Article
How to Budget Shipping Costs for Crowdfunding
Launching a crowdfunding campaign is an exciting process! With all of the moving parts it can be a challenge to make sure you cover all your tracks, especially when it comes to budgeting which can incorporate a lot of unpredictability. You’ll need to have a good understanding of how much money you need to raise and how much it will cost to fulfill the rewards promised to your backers.
One element in this budgeting puzzle that you don’t want to overlook is shipping and logistics costs. If you do, you run the risk of exceeding your margins, which will force you to use your own money to cover your costs. That’s why it’s important to budget for shipping. We’ve crunched the number based on the campaigns we’ve worked on, and figured that for shipping you will need to budget 10–15% of the funds that you raise, 20% max – depending on your item category.
In this article we’ll break down the information you’ll need to know and factors that will impact your shipping costs, as well as how Easyship can help estimate these costs.
Calculating Your Shipping Costs for Your Next Crowdfunding Campaign
Every aspect of your crowdfunding campaign is important. But why is it important to budget for shipping? Nobody likes to hear the horror stories, but they are out there — and we’ve heard them all. Campaigns that don’t budget for shipping will end up losing all of their profits to cover shipping and, in the worst cases, have even gone bankrupt. It’s one area where unknown costs can quickly compound and completely derail the campaign, especially when cross-border shipping is involved.
When should you start budgeting for shipping?
It’s never too early to start sketching out some rough estimates for shipping. Once you start imagining some numbers and even putting them down on paper, it’ll be a good starting place, and assure that shipping and logistics remain a priority.
At around 6 to 8 weeks before your campaign launches, you will want to start building your official budget.
Information You’ll Need
Before you start your budget, you’ll want to make sure you have gathered all of the relevant information. First thing’s first, consider your product itself. Its weight and dimensions will determine the kind of packaging you ought to you and, eventually, how much it will cost to ship the item. Depending on the size of your product, the volume of the shipment and your destination, flat rate shipping could be the right choice for you.
It’s not always that simple though. Perhaps the biggest thing to keep in mind is the target market, paying careful attention to the tougher rules and regulations that come hand in hand with international shipping. With 38% of the average campaign’s backers living outside of the US, this is more important than you might think. If not closely adhered to, packages can linger in customs for an extended period of time, leaving your backers high and dry.
Courier Choice
When choosing couriers, think about your shipping goals and what you expect from them Factors like speed, cost, service quality and tracking are not only industry standards but are also important customer touch points. Your business needs to work with a reliable service to ensure your product is handled properly from end to end when in transit. Plus, working with a logistics partner prevents you from overspending on shipping — which is a common blunder. Perhaps of equal importance, providing a good delivery service builds trust between you and your backers, helping you gain a positive reputation and industrial credibility.
Postal services vs express couriers
The name of the game is options. And in this day and age, there’s no shortage of them. Here’s a quick breakdown of three at bat.
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- Postal: Most affordable option, but it might take longer and tracking is less reliable.
- Ex: USPS
- Express couriers: Faster and offers more reliable tracking, but can be more expensive.
- Ex: UPS, FedEx
- Postal: Most affordable option, but it might take longer and tracking is less reliable.
- Regional couriers: Regional couriers can provide faster delivery times with pricing in between postal and express couriers, making them a more affordable and reliable option.
But what about international shipping? So glad you asked. When you ship with express couriers, they will see to it that your package makes it from origin to destination. With the postal service, it’s a bit different. Take, for example, shipping from the US to Singapore. The USPS can get the package as far as customs in the destination country, but at that point the destination’s country is then responsible for the rest of the delivery. For international shipping the best, most cost efficient strategy is to work with multiple couriers, a mix of domestic and international, for a last-mile shipping strategy.
Whatever you go with, make sure to communicate your strategy to your backs. By sharing your transparent shipping policy before campaign launches, no one will be surprised with hidden fees or packages on their doorstep.
What are the Factors that Affect My Shipping Costs?
Determining expected shipping costs can be a daunting task, even if you’ve been through this whole song and dance before — that’s for certain. Shipping calculators, like Easyship’s, can help with expectations. But having even a top-level understanding of the below factors will help demystify the shipping process and (hopefully!) reduce sticker shock when it comes to shipping costs.
Distance traveled
Consider the location of backers when determining costs. As a rule of thumb remember that the further away, the higher the price. Couriers like the USPS, UPS, FedEX and DHL determine shipping costs using a system called shipping zones. In the US, shipping zones are based on zip codes.
Taxes and duties
Let’s not get in the weeds with this. In simple terms, you need to decide who pays for shipping and duties — you or backers.
In official terms, you can select DDU (delivery duty unpaid) and put the payment on backers. Or, you can pay for shipment and duties by selecting or DDP (delivery duty paid).In any case, if duties aren’t paid, the parcels will be held in customs.
International shipping
In international shipping, a tariff is a tax on certain imported goods. Below, you’ll find three key reasons why tariffs are often levied.
- To protect domestic industries from foreign competition
- To control the flow of certain products into the economy
- To raise new revenue through taxes
If you have backers in many different countries, it’s best to keep an eye on the news and be aware of restrictions and regulations regarding tariffs.
Additionally, when shipping internationally, additional handling charges may apply if you’re shipping goods to your backers that are deemed hazardous. One common example of a dangerous good, according to the International Air Transport Association (IATA), are lithium ion batteries that are commonly used in laptops. There are special protocols and regulations for shipping these goods.
Package size
Typically, the bigger the package, the more it costs to ship it — unless you’re using flat-rate boxes, of course. There are two kinds of weights to keep in mind. First is dead weight, which is the number of pounds an item weighs when you rest it on the scale. The next is dimensional weight, which measures the length, width and height of a package to determine how much space a package will occupy in transit.
If the item itself is expensive, it may be more expensive to ship it due to costly insurance policies.
Warehousing
If your campaign is processing over 100 shipments a month,you should consider working with a third-party fulfillment (3PL) provider to save money and time on shipments. Let’s take a look in more detail.
Consider a 3PL provider to save money
When sending out items you have a choice: Invest in staff and ask everyone you know to help send out orders or outsource this process to a third party. Just like no one really knows how to help you build Ikea furniture, your friends and loose set of acquaintances probably don’t know how to run a makeshift warehouse, meaning more time spent boxing items and more pizzas you’ll probably have to order them out of guilt and thanks. Why not leave it to the pros? The investment will be worth it for the peace of mind alone.
One way you can save money is by working with a third-party logistics (3PL) company on fulfillment. Below, we’ll explore why they’re proven to be successful.
Advantages of 3PL
If you choose to outsource your fulfillment to a 3PL, here’s what they’ll be responsible for:
- Receiving and storing inventory
- Monitoring and tracking stock
- Picking, packing and preparing orders
- Coordinating and scheduling shipments with couriers
This not only adds a degree of professionalism to your shipments and facilities, but it also will overall lessen your workload. By leaving the packaging to trained, full-time packers, you won’t have to worry about learning and executing on complex operational processes.
Plus, it’s a savvy business decision. Having the opportunity to ship from multiple warehouses in strategic domestic and international locations cuts down on shipping times and costs.
What to look for in a 3PL
Before committing to a 3PL, consider the following to determine if it’s right for you and your crowdfunding campaign:
- What kind of shipping solutions do they offer, and how many?
- Can they handle bulk shipments?
- How automated and efficient are they in fulfilling orders?
- Is the warehouse in close proximity to your suppliers and clients?
If a warehouse cannot handle bulk shipments efficiently or isn’t in an ideal location, it may not be right for your needs and be a money-suck rather than a cost-saving solution.
How global fulfillment cuts costs
You can avoid lease agreements and other related overhead costs by outsourcing eCommerce order fulfillment to 3PL companies. Instead, you’ll be charged a flat storage fee, only paying for the space you use to house your products rather than a whole warehouse.
Moreover by being stationed closer to your customers, 3PL companies help you reduce shipping costs anywhere from 15% to 35%. This is in part due to lower transportation costs and, additionally, because fulfillment companies will negotiate bulk shipping costs on your behalf.
Finally, there is the ever-complicated issue of taxes and duties. If you partner with 3PLS stationed in different countries, you’ll all but circumvent taxes and duties, as your goods won’t have to cross borders to get where they need to be.
Estimate Your Shipping Costs for Your Crowdfunding Campaign with Easyship
When it comes to crowdfunding rewards and deals, it’s key to manage expectations. For starters, if you under promise, you can delight your backers when you over deliver. It’s better than the inverse of promising more than you can fiscally manage. As always, transparency is key. When new developments arise, message your backers and keep them in the loop. And being prepared will help you catch potential problems that can sink your campaign.
Once you have all your information, it’s time to make your estimates and start planning for your crowdfunding campaign. Not sure where to start? You can set up a consultation with Easyship’s crowdfunding pros to discuss strategy and options.
