopify Shipping.

✓ Free pickups

✓ $300 AUD of cover against loss included on all shipments

✓ Request free signature confirmation

✓ 100% carbon neutral

✓ Domestic and International Shipping (200+ countries)

Sendle offers both domestic and international shipping services. You can ship orders weighing up to 20 lbs. All Sendle shipments through Shopify include $300 AUD of cover against loss, tracking information, and 100% carbon neutrality.

How to ship with Shopify Shipping

Once you’ve selected the carrier and shipping service you want to use, getting started with Shopify Shipping is simple.

If you’re going to offer multiple options for your customers to choose from, and pass on the direct costs to them, make sure to select and enable the shipping service you’ll offer in Shopify Shipping. You’ll also want to ensure your product weights and dimensions are accurate, to make sure your shipping price estimates are too.

Shopify Shipping can automatically calculate carrier shipping rates based on cart weight, box size, and the shipping services you want to offer. It’s important to make sure you add weights to each of your products and measure the size of the box you’ll use for shipping.

You can also set up free shipping for minimum order thresholds or other parameters of your choice. Shopify will automatically set the shipping rate to $0 when customers with a qualifying purchase hit checkout.

When you’re ready to fulfill an order, here are the steps to ship with Shopify Shipping:

Select the order(s) you want to fulfill
Add package details and select carrier
Review and print labels
Affix labels to packages
Drop them off at the carrier or dropbox or schedule a pickup in the admin (UPS,DHL Express, and Sendle only)

Take the next step with Shopify Fulfillment Network

It takes time and energy to make sure every delivery is part of an on-brand and positive customer experience. If you ship more than five packages in a day, it quickly starts to eat away at the time you could be focusing on your business.

If you find yourself spending too much time on shipping and fulfillment, it might be time to look for outsourced fulfillment services from a logistics partner. When working with a 3PL partner, they’ll handle all the coordination with carriers to get products shipped out to customers. Plus, you’ll get more space to hold your inventory in their facilities and warehouses.

And you can outsource all this through Shopify too. Shopify Fulfillment Network is an addition to our suite of shipping options, allowing you to automate fulfillment so your orders get picked, packed, and shipped as quickly as they come in. Shopify has a network of distributed warehouses across North America so you can strategically distribute your product closer to your customers, reducing the shipping times and costs.

Though your product might be spread across multiple warehouses, Shopify still gives you a centralized view of your inventory so you can see where all your products are and connect you with a main point of contact, your own dedicated logistics expert — and your eyes in each warehouse.

Working with a 3PL can help you take back your time, so you don’t have to spend it worrying about shipping. Learn more about fulfillment here.

Explore local options

While Shopify Fulfillment Network helps you expand your reach and serve a large geographical area, there are also ways to take local fulfillment into your own hands. These “shipping” options not only give you more control over shipping and deliveries, but also eliminate the need to pay for a carrier or 3PL. This is because local options offer low or no cost options for customers to get their products. The benefits are that this makes it easier for your business to deal with the holiday rush, and omit worry around potential shipping delays as you won’t have shipping carrier holiday cut off dates, and it’s a good way for you to connect with your local communities and attract local sales.

Local delivery allows customers to buy your products online and have you deliver them straight to their home. Local and curbside pickup allows customers to buy your products online and visit your store, warehouse, or other designated pick-up location to pick them up.

Though local delivery and local pickup options may have spiked in popularity due to social distancing measures for COVID-19, they’re shaping consumer behavior in ways that will last well past the pandemic.

Moving forward with Shopify Shipping

Shopify Shipping takes one of the complicated, tedious aspects of your business and streamlines it so you can focus on more impactful tasks. With Shopify Shipping, you can save up to 90% on shipping and send your products with confidence using simplified tools that scale with your business.

Shopify Tutorial

Product Packaging: How Top Brands Design Memorable Unboxing Experiences to Delight Their Customers

Apr 30, 2021 Elksourcing, Product Packaging by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/ecommerce-packaging

The market for ecommerce goods has changed drastically over the last decade. The demand for product packaging solutions to handle shipping and logistics, as well as to create a unique customer touchpoint, has grown alongside it, with a total market value of $61.55 billion dollars expected by 2025.

For ecommerce businesses, shipping and fulfillment represents the most direct touch point and connection with a customer. It also happens to be one of the most underused marketing opportunities.

Packaging came out of a need to protect products during the shipping process, but focusing solely on function means you might be overlooking the potential marketing impact of your packaging. Done well, a branded packaging and unboxing experience is a chance to deliver a functional product and create a memorable moment for your customers.

What is product packaging?
Importance of product packaging
Types of product packaging
How to create a custom packaging experience
Product packaging costs
Best product packaging examples
Make your unboxing experience worth remembering
Product packaging FAQ

A primer on product packaging

Product packaging refers to all the activities related to designing, evaluating, and producing a container for your products. Many online retailers create a branded packaging experience to delight customers and improve profitability.

In total, a branded packaging experience is a thoughtful selection of shipping and packaging materials in addition to the way you choose to present your shipped products. Its purpose is to provide additional value for your customer and your business by way of creating a positive first impression of your brand—ideally, one that’s both memorable and shareable.

Importance of product packaging

Online retailers have fewer touch points to deliver delight compared to physical retail. The advantage of the efficiency of online shopping can come at the cost of the tactile, hands-on experience with a product before making a purchase. That’s why it’s important to pay special attention to the touch points you do have available to create a memorable brand experience for customers and set yourself apart from competitors.

A recent survey from Dotcom Distribution found 40% of consumers are likely to make repeat purchases from an online merchant with premium packaging. The same study also found that premium packaging makes a brand feel upscale, as well as builds anticipation for delivery.

Packaging has become an extension of your brand for online retailers. Take Apple, for example. The brand is known for high-end, glossy, and refined products, just like the package it is shipping. While not every business has the budget of Apple, you can incorporate different, less costly ways to delight customers at every stage of the journey.

Seed, a direct-to-consumer retailer selling probiotic supplements, uses simple yet delightful packaging made from mushrooms that dissolves underwater—an excellent touch for its target audience of eco-conscious buyers.

Seed uses eco-friendly custom boxes for it’s product packaging. Photo courtesy of: The Marketing Geek Tweet

Fundamentally, people like sharing great experiences they’ve had. Search for “unboxing” on Google and you’ll find countless blog posts, images, and videos. Many of those pieces of content were created by customers, further helping a brand launch and get its name out to more people.

Building a long-term, growing brand means bringing customers back time and time again. Repeat customers will spend more with your business, and investing in retention and customer loyalty can move you off of the acquisition treadmill where you’re always trying to find new customers.

Types of product packaging

Before you can ship your products, you’ll need to package them for safe transport. There are a few common options for utility focused packaging:

Corrugated boxes
Padded mailers
Bags and envelopes
Custom product packaging

Unless you’re shipping a very small or ultra durable item, most products will require some type and size of box to protect the order for safe transport, as well as some form of stuffing or product cushioning.

Some types of ecommerce packages are:

1. Corrugated boxes

These are still the most typical type of product packaging used by retailers. They’re sturdy, don’t add weight to your packages, and can be recycled. You can also use double-walled corrugated boxes to provide extra strength and durability for heavier weight items.

Here are some examples of mailing boxes retailers can use to ship products:

Photo courtesy of: Uline

2. Padded mailers

These packages are best for shipping smaller, flat, or delicate items such as jewelry, handcrafted goods, books, or electronics. You can add extra protection with recyclable paper or bubble wrap, though the latter is a less eco-friendly option for packing.

OWA Haircare Sustainable Padded Mailer. Photo courtesy of: Pinterest

3. Bags and envelopes

If you sell more light but not fragile products, you can use poly mailers, Tyvek envelopes, or plastic mailing bags to ship your goods. They are lightweight, strong, easy to store, and self-sealing, which makes shipping small orders or boxes easier, whether from home or a warehouse. You can also easily customize them to fit your brand and use zero-waste alternatives through companies like Hero Packaging.

Custom matte black poly mailer. Photo courtesy of: Pinterest

4. Custom product packaging

Custom boxes are a great way to create a unique unboxing experience and show customers what you value. There are tons of options for printing and customizing on everything from the tissue to gift wrap, packing slips, and more. Plus, you can print all over your box to present your brand in new ways and create a satisfying experience for your customers.

PYM Chews uses custom ecommerce packaging with brand messaging on the delivery box. Photo courtesy of: @OliviaJune Tweet

East Coast Packaging is a popular choice for packaging materials, offering over 1,300 sizes of boxes, bubble mailers, and package cushioning. There are also apps like Arka on the Shopify App Store you can use for your custom packaging needs. We’ve also provided many more resources for boxes and cushioning later in the resource section of this chapter.

How to create a custom packaging experience

Many elements must work in tandem when creating a well-designed branded packaging and unboxing experience, but you don’t have to include every available option.

Rather, decide which packaging solutions for small businesses deliver the best experience and most value for your customers. Strategically investing in a handful of these product packaging supplies can go a long way in creating an unboxing experience your customers won’t soon forget.

Note: Shopify Fulfillment Network puts your brand first. Businesses can send in packing instructions, including your custom packaging and products inserts, and warehouses will ensure a consistent unboxing experience.

1. Packaging

The most significant element to consider is the main shipping container. Depending on your product, this might be a box, bag, or poly mailer. White and brown corrugated packaging options once ruled as the sole option because they’re cheap, sturdy, and get the job done, but they may not create the first impression you’re looking for.

Is your brand eco-friendly? You can opt for biodegradable packaging alternatives using compressed fibers from mushroom filament and coconut. For example, you could use compostable mailers made from corn rather than plastic poly mailers.

While the actual package represents the most significant opportunity to create a “wow” experience, it can come at a comparatively high price.

2. Tissue paper

Wrapping your products in tissue paper adds an extra level of excitement by building another layer of anticipation into the unboxing experience. Custom-printed tissue or colored tissue paper are both solid options to consider.

3. Filler

Traditional filler types included Styrofoam packing peanuts, foam inserts, air pillows, or bubble wrap. Although popping bubble wrap is a long-cherished pastime for some of us, it isn’t visually appealing and won’t provide a premium feel. Other forms of packing filler worth considering include crinkle paper (colored or brown) and excelsior (wood fibers).

4. Stickers

Stickers are a useful option, as they’re versatile and fairly inexpensive. If you use tissue paper, a branded sticker can also seal the paper together. Or, instead of custom printing on your box, try using stickers as a way to brand your packages on a budget.

You may also want to include a few extra stickers, paired with a short note, as a way to thank your customers for their purchase.

5. Promotional material or a business card

Business cards offer a cost-effective way of adding small promo pieces to your package. Remember, they don’t have to mimic the aesthetics of corporate business cards.

For example, Haus sends packaging inserts, such as printed newsletters, in its shipments. Because of the nature of its product, this printed content serves as reading material that deepens the brand’s relationship with customers.

You can also include a personal note or special instructions to help customers get more value out of your product—the possibilities are endless and relatively inexpensive.

6. Packing slip

It’s standard to include a receipt or packing slip in your package, but many businesses don’t use this as a branding or marketing opportunity.

At a high-end restaurant, for instance, the receipt is delivered at the right time, usually presented to the diner in an elegant way or inside a closed folder. Place the receipt and packing slip in the package at a point that makes sense, as it’s not the first thing a customer necessarily wants to see when they open the package.

When you print a packing slip on Shopify, you can customize its contents and design by adding or removing elements, like your logo or product images, using Liquid, a template language created by Shopify. You might also consider including a coupon code on your packing slip to encourage repeat purchases.

7. Custom note

Though handwritten notes may be tricky to scale, new businesses are fighting to earn every customer. Connecting with shoppers through a personal, genuine note or card can make all the difference—handwritten messages, like the following one from Journ, show customers you care and that there are real people powering your brand.

Skincare brand Journ sends handwritten notes with its shipped products

8. Educational materials

If you sell products that need a little “how-to,” add instructions inside your packaging. You want to make sure your customers understand exactly how to use the product for their specific needs, so getting started is easy. Looking at Journ again, it really nails this with the helpful instruction sheets it includes for each product.

Journ also sends instructions for how to use their products in the package.

When we’re unsure where to start with something, we tend to put it off. We stick to what’s comfortable and routine. To become that routine, your product needs to be the easy go-to option for your customer.

Kristen LaFrance, Head of Resilient Retail

Sharing educational materials with customers shows that you care about their experience, builds trust, and communicates that you support your product even after purchase.

9. Tape

Pick the clear packaging tape and keep moving, right? Not necessarily! These days, you have a variety of colorful tape options to complement your custom packing. You can also create branded tape, à la Amazon, for instant brand recognition.

10. Sample or gift

Based on the customer’s current purchase or purchase history, you may also consider including a free sample of another product. Ideally, you’ll choose something your shopper is likely to be interested in. For example, if they purchased shampoo, throw in a small sample of complementary conditioner. This tactic can help you cross-sell by introducing a customer to new products.

Resources for custom branded packaging

If you’re looking for custom packaging material to create a great branded unboxing experience for your customers, take a look below at our shortlist of some great suppliers of various types of packaging:

Boxes

Fantastapack
Arka
Custom Boxes Now
Any Box Today
Refine Packaging
Box Geek
Custom Boxes And Packaging
Inke (Australia)
InstaBox (Canada)

Tissue

noissue
Digiwrap

Tape

Tape Jungle
Arka

Envelopes and Mailers

Envelopes
Hero Packaging

Stickers

Sticker You
Sticker Giant
Sticker Mule

Promotional material

Overnight Prints
Vista Prints

Product packaging costs

A downside to a custom branded packaging experience can be the associated cost. These expenses include both time and price.

You’ll need to decide based on your average order size and profit margins what options are financially feasible, along with which present the greatest value to your business and customers.

Custom boxes and mailers tend to be the most expensive costs involved in creating a custom branded unboxing experience.

To have your own custom printed boxes, you may be looking at a minimum order of 500+ and a cost of $5–$25 per box. Poly mailers will range from $0.25–$3 per printed mailer, depending on your order size—but you can order as few as 10 at a time with some suppliers. On top of that, consider that ecommerce boxes will add more total weight to your shipment than a poly mailer.

If your products don’t need the protection of a box, it can be worth opting for lighter packaging to save on the total cost. You can also opt for sustainable packaging and shipping solutions, from using compostable mailers and reducing packaging size to lower costs and align with more eco-conscious consumers.

Being creative can help you save on costs and achieve similar results. Consider pre-designed colored ecommerce boxes from places like Arka to help with your packaging needs. These shipping boxes come with much lower minimum orders and prices—as little as 25 boxes, and prices vary depending on size.

Another option is to search AliExpress, where very similar colored boxes can be purchased with a minimum order of 50 units for sometimes less than $0.39 each (depending on size) and free shipping to most countries.

If you wanted to further customize the experience, you can consider adding printed stickers with your logo from a service like Sticker Giant or a similar service.

In almost every case, the greater your order size for the various packaging materials, the cheaper the cost. Strategically plan which items to use and place larger orders to bring costs down. Additionally, consider the impact of any weight discrepancies when looking at the overall cost of your packaging. Higher weights mean higher costs to ship, which can impact your shipping strategy as a whole.

Best ecommerce packaging examples

To improve your ecommerce packaging design, we’ve highlighted some creative ideas for shipping you can steal from top ecommerce brands.

Caraway

Caraway Home is a direct-to-consumer retailer that sells well-designed, non-toxic ceramic cookware online. So it’s natural it focuses on sustainable packaging practices. The brand uses recycled materials with zero-plastic bags, low-impact print dyes, and 100% biodegradable cork trivets to package and ship goods.

Cookware brand Caraway Home Starter Kit unboxing experience.Photo courtesy of: Caraway Home

Caraway also includes a welcome booklet with orders, made from recycled paper, along with messages printed directly on the packaging that help customers experience each lid, pan, and storage unit that come in the box.

Caraway Home using messaging on custom box to guide customers through unboxing.Photo courtesy of: @bzises Tweet

Overall, what stands out about Caraway’s ecommerce packaging is how organized and on-brand the experience is. Considering its main cookware set goes for $395, once you receive your package, you know you made the right investment for your kitchen.

TrunkClub

TrunkClub is a subscription-box company that takes the customer unboxing experience seriously. To start, instead of choosing a standard box sealed with clear packaging tape, it opted for a custom printed box with a handle that resembles a trunk, closely matching and accentuating its brand.

From the moment a trunk from TrunkClub arrives at your doorstep, you know you’re in for a great experience—and one you can’t wait to open.

Excellent product packaging example from clothing subscription box brand Trunk Club. Photo courtesy of: Trunk Club

Inside the trunk, the contents are thoughtfully laid out to create a presentation and experience. To further build a custom branded experience for its customers, all orders include a handwritten card from a personal stylist explaining the selection of products. It truly makes you feel part of something special and exclusive.

Haus

In a time where ecommerce packaging trends are colorful, vibrant, and larger than life, Haus does the exact opposite. It strips down its packaging to a simple white cardboard box with a newsprint insert that gives customers insight into how the product is made, cocktail recipes, and frequently asked questions.

Haus Starter Kit package. Photo courtesy of: My Subscription Addiction

This let Haus focus on developing packaging and product with an aesthetic-first vision. Helena Hambrecht, Haus’s co-founder, tells Forbes in a recent interview, “We were able to rethink the bottle’s whole purpose. We decided we wanted to go with the home decor angle and break from tradition to create something that would really blend in with peoples homes.”

If you look at Haus’s Twitter feed, you’ll notice a variety of customers posting pictures of both the product packaging and the unboxing experience.

Twitter user @emily_singer Tweets about Haus product packaging. Photo courtesy of: @emily_singer Tweet

Otherland

Otherland is an up-and-coming startup known for its selection of beautifully packaged and fragranced candles. Otherland’s founder, Abigail Cook Stone, the former art buyer for Ralph Lauren stores, understands the importance of visuals in our lives and built one of the most noteworthy ecommerce packaging boxes on the market.

Otherland Mother’s Day seasonal collection box. Photo courtesy of: Business Insider

Some Otherland boxes, like the Mother’s Day example above, are only available for limited promo periods—which keeps customers engaged and excited by the brand. But whether you get a seasonal or base collection box, you’ll always experience familiar bright pops of color and delicious candle scents upon opening.

Otherland always uses quality materials and a striking presentation to create a memorable branded unboxing experience for its customers.

Allbirds

Allbirds is an ecommerce brand selling comfy shoes made from environmentally sound products, like tree fiber and sugar cane. It goes the extra mile in its packaging boxes to add product value and personality that reflects its eco-friendly footwear.

View of Allbirds sustainable ecommerce package from the outside. Photo courtesy of: Allbirds

There’s a lot to love when opening up a pair of Allbirds:

Cool printed illustration
Packaging insert with brand messaging
Made from recyclable materials and soy inks
Molded shoe inserts with a smiley face
Holes for carrying handles
On-brand, whimsical package design

Aerial view of Allbirds unboxing experience. Photo courtesy of: Allbirds

All the details in the Allbirds unboxing experience are focused on creating a seamless experience, from the shipping label to inks and pulp shoe inserts. It’s playful and functional, just like the Allbirds brand, and creates an experience customers won’t forget.

Unwrapped Life

Unwrapped Life sells sustainable for your hair, body, and home with a mission to get as close to zero-waste as possible. They go against the grain to offer packaging that is minimal and compostable to align with their values.

Plastic-free, zero-waste packaging from Unwrapped Life, with compostable craft paper wrapping. Photo courtesy of: Unwrapped Life

Unwrapped’s signature conditioner and shampoo bars also come wrapped in compostable paper, so there’s virtually no waste. Plus, the natural brown colors bring a sense of warmth, strength, and comfort to the unboxing experience, with a little extra touch of sophistication.

Unwrapped Life’s zero-waste, craft paper wrapping that can be composted. Photo courtesy of: Unwrapped Life

The company’s entire packaging process is completely paperless, taking orders by phone or tablets without any packaging slips. They continue working to find fulfillment centers that commit to their zero-waste and no-plastic policies to lower the brands carbon footprint.

We wanted to ensure that any products from our company have very limited to no impact at their end of life.

Arden Teasdale, Cofounder of Unwrapped Life

Make your unboxing experience worth remembering

Creating a memorable unboxing experience can be the competitive edge your business needs to not only generate repeat purchases but also attract new customers. Andy Dunn, the founder of Bonobos says it best:

“At the end of the day, you’re not building an ecommerce company, you’re building a brand that has ecommerce as its core distribution channel.”

Take the next few days to reassess your packaging. Consider how much you’re currently spending, your return policy, your average order size and profit margins and assess what you can do to deliver a better customer experience.

As you prepare for the upcoming BFCM shopping season, make sure you have sufficient supplies on hand, appropriately sized boxes, and enough labels, stickers, notes, etc. It may also be a nice touch to add holiday-themed thank you notes or cards or stickers in your packaging to delight your customers. For more tips, check out our holiday shipping guide to survive and profit during the seasonal rush.

FAQ: Ecommerce packaging

What is ecommerce-ready packaging?

Ecommerce-ready packaging refers to packaging guidelines set by warehouses (including Amazon) that regulate a package’s size, efficiency, and how it protects a product.

What is the concept of packaging?

Packaging refers to enclosing or protecting products to keep them safe during distribution, storage, shipping, and sales. Packaging is also the art and science of designing and producing packages for your brand.

What are the best packaging types?

Poly bags
Corrugated boxes
Paper bags
Paperboard boxes
Plastic boxes
Padded mailers
Rigid boxes
Custom boxes

Shopify Tutorial

International Shipping: Everything You Need to Know to Deliver Beyond Your Borders

Apr 30, 2021 Elksourcing, Shipping by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/international-shipping

If you’re looking to grow your ecommerce business, expanding beyond your borders could be a great next step—but that means you need to figure out how to ship internationally.

To do international shipping right, you’ll need a strategy that works for you and your business. You don’t need to know everything about shipping, but you do need to understand the available options, and find an approach that will work again and again.

There are a lot of reasons you might not be shipping internationally right now. Maybe you’re just starting to consider it as an option. Or maybe you’ve even tried once or twice and you’d rather stick to your local or domestic market.

Selling beyond your borders can be an important growth area for your business, even if you only ship some products internationally, so it’s worth tackling the logistics head-on. Consider these figures:

According to Oberlo, one out of every four people you see is an online shopper.
Statista reports that retail ecommerce sales is going to grow from $3.53 trillion USD to $6.54 trillion USD in 2022.
Statista has the average order value of an international sale at $147 USD. That’s 17% higher compared to an average domestic sale.
Retailers who offer premium international shipping grow 60% times faster than those that don’t.

These figures show that online shoppers have come to expect international shipping, and ecommerce businesses are increasingly meeting that expectation. Shipping internationally creates an opportunity for stores like yours to sell to a larger audience.

Here’s what we’ll cover in this post so you can make better shipping decisions and expand your business on your terms.

Building an international shipping strategy
Shipping internationally through Shopify
What to charge international customers for shipping
Finding country regulations
Preparing packages
Working with multiple carriers
Pricing out your shipping

Building an international shipping strategy

While it’s difficult to give a definitive list of best practices that apply to every business, there are a few central decisions you’ll need to consider for your international shipping strategy.

Where and what you’ll ship

You’ll first need to identify where in the world you’ll ship to and which products you’ll ship.

Unsure which markets you should expand to first? Here’s a few indicators that can help narrow it down.

Start small. And close. By keeping the shipment close to home, you can set realistic expectations for customers on delivery times and rates. Starting small and close also allows you to get a feel for what it takes to expand your shipments.
Track current demand. Check out your shop’s traffic analytics and see which markets or countries are already visiting your online store. You can also gauge interest by direct customer requests to sell to their market. Repeat visits or high traffic could show interest in your products or offerings.
Consider the main languages of any market for expansion. Communication is essential when dealing with customers. If you’re fluent in a few languages, consider expanding into the countries that speak those languages first. If you only speak one language, find other countries or markets where that language is prominent.
Ensure there’s product-market fit for your target country. Are there markets around the world that you feel suit your business better than others? Some research may be required here. Checking into ecommerce penetration could be a good first step (explore that data here). Dig into the consumer trends and tastes of those markets. An item that’s a celebratory gift in the US may mean something different in South Korea, for example.

You’ll now need to consider what to ship. You may want to offer your entire product line. However, before you start shipping all over the world think about these aspects of your products and your business.

Building on the points above, are there items that would appeal to the international market(s) you’re looking to ship to?
Lightweight and smaller items will be more cost effective to ship and easier to package.
The more durable the packaging, the better. Shipping fragile products that may be damaged in transit if not packaged properly may increase the chances of a less-than-satisfactory delivery. If you decide to ship them, invest in sturdy product packaging.

Get familiar with country rules and regulations

Once you have an idea of what regions offer the most immediate opportunities, and which products you’ll be sending, it’s time to check into country-based rules and regulations.

Some countries prohibit items outright; others may limit them. Being informed on the rules and regulations that exist and which may impact your shipments can help ensure a smooth delivery.

There are a few ways you can get this information:

UPS has a tool that shows country-specific rules and regulations by origin and destination countries.
Check and see if your products are eligible to be imported into a given destination country. For example, the shipment of artwork from the US to Saudi Arabia is prohibited.
Check and see if any of your products—or components of your products—are listed as “dangerous goods” while being shipped. In general, a “dangerous good” is defined as a product that may cause harm during transit. The best place for this info would be a country’s government website. Canada and the UK provide great examples.

How to ship internationally with Shopify Shipping

Shopify offers merchants in the United States,Canada, and Australia access to discounted rates with USPS, UPS, DHL Express, Canada Post, and Sendle so you’re already set up to compare their rates.

When you purchase international shipping labels through Shopify, the correct customs forms and documentation are automatically generated for you and can be printed on any standard printer. When you use DHL Express to ship from the US, this documentation is electronically transmitted to customs–no additional paperwork necessary.

When you’re ready to get your shipments out the door, you also have the option to schedule a free or discounted pickup for any UPS,DHL Express, or Sendle shipment or link out to schedule one directly with USPS.

When considering which shipping carriers you may use, there are four factors to consider.

Costs

Using multiple carriers is one way to reduce your shipping costs.

Postal carriers are often more affordable, but may not offer many options for package types and speeds. Express carriers tend to be faster, can accommodate heavier or larger packages, and provide more service options, but can be more expensive.

Do your research and price out postal, regional, and express carrier options. We’ll cover how to charge for international shipping below, but it’s good to know what’s available for your international shipping strategy.

Delivery options

Some customers will want their purchases right away, and others will be more willing to wait.

To best serve your customers, offer a good mix of delivery options. Providing a range of choices gives them the option to balance the tradeoff between timeline and price, and that might be the difference between a sale and an abandoned cart.

Tracking and insurance

Most carriers provide shipment tracking, so you and your customers can easily see up-to-date shipment statuses. You can also add ePacket tracking to give customers end-to-end tracking options.

If you’re worried about a package becoming lost or damaged, insuring your shipments is the way to go.

Insurance is offered by most global express carriers and if it isn’t automatically included in the cost of shipping, it’s relatively affordable and straightforward to add.

If you are a merchants in the US, you can add Shipsurance shipping insurance to any shipment, regardless of shipping method or order destination.

When using postal carriers like USPS or Canada Post, some shipping services are available that include insurance in the price of shipping. You can use mail classes like Priority Mail International and Priority Mail Express International for USPS or Priority Worldwide, Xpresspost – USA, or Xpresspost – International for Canada Post, to get automatic coverage. You can always pay for coverage using a different shipping service—usually a few dollars per $100 USD of declared value.

Whatever you choose, consider adding insurance to any package over $200 being shipped to another country. Doing so will add some peace of mind to both you and your customer.

Be transparent about fees

This might be the most important part of any international shipping strategy: Be as transparent and communicative as possible with your customers about shipping costs. Don’t surprise your customers with an unexpected total cost at checkout.

According to the Baymard Institute, nearly 50% of the cart abandonment they surveyed on ecommerce sites in 2020 was due, in part, to extra shipping fees and costs:

Our own research studies how customer trust develops during the purchase journey of shoppers who buy from a new online store. The study reveals that when shipping internationally, a store’s shipping policy that clearly states who pays duties and taxes is a must-have to build trust and win a sale with a brand new shopper.

One place you can communicate these costs is on your policy pages. Clearly lay out how and where you ship products internationally, and what costs may be associated.

You can also do something as simple as adding flags to your top navigation to show your shipping availability, like Pure Cycles did here.

Letting your customers know where you deliver to doesn’t have to just be about costs. A tool like the Free Shipping & Hello Bar can help you promote your shipping and rates to a global audience.

It’s best to use all options available to communicate shipping costs—or potential costs—to a customer, whether it’s on your homepage, product page, or on a policy page. It’ll set expectations for you both, which can help give the customer added confidence to complete their purchase.

What to charge for international shipping

There are four key components for deciding on the cost to ship your products internationally. All four contribute to how effectively you’ll ship around the world.

Packaging

Before you ship anything, you’ll need to get packaging supplies. You may need a few sizes of boxes to accommodate different sized shipments. You might also need cushioning, like bubble wrap or stuffing. You can get your packaging both online and at post offices or office supply stores.

In general, it’s best to keep your packaging sturdy but simple. No one wants to deal with three boxes of varying sizes when getting a single product from your business.

Trying to strike this balance of sturdy packaging and low cost may require some homework. Look for deals where you can. For example, if you use USPS as a business, you can order boxes for free.

Working the cost of packaging into your total product cost should be pretty straightforward. Depending on the size and quality, most packaging should cost somewhere around $1.00 – $5.00 each.

Cost of shipping

Building the cost of shipping into your pricing approach is an essential part of correctly setting your prices. You don’t want to lose money on shipping or overcharge your customers. To make sure your approach works, think through these steps:

Consider and compare

Do you ship a lot of similarly sized products? Or maybe a few sizes or weights of packages? This difference, naturally, affects how you’d price a shipment.

Here’s one way to find the costs of shipping internationally:

Using a rate calculator for the carriers you’ll use, take your average domestic order and price it out as if you were shipping internationally.
Then use the rate calculator for your smallest domestic sale.
Now run the costs for your largest domestic sale.

With these three figures in place, you’ll have a sense of pricing for international shipping. It’ll also help you determine which shipments may cost more than others.

If you’re in the US, see how much it will cost to ship internationally with Shopify in our shipping calculator.

Here are two examples of this approach:

Merchant A

Smallest domestic sale cost $5.33 to ship internationally
Average domestic sale cost $15.47 to ship internationally
Largest domestic sale cost $124.55 to ship internationally

Merchant B

Smallest domestic sale cost $1.33 to ship internationally
Average domestic sale cost $2.75 to ship internationally
Largest domestic sale cost $3.25 to ship internationally

Merchant A has a broader range of shipping costs to cover. And Merchant B’s range is relatively narrow. Merchant A may be selling heavier and more varied products, while Merchant B’s offerings seem more consistent in size and cost.

Once you’ve determined your range, you’ll need a pricing structure that’s a good fit for you and your customers.

Structure your pricing

There are three main pricing structures when shipping around the world: Free shipping, carrier rate shipping, and flat rate shipping.

Free shipping: Free shipping is an excellent option for customers. If your profit margins allow for international orders to be shipped for free, consider offering it. If you’re not sure, check out this post on calculating order thresholds for free shipping.
Carrier rate shipping: Shopify already integrates with a few carriers (like USPS, DHL Express and UPS in the US, Canada Post in Canada, and Sendle in Australia) and gives customers shipping options and real-time pricing. Carrier calculated shipping can be very friendly since it allows your customer to choose and does the math for you. Plus, your customer will be charged the same rate that it will cost you to ship their order with Shopify Shipping.
Flat rate shipping: If your international shipping is consistent, in both the size/weight of your packaging as well as the cost of shipping (like Merchant B above), it may be worthwhile to consider flat or manual rate shipping.

Handling charges

Along with the cost of your packaging and materials, consider adding a handling charge.

International shipments pass through many more additional facilities than the typical domestic order. You should be packaging these shipments with more care, and that’s included in your handling. To determine your handling charges, ask yourself:

What’s your minimum hourly wage when preparing and packing shipments?
How long does it take you, on average, to prepare an order for shipment (from reviewing the order to sending it out)?

Now you can determine your handling costs. Here’s an example:

It usually takes 10 minutes to prepare an order for shipment. And at $11/hour to prepare these packages, you would add a $1.83 handling charge to cover the cost.

(10 min/60 min) x $11 = $1.83 is the handling cost

Again, adding in a handling cost is entirely up to you, and you need to do what’s best for your business. Keep in mind that international orders are typically a bit more expensive, and international customers usually expect to pay a bit more for quality shipping. A big part of a quality shipment is how it’s handled and packaged.

Duties and taxes

International shipments can be subject to duties and taxes depending on a number of factors. It’s important to do your research and factor any duties and taxes into your pricing strategy especially for any key international market you are targeting. You can use this duty calculator to get an idea what duties and taxes may apply to your products per destination country.

Taxes are based on a fixed percentage per destination country (and sometimes state or province). Duties, on the other hand, depend on a number of factors such as:

The value of the items being shipped.
The country of origin or where items were manufactured.
The type of the items being shipped and attributes such materials used to make them.

By default, the importer (i.e your customer) is responsible for any taxes or duties on the shipment and will need to pay them before they can receive their order. This is called Delivered Duty Unpaid (DDU) or, more officially known as, Delivered At Place (DAP). It’s very important to be transparent with the buyer about additional fees to manage their expectation and avoid returns and chargebacks. Make sure to set up a clear return policy on your website.

To provide a smoother and surprise-free buying experience to your customers, you can choose to be responsible for paying these fees, this is called Delivered Duty Paid (DDP). In this case, you need to collect these fees upfront.

From a logistical standpoint, you will buy the appropriate shipping label DDU/DAP or DDP and include customs documentation with your international shipment. Check with your domestic postal service as a local resource to make sure you know which documents you need to ship internationally. They’ll typically have these documents for you.

When you buy your shipping labels through Shopify Shipping, you’ll be provided with the necessary customs documentation needed to fulfill international shipments.

The correct customs paperwork required for an international shipment can vary by country. But typically these two documents will be required: a commercial invoice and an export packing list.

Commercial invoice

This is the bill for the shipped product from the seller to the buyer that helps prove ownership and payment. Used to determine the true value of the product(s) being shipped, this document helps the country assess customs duties and taxes. Here’s some essential information that should be included:

The merchant and customer’s names and addresses
The price, descriptions, and quantity of the products included
How the sale was made and the terms of the payment
Shipping method

Depending on the carrier you are shipping with, the customs information may be embedded in the shipping label. DHL Express provides Paperless Trade to most countries, reducing the need for extra printed documents.

Export packing list

The typical detail on a packing list is on this form (buyer, seller/shipper, invoice number, date of shipment, etc.) but it also includes more extensive information like:

The mode of transport
Carrier info
Weight and dimensions of the packages (usually in metric measurements)
The type and quantity of packages
Package marks

Time to ship internationally

The first step to ensuring international shipping success is to have a strategy in place. From what and how you’ll ship, to where and at what cost—giving these factors some thought and research will better prepare you to grow your business around the world.

As well, remember to try out new approaches and techniques. Shipping is a fluid and seasonal industry. Be sure to re-apply and refine your strategy as new offers or changes take place.

Shopify Tutorial

How to Implement a Return Policy That’s a Win for Both You and Your Customers

Apr 30, 2021 Elksourcing, Return Policy by 露露

This article is from Shopify, and was republished and shared through Elksourcing with the permission of Shopify.
Original link:https://www.shopify.com/blog/return-policy

Returns, refunds, and exchanges are all a part of doing business online. Just in the United States, Statista estimates return deliveries will cost businesses $550 billion by 2020—a 75.2% increase from four years earlier. Plus, nearly 41% of shoppers buy with the intent of returning.

Customers might be unsatisfied with their order for a number of reasons—it arrived damaged, they ordered the wrong size, or it simply didn’t meet their expectations. So they ask for a replacement or for their money back.

But without a proper system for handling them, these requests can eat up a lot of time, energy, and money with hours spent on customer service emails and spikes in shipping expenses for replacement products, especially after the holidays.

The good news is that it’s never too late to address the problem. With a great return policy and the right system in place, returns and exchanges can be transformed from a dreaded aspect of commerce into an opportunity that actually generates new profits for your business and increases customer loyalty.

But before we dive into how to write a return policy for your store and implement a system to handle requests, let’s talk about why it’s so important to get returns and exchanges right.

Table of Contents

What is a return policy and why do you need one?
Setting up an RMA system for returns and exchanges
How to write a return policy (+ free return policy template)
Where to put a standard return policy
Tools to power your return and refund policy
Strategies for more profitable returns and exchanges
Making the most of your return and refund policy
Return policy FAQ

What is a return policy and why do you need one?

Return policies are the rules a retailer creates to manage how customers return and exchange unwanted merchandise they purchased. A return policy tells customers what items can be returned and for what reasons, and the timeframe over which returns are accepted.

Why have a return policy? Getting a return request can be painful both financially and emotionally.

Refunding a customer’s order can result in a loss of profitability, and knowing that someone disliked your product can be disheartening for business owners who strongly believe in the benefits of what they sell.

For these reasons, it can be tempting to ignore the reality of returns and exchanges and leave the mounting problem unaddressed.

The pitfalls of a poor return policy

Over time, however, customer complaints about your return policy can start to filter onto social media, showing up as comments under your ads or even in Google searches about your business. This is where a poorly implemented returns system starts to negatively affect your overall reputation as a business. If bad sentiment about the buying experience starts to spread online, it is likely you will see a drop in conversion rate.

Processing every return manually and dealing with customers on a case-by-case basis can also be expensive for your business operations and exhausting for customer service staff. If the time and expense to process a return or exchange isn’t monitored and optimized, it can even prevent you from scaling your business.

At some point, most businesses will need to figure out a solution for returns and exchanges that benefits themselves and their customers.

The advantages of a customer-centric return policy

Many innovative businesses have recognized that a customer-centric return policy is a powerful marketing tool.

According to UPS, 68% of shoppers check a website’s return and exchange policy before making a purchase. That’s why many brands now advertise “free,” “easy,” and “no-hassle” returns and exchanges to increase conversion rates and online purchases.

A return policy that benefits the customer is often the differentiator between businesses with a strong repeat purchase rate and those that rely on one-time purchases only. As the cost to acquire customers rises, many businesses are looking at how to retain customers and increase their lifetime value.

Although a return or exchange may not make a business profitable on first purchase, the better customer experience is more likely to lead to a higher retention rate and long-term revenue growth.

Lastly, your reputation will benefit most from offering easy returns and exchanges to customers. According to Nielson’s Global Trust in Advertising Report, 66% of people surveyed trust consumer opinions posted online. These positive customer reviews and word-of-mouth recommendations about the buying experience will pay off as free marketing for your business that will allow it to thrive in the long-term.

Setting up an RMA system for returns and exchanges

If you’re running an ecommerce business, you’ll want to put a return merchandise authorization system (RMA) in place to manage returns in your store. Having an easy returns process can take the pain out of returns and exchanges for both the business and its customers.

Whether you’re receiving your first return request or are trying to repair a flawed returns process, your RMA system can immediately help cut down the customer service hours spent on returns and exchanges.

What is an RMA system?

A return merchandise system helps you handle returns for your customers. It lets customers initiate a return, receive a pre-paid label with an RMA number, and ship the return without taking up your time. An RMA system also helps you manage and track your returns by relisting approved items back into your inventory and monitoring the financial impact of returns on your bottom line.

What is an RMA number?

RMA stands for return merchandise authorization. An RMA number is given to any service order created when a customer needs a repair or if they believe the product isn’t working properly.

The difference between returns and exchanges

In ecommerce, the customer usually decides independently if they want a return (which signifies a refund) or an exchange (usually for a gift card or a replacement product of equal value).

If a customer wants a return, they are communicating that the product did not meet their expectations for one reason or another and want a refund. An exchange on the other hand, could mean they just chose the wrong item or the product was broken or ripped.

It is important to distinguish early on in your system which of the two categories the customer falls into, so you know how to process their request. Whether a product is eligible to be returned or exchanged, or both, should be considered before it is sold and clearly stated on your website’s return policy page.

How do you set up an RMA system?

Fortunately, retailers today can set up a returns management portal on their websites quickly and easily. You can use a Shopify app like AfterShip Returns Center to manage returns and auto send return labels for free.

With AfterShip, you can also:

Create a self-service returns process. Customers can submit returns by themselves in just a few clicks without contacting your support team.
Set up automated notifications. Send customers updates about their return promptly. You can choose from pre-set notifications or create your own.
Send shipping labels. You can set returns rules that match your return and refund policy, auto-generate shipping labels, and even offer discounted USPS labels if you sell in the United States.

A good RMA system not only takes the hassle out of managing return requests, it also creates a delightful post-purchase experience that builds loyalty and turns returns into sales for your business.

How to write a return policy (+ free return policy template)

Given that 96% of people would shop with a retailer again based on an “easy” or “very easy” return experience, let’s look at how to write a great return policy.

The first step to setting up a system to handle returns and exchanges is formalizing your policy so you can communicate it clearly to your customers. A written return policy allows you to treat all requests the same and avoid the tendency to handle things on a case-by-case basis, which is often less productive and more expensive.

Policies will vary depending on the logistics of your ecommerce business and the products you sell, but every policy should cover the following basics:

What items can be returned
What items can be exchanged
What products are “final sale” (i.e., non-returnable, non-exchangeable)
When things can be returned or exchanged (i.e.. 30, 60, or 90 days past purchase date)
In what condition can items be returned (i.e., lightly worn, with tags still on, original packaging, original condition, etc.)
What products can be returned for (i.e., store credit, refund, a product of equal value, etc.)
How to initiate a return or exchange (i.e., an email address to contact or a web page to visit)

Note If your store is using Amazon, eBay, or Etsy as a sales channel, be mindful that these marketplaces have their own returns policies. What you state in your retail return policy may not apply if using these channels.

Ecommerce return policy template

Below is a basic template for a return policy that can be adapted to fit your business. Just replace the bolded text with your own policy and use the lists as a guide to ensure you don’t forget to include any important information:

If you’re looking to return or exchange your order for whatever reason, we’re here to help! We offer free returns or exchanges within 30 days of purchase. You can return your product for store credit, a different product, or a refund to the original payment method.

Please note the following exceptions to our return and refund policy:

Below are some examples of common exceptions:

Discounted items are final and cannot be returned or exchanged
Returned items must have tags still on and be returned in original product packaging
Returned items must have no visible signs of wear or use

To initiate a return or exchange, please complete the following steps:

Your steps should be laid out clearly, linking to relevant pages, such as your online portal.

Login to our online return portal using your email address and order ID.
Choose the products you wish to return or exchange from your order.
Print the prepaid shipping label that you will receive by email.
Send all items back to us using the label provided.

Additional Information:

The following are add-ons with more information that you may want to include:

How long it takes to receive your refund, replacement product, or store credit
Any shipping fees the customer will need to pay
Any return restocking fees the customer will need to pay
How you handle lost or damaged returns
Contact information for your business if the customer has more questions

Where to put a standard return policy

It’s not enough to have a well-written return and exchange policy—you must also make sure customers see it before they buy. When talking to a frustrated customer who is trying to return an item marked as final sale, simply telling them it’s their fault for not reading the policy is unlikely to resolve the issue.

Include links to your policy in several hard-to-miss places throughout your website to save time going back-and-forth with customers who did not see the policy. A few key places to list your policy include:

Your website footer
FAQ page
Product page
Cart
Checkout
Website chat

One great return policy example comes from Chubbies, an online clothing retailer. The brand includes return and exchange questions in its website chat window. You can also start a return with one click.

If the return and exchange policy is clearly outlined on your website so it can’t be missed by customers, the right expectations will be set before the purchase is made. There will likely be some customers who are unsatisfied with your store’s policy, but hiding the policy in fine print only leads to a lack of trust.

Tools to power your returns and refund policy

Just like having a formal return and exchange policy will help eliminate some of the hours spent on customer service, using the right services for processing returns and exchanges will save you both time and money on the shipping and fulfillment and operations sides.

Shopify Shipping and Returns

Returns can be managed directly in Shopify with an easy step-by-step workflow, which includes creating a return request, identifying the return reason, tracking return shipping, and sending notifications to your buyer. You can even use Shopify Shipping to generate and email a return shipping label to your customer, making the process even more seamless. Merchants who use Shopify Shipping also benefit from discounts with carriers for both outbound and return shipping. Return labels are “pay on scan”, which means return labels are only charged once they’ve been used.

Return and exchange apps, like the ones below, are another option. These apps make processing returns and exchanges more self-serve for customers by offering a portal where they can make a return request, download a return shipping label, or choose products they want to exchange an item for.

Return Magic

Used by over 2,000 ecommerce stores, Return Magic is a return and exchange solution that easily integrates with your existing logistics system.

Return Magic also uses Shopify product tags to allow businesses to set up customized rules for returning and exchanging certain products:

For businesses that sell a wide variety of products with different return rules, being able to customize your policy with these triggers can save valuable time going back and forth with customers.

Advanced features like these prove that return and exchange rules don’t need to be one-size-fits-all. Special circumstances, like buying during a flash sale, can still be taken into consideration within an automated system.

Returnly

Returnly is one of the larger self-service returns providers for ecommerce stores. The app provides online stores with their own customizable “Returns Center,” which customers can sign into using their order number or email address to access their past purchases and select items they wish to return.

On the merchant side, Returnly offers the option to purchase pre-paid shipping labels through the app and get access to its shipping rates, or the ability to upload your own shipping labels to send to customers. This customization extends to almost all other aspects of the return flow, where you can decide what products customers can return or exchange, who pays for the shipping label, and whether they are given a store credit or full refund.

One of Returnly’s main differentiators is its Instant Refunds feature, which offers customers a store credit they can use to reorder before sending back their original purchase. If the customer does not return the product but uses the Instant Refund credit, Returnly covers the cost.

By providing an immediate store credit, Returnly found that shoppers were three times more likely to purchase again from the store. This feature helps transform returns and exchanges into repeat purchase opportunities.

Build stronger relationships with Shopify Ping

Shopify Ping connects to the messaging apps you already use to bring all your conversations into a single mobile location, making it easier to respond to questions and build relationships with customers—even when you’re on the go.

Strategies for more profitable returns and exchanges

An unavoidable consequence of offering returns and exchanges to customers is that it’s not cheap. Although you can cut down on customer service hours with an app, the shipping fees associated with returning a product and restocking it can still threaten your profitability.

However, there are a few ways to minimize your losses while still offering returns and exchanges to customers.

1. Turn returns into exchanges

The difference between returns and exchanges is most prominent when looking at profitability. When a customer returns a product for a refund, the business usually loses money on the customer acquisition and return shipping costs, plus it needs to refund the customer any profit made on the original order.

With an exchange, the loss is often less impactful. With strong product margins, offering a replacement product instead of a full refund can keep your business cash flow positive.

A common way to encourage exchanges over returns is by only offering to cover the cost of return shipping if the customer chooses to exchange the product.

When presented with the three options above, the choice to get a store credit or new product may be more appealing to those who have not fully sworn off your brand. Convincing customers to give your brand a second chance with a new order can also help improve lifetime value, as they are more likely to come back and purchase again if they are satisfied the second time around.

Chubbies takes this extra value-add for exchanges a step further, by offering an additional $10 in purchase value if customers decide to buy a new product with their return credit:

By only making the exchange option more valuable, and not penalizing customers who just want to return, Chubbies creates a positive customer experience for everyone, while encouraging more customers to choose exchanges instead of returns.

2. Sell product warranties

When a customer chooses to return a product for a refund or exchange, one risk a company often takes on is whether or not it will be able to resell the item.

It can sometimes take up to two weeks for a product to re-enter stock after a return is initiated, and the time spent in transit and unpacking can often leave it damaged. If the product is expensive, replacing it might not be an affordable option.

For more expensive items, companies may want to consider selling product warranties to customers. Warranties protect businesses against paying to replace damaged products and avoiding disputes over who is to blame.

Warranties can be sold through an app like Clyde, which can be added to your website to put the decision to protect the order back in the customer’s hands:

Photo courtesy of: Clyde

Warranties like this can also have the potential to unlock a new revenue stream for your business, since the providers often offer a commission on all premiums sold. That way, your customers are protected for a longer term and your business collects a little extra revenue instead of paying for damaged goods.

3. Upsell or cross-sell on exchange requests

One ecommerce returns best practice is to upsell or cross-sell on exchange requests. Although exchanges are usually more profitable than returns, their profitability can be narrow depending on the product and its margins. If exchanges are still costly, it might be a good idea to look at upselling or cross-selling on exchanges.

When a customer comes back to your website to use their store credit, there is an opportunity to show them new products they did not purchase the first time around that compliment what they’re exchanging for.

Various Shopify apps can be used to show customers related products at checkout.

Make sure to adjust your shipping policy for returns and exchanges. In cases where customers cover the cost of shipping on an exchanged item, it may make sense to allow them to add more products to their cart to reach a free shipping threshold. Upselling is also possible when you know the reason for the exchange and can make a personalized recommendation for a higher priced item that addresses the specific needs that weren’t satisfied on their first purchase.

For example, if a customer is exchanging a digital camera because they found that it was too heavy, you can recommend a lighter-weight version that might have a higher purchase price but resolves the issue they had with their first order.

Looking at every exchange as a new opportunity to increase order value by upselling or cross-selling, the incentive to convert more returns into exchanges becomes clear.

Making the most of your return and refund policy

No matter how much effort you put into your product and customer experience as you grow your business, chances are you will still encounter a few unsatisfied customers along the way.

How small businesses decide to deal with these unsatisfied customers is an important factor in the staying power of your brand. A company that figures out a relatively painless shipping strategy to handle return and exchange requests is more likely to retain its customers and have them come back and purchase again or, better yet, tell their friends.

Writing a clear return policy that feeds into a well-thought-out return and exchange system—and regularly optimizing it to make it more efficient—is a powerful way to cut costs and potentially turn a bad customer experience into a net positive outcome for your business.

Return policy FAQ

Is a return a refund?

No. A return is when a customer sends an item back to your store or warehouse. They usually have to return an item before they get a refund. A refund means giving the customer all or some of their money back for an unwanted item.

What is a return and refund policy?

A return and refund policy is an agreement between customers and your business regarding returns and refunds. It can include the following information:

How many days they have to return a product
How you give refunds, whether through credit card, debit card, or replacement
Who pays the shipping charges for returns
What you offer refunds for
How many business day it takes to receive a refund

Are refunds legally required?

Depending on your country and state laws, you can technically have a no refund, no return policy. But a no return policy can make customers distrust your brand and abandon a purchase.

How do I make a return policy?

Create a return policy that builds trust with customers.
Be clear and concise when writing your return policy.
Don’t demand things from your customers.
Make your return policy easy to find and access on your website.
Make sure your teams know your return and refund policy.
Take responsibility for mistakes.
Give examples of your policy in action.

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What is a good gross profit margin?

How to increase profit margin

1. Reduce operating costs

2. Don’t obsess over per order profits

“I’m sorry, sir. We only made $X on your purchase, so if we [fill in your reasonable request here], we’d lose money on your business. I hope you understand.”

3. Increase the trustworthiness of your store to generate sales

4. Increase your average order value

5. Create a customer loyalty program

6. Raise your prices

Finding the ideal profit margin for your business

Profit margin FAQ

How do you calculate profit margin?

What does the profit margin tell you?

Is a high profit margin good?

What is gross profit percentage?

What is a good profit margin for retail?

What does operating profit margin mean?

How do I calculate operating profit margin?

Break-Even Analysis: How to Predict If Your Next Venture Will Be Profitable

What is break-even analysis?

Why you must do a break-even analysis

Price smarter

Cover fixed costs

Catch missing expenses

Set revenue targets

Make smarter decisions

Limit financial strain

Fund your business

When to use a break-even analysis

1. Starting a new business

2. Creating a new product

3. Adding a new sales channel

4. Changing the business model

Break-even analysis formula

Step 1 – Gather your data

1. Fixed costs

2. Variable costs

3. Average price

Step 2 – Plug in your data

Step 3 – Make adjustments

Warning: Don’t forget any expenses

Limitations of break-even analysis

Not a predictor of demand

Dependent on reliable data

Simplistic

Ignores time

Ignores competitors

Strategies to lower your break-even point

1. Lower fixed costs

2. Raise your prices

3. Lower variable costs

Basics of Small Business Accounting: 12 Steps to Get Your Company on Track

How to do accounting for a small business

1. Open a bank account

2. Track your expenses

3. Develop a bookkeeping system

4. Set up a payroll system

5. Investigate import tax

6. Determine how you’ll get paid

7. Establish sales tax procedures

8. Determine your tax obligations

9. Calculate gross margin

10. Apply for funding

11. Find high-quality accounting partners

12. Periodically re-evaluate your methods

Small business accounting FAQs

How do you keep accounting records for small business?

What is the easiest accounting software for small business?

How much are accounting fees for a small business?

How much is an accountant for small business?

What does an accountant do for a small business?

What does a bookkeeper do for a small business?

Know your numbers to grow your business

Add Local Delivery Service to Drive More Online Sales

What does local delivery mean?

How local delivery can help your business