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How a Shopify store can compete with Amazon Prime Delivery? (Part 2)

· 7 min read
Ugurcan

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In my previous article, we brainstormed how as a Shopify store, you can compete with Amazon Prime delivery.

Your hypothetical business was in Seattle, WA, trying to offer nationwide free delivery to compete with Amazon Prime. The problem was that when you receive an order from the east coast, say, New York City, it is not affordable to ship via Air, such as with USPS Express Delivery. That’s why we decided that Three-Day delivery is an excellent option for you to start.

And remember that Amazon Prime is a subscription-based service. People pay $200 per year to get "free Two-Day delivery," which is not free, and it does not always arrive in two days as I explained before.

So why not beat Amazon? Let's explore how you really can offer Two-Day delivery for free.

Free Two-Day Delivery

You fulfill all orders in-house and print shipping labels from the Shopify dashboard. Opening the order details to print a shipping label will suggest a few delivery options:

  • USPS Priority Shipping
  • UPS 2nd Day Air
  • USPS Priority Express
  • UPS Next Day Air
  • UPS Next Day Air Saver

It can also suggest more carriers depending on which ones you have activated. For simplicity, I will compare USPS and UPS only in this article. It doesn't matter if you are using Shopify's dashboard to create shipping labels or not. Any shipping software would suggest the same options.

All shipping options appear to arrive in two days. I explored why Two-Day delivery is not possible with all shipping options in my previous article. (See "Understanding Distance" section) So that USPS Priority shipping is not an option for reliable Two-Day delivery, we only have the following options to choose from:

  • UPS 2nd Day Air
  • USPS Priority Express
  • UPS Next Day Air
  • UPS Next Day Air Saver

Let's take a look at the average cost of these services:

  • UPS 2nd Day Air - $16.75
  • USPS Priority Express - $27
  • UPS Next Day Air - $65
  • UPS Next Day Air Saver - $45

As you can see, these are costly options. It is expensive to ship from Seattle to New York City. However, when you look at it, UPS 2nd Day Air does not appear to be too bad. Your products may have enough profit margin to cover the UPS 2nd Day Air cost, and you can start offering Two-Day delivery nationwide. The remaining options are not feasible for free Two-Day delivery. Considering that these are average prices for a small package, the cost will even be higher if the order requires more extensive packaging.

But let's assume your products have enough margin. Is it that simple to start offering Two-Day delivery? Can you begin printing shipping labels and deliver them within two days?

Take time, slow down

If you only receive one order per day, you may be capable of packaging and deliver each order within two days.

Let's say printing a label and packaging an order takes 15 minutes. You can only work 8 hours a day. Possibly 4 hours of each workday must go to other business aspects. If you work 4 hours non-stop, you can fulfill only 16 orders.

There is also another issue. Once you package these orders, you need to take these packages to UPS locations. Only then is fulfillment complete. Let's say it takes 30 minutes to go to one. So that leaves you only 3.5 hours for packaging.

Well, this is not the only problem. For UPS to be able to deliver orders within two days, you need to hand these packages before a specific time of the day. In Seattle, UPS collects 2nd-day air packages at 2 pm. If you miss this time, the package will not arrive within two days. So, this could even leave you less time to prepare orders.

Warehouse Management

The time required to prepare and fulfill orders is known as "order lead time." You have to consider the lead time when trying to deliver within two days.

It is probably clear from the above example that if you do not have dedicated people for packaging and shipping, you will at least need a one-day lead time to prepare orders. That leaves only a single day for shipping. As a result, you cannot use UPS 2nd day Air shipping. There will not be enough time for it to arrive on time.

Let’s explore how to reduce lead time. If we could reduce lead time to 1 hour, you could well be on your way and use UPS 2nd Day Air to deliver orders from Seattle to anywhere in the US.

It is possible to reduce lead time to 1 hour if you have millions of dollars waiting on the side for a significant investment. You can build an automated fulfillment center with integrated robots to handle thousands of packages in one hour. It may sound like a dream, but actually there are businesses working like that in the world. We can talk about them another time.

Let's look at other options assuming you do not have millions of dollars for such an investment.

Building a Network

Actually, the major problem with the shipping issue is distance, rather than the lead time. As long as you can get closer to your customers, more shipping options become available to you, and they become cheaper.

Opening a second location in New York City may be challenging if you have a retail store, but you can ship your products to a warehouse that can store them for you. And when you receive an order, you can ask the warehouse to dispatch it on your behalf.

Managing inventory across multiple warehouses is known as creating a "Fulfillment Network."

There are many service providers available with which you can partner. You do not have to have coding integration with their systems. Most providers work over emails. Shopify allows you to send email notifications to fulfillment providers. The downside is that you need to review each order manually and request fulfillment if the order is close to that provider.

More advanced options are also available, such as Shopify Fulfillment Network or Fulfillment by Amazon (FBA). Once you sign up for these services, they will ask you to ship your products to the locations they ask you to, depending on the shipping promises you want to offer to your customers. All you need to do is ensure you have enough products in stock in each warehouse.

In the United States, when you open new locations in other states, your business is subject to sales and income tax for each state. Shipping your products to a warehouse is considered expanding your business to a new location. In that case, some apps can automatically calculate tax for each product and order. Check your local legislation to make sure you comply with all tax requirements.

If the packaging is good, customers won't be able to tell if your company uses a partner warehouse. It does not matter who fulfills the order. A fulfillment network is a good option when

  • The demand for your products is very high.
  • You are receiving many orders, and you cannot hire people for fulfillment operations.
  • You are receiving orders from all areas of the country, and you need to bring down your shipping cost.

Congrats. You now have a better understanding of the basics of the fulfillment network and the challenges around offering Two-Day delivery.

But still, this is not enough. You have to be better if you are to compete with Amazon. In the next article, we will dive deep into fulfillment networks to see how to beat Amazon. Until next time!