Planning a business expansion in Indonesia is not easy because you may encounter problems before succeeding. To make it easier on yourself, it pays to look for a reliable distribution partner first. This means taking time to assess the Indonesian contacts you’ve already made and see which ones have business potential.
Why Indonesia is a Good Market Opportunity
There are multiple market opportunities in the world’s fourth-most populated country, including expansion in retail, health, education, telecom, and financial services sectors. The Indonesian consumer ranks as one of the most confident in the world, and it climbed to 125.2 in August 2023 from the previous month 123.5.
Indonesia’s aviation market is the second-fastest growing in the world and favors U.S. products. Aircraft replacement parts and services are a significant market. There is also demand for air traffic control and airport logistics services, including ground support equipment. With high growth, the Indonesian aviation market require infrastructure, training, and components to keep their business running. With a projected CAGR of 6.5% from 2022 to 2028, Indonesia has a highly favorable in the MRO sector. This growth is driven by increasing demand and a wealth of opportunities for industry players. With a flourishing aircraft fleet, a thriving tourism industry, and a government dedicated to advancing the aviation sector, Indonesia holds a significant potential for MRO growth.
A competitive and expanding banking sector offers significant opportunities for IT and financial technology from equipment, software, and technology providers. There are opportunities for telecommunications infrastructure, such as satellites and ground stations, handheld devices, also integration devices or enablers. Telecommunications equipment and services and satellites remain excellent areas for U.S. products and services, which have a comparative advantage technologically.
Types of Local Partner in Indonesia
Before you go finding a local distribution partner, you need to know what type of local partner supply chain management in Indonesia.
A supplier is a person or business that provides a product or service to another entity. The role of a supplier in a business is to provide high-quality products from a manufacturer at a good price to a distributor or retailer for resale. A supplier in a business is someone who acts as an intermediary between the manufacturer and retailer, ensuring that communication is forthcoming and stock is of sufficient quality.
The role of a supplier in a business can be a demanding one as retailers expect a certain level of quality, and manufacturers expect suppliers to sell a lot of stock. Due to this suppliers must be flexible and understand how to manage relationships.
A distributor is an intermediary entity between a producer of a product, or manufacturer, and a downstream entity in the distribution channel or supply chain. The downstream entity is typically a retailer or value-added reseller (VAR), but it can also be a wholesaler.
The distributor is an integral supply chain component, acting as an intermediary between the manufacturer and the downstream entity. The distributor bridges the gap between upstream and downstream entities while adding important services that help smooth the distribution process.
A distributor typically works with multiple manufacturers and multiple downstream entities. For each manufacturer, the distributor serves as an agent that enters into an agreement with the manufacturer to sell its products to retailers, VARs or wholesalers.
A freight forwarder is a company that serves as an intermediary between transportation companies that import and export goods and the businesses that need them. Freight forwarders manage every aspect of the transportation process, from storing goods before shipment to ensuring they make it through customs.
They don’t handle the movement of the goods themselves, but they establish relationships with the companies that do so they can plan each step of every shipment on a client’s behalf. Freight forwarders work with transportation companies that ship products by road, rail, water and air.
Freight forwarders prepare for the shipment of a company’s merchandise by making arrangements with storage, transportation and other logistics companies. By using the services of businesses they contract with, they give their clients an affordable and reliable way to send and receive goods both domestically and internationally.
Procurement is obtaining or purchasing goods or services, typically for business purposes. The Procurement company is most commonly associated with businesses because companies must solicit services or purchase goods, usually on a relatively large scale. It can also include the overall procurement process, which is critically important for companies leading up to a final purchasing decision.
Companies can be on both sides of the procurement process as buyers or sellers though here we mainly focus on the side of the soliciting company.Procurement involves not only deciding on what to buy based on needs and budget, but also ensuring that the company is receiving enough value from the purchase. We all perform this work ourselves as individuals.
Any purchase you make depends on the quality of the product, the amount of time it takes to be delivered to your doorstep, how much value you’ll get out of your purchase, and many other factors.
What Can Distribution Partner Do For You?
Looking for a distribution partner in Indonesia isn’t just to give you an entry into the market. It is your way to sustainability and growth. They can help you with the following:
Setting up a Business
Finding a local distribution partner can help speed up your entry into the market especially if your industry is capped. The partner’s role depends on the agreement.
There are different business structures you can choose, but two of the most popular is a special purpose vehicle and a PT PMA. In a special purpose vehicle arrangement, a local becomes the business owner at face value. PT PMA may be more complex, but it also allows you to have more control over the business as you can hold a position such as a director or a shareholder.
Buying a Shelf Company
The process of company registration in Indonesia can be long and tiring. It may take weeks, sometimes months, to complete. One of the quickest ways to establish here is to buy a shelf company. A business partner such as AsiaCommerce can help facilitate it for you to make it more convenient, easier, and faster.
Distributing of Goods
As not all markets are open to you, as well as to take advantage of existing local businesses, you can look for a partner to help you distribute and sell goods in the country. Its knowledge on the market, rules and regulations particularly on importation, and business culture will come in handy.
How to Choose the Best Local Distribution Partner in Indonesia?
You may now understand the huge role a distribution partner has on your business, but you have no idea how to look for someone reliable. There’s only one smart and hassle-free choice for you: work with AsiaCommerce.
AsiaCommerce is the right business partner for expatriates who wish to work or businesses that want to set foot in Indonesia. We provide the support you need to start, maintain, and grow your business:
Local partner selection
Special purpose agreements
Market research and analysis
Start Your Business Expansion to Indonesia For Now
AsiaCommerce provides several services such as comprehensive market research, arranging partnerships in local industry, and creating sales programs based on market research.
Our Market Insight Research, Business Partnership Engagement, and Business Registration and Establishment services can help you expand and develop your business, register and establish your products and company.
Our strategy consulting services domain focuses on supporting private sector clients with comprehensive and specialized development regarding the company’s needs and also on the public sector for a broader scope.
If you’re interested in exploring market opportunities in Indonesia, visit our service page for more information. Our team will work with you every step of the way, from finding a supplier, shipping door-to-door, and handling import documents to ensure your success in importing from Indonesia.
Indonesia, the largest economy in Southeast Asia, has a steady economic growth of around 5% per year for the past decade. The country boasts abundant natural resources, a large domestic market with increasing purchasing power, and a young population. This is a good opportunity to expand business in Indonesia market.
With a population of over 275 million, Indonesia represents more than one-third of ASEAN’s population, making it the most populous country in the region. As the largest economy in the region, Indonesia’s economy accounts for more than one-third of ASEAN’s gross domestic product (GDP), which is estimated to be around USD 1.18 trillion in 2022. This potential has made Indonesia a likely candidate to become the ASEAN hub in the coming years. PwC projects that Indonesia will become the fourth largest economy in the world in 2050, behind China, India, and the US.
Public investment in infrastructure and friendly policy measures for a better private investment climate are the key factors driving the country’s economy. The government has implemented some reforms, including liberalizing some trade measures, cutting fuel subsidies, and improving tax compliance to free up funds for infrastructure development.
Private consumption is one of the main driving forces of Indonesia’s economy, with all economic activities predominantly directed at the domestic market. In 2022, private consumption reached 51.87% of GDP, and historically, the average contribution of private consumption has been 59.1%. In most of 2022, the central bank (Bank Indonesia) maintained low interest rates, which helped maintain a robust growth rate in household consumption.
Different Market Entry Strategies for Each Sector
Entering the Indonesian market requires a well-planned and executed strategy. Different sectors have unique characteristics and challenges that must be taken into account when developing an entry plan. Some of the common market entry strategies for foreign businesses in Indonesia are:
Joint Venture: A joint venture involves partnering with a local business to establish a new entity. This approach allows foreign businesses to leverage the local partner’s knowledge of the market and regulatory environment.
Wholly Owned Subsidiary: A wholly owned subsidiary involves establishing a new entity that is 100 percent owned by the foreign business. This approach provides complete control over the business operations but requires a significant investment in terms of time and resources. This can be in the form of foreign-owned limited liability companies or a Perseroan Terbatas Penanaman Modal Asing (PT PMA).
Licensing and Franchising: Licensing and franchising involve allowing local businesses to use foreign brands, products, or technology in exchange for a fee or royalty. This approach can be less risky than establishing a wholly owned subsidiary, but it also provides less control over the operations.
Exporting: Exporting involves selling goods or services to Indonesian customers from abroad. This approach can be beneficial for small businesses with limited resources or those testing the market before making a significant investment.
Market Research and Analysis in Indonesia
Market research and analysis are crucial for identifying the most promising sectors and target audiences in Indonesia. By understanding the market dynamics, foreign businesses can tailor their marketing and sales strategies to meet local needs and preferences.
Some of the essential factors to consider when conducting market research and analysis in Indonesia are:
Consumer behavior and preferences
Cultural and social factors
It is essential to work with experienced market research firms with a deep understanding of the Indonesian market. These firms can provide valuable insights and data-driven recommendations for businesses looking to enter the Indonesian market.
Tips for Building a Strong Local Network in Indonesia
Building a strong local network is critical for success in the Indonesian market. Some of our tips for building a robust local network in Indonesia are:
Attend industry events and conferences
Join local business associations and chambers of commerce
Work with reliable partners and suppliers
Hire local staff with knowledge of the market and language skills
Establish a strong online presence through social media and digital marketing
It is also essential to build relationships based on trust and mutual respect. In Indonesia, personal relationships and networks are crucial for business success.
Challenges and Solutions When Entering and Expanding into the Indonesian Market
Entering and expanding into the Indonesian market comes with its unique set of challenges. Some of the common challenges that foreign businesses may face include:
Complex regulatory environment
Limited infrastructure in certain areas
Cultural and language barriers
Corruption and bureaucracy
To overcome these challenges, businesses should work with experienced local partners who can help navigate the regulatory environment and provide valuable insights into the market. It is also essential to invest in localizing products, services, and marketing strategies to meet local needs and preferences.
Despite the challenges, entering and expanding the Indonesian market can be highly rewarding for foreign businesses. By conducting market research and analysis, building a strong local network, and utilizing the appropriate market entry strategies, foreign businesses can tap into Indonesia’s potential and gain a competitive edge.
Start Your Market Expansion in Indonesia with AsiaCommerce
At AsiaCommerce, we are providing market penetration and analysis services to help foreign businesses identify and evaluate the most promising sectors and target audiences in Indonesia. Our experienced team uses a wide range of qualitative and quantitative research methods, including surveys, focus groups, and interviews, to provide our clients with comprehensive insights and recommendations.
If you’re interested in expanding your business in the Indonesian market, tell us your business needs and we will discuss how we can help you achieve success. Our team will work with you every step of the way, from initial market research to developing a customized market entry strategy, to ensure your success in Indonesia market.
Southeast Asia is one of the fastest-growing regions in the world, having a population of around 600 million people. Increasingly more companies, both in the B2C and B2B sphere, target the market to capitalize on its expanding manufacturing activities and booming middle class. Yet, the region is also comparatively complex, comprising eleven countries with different languages and levels of development. Each market also has different demands in terms of product categories and price levels. In this article, we review the most interesting countries for market entries in the ASEAN market and what successful strategy to expand your business.
The Most Interesting Countries for Market Entries in Southeast Asia
Southeast Asia comprises eleven countries with different levels of development, languages, ease of doing business, and import regulations. This makes the region comparatively difficult to enter as pre-assessments are required to find the most suitable markets.
Compare this to China which is a single market and where the same language is spoken nationwide. Once you’ve managed to register your products locally, you have no obstacles to selling your products to local businesses or consumers.
Besides, not only do we have to consider country-specific characteristics when choosing an ASEAN market, but also your products. Selling machines and equipment for the wood industry is undoubtedly more suitable for Vietnam, considering its large exports of furniture and wooden raw materials.
At the same time, Singapore might be more suitable for exclusive skincare brands, as the market is more developed, and citizens have a stronger purchasing power. Luckily, not all eleven countries are interested for market entries in Southeast Asia, which makes the assessment easier. The countries we will review in this article include Singapore, Vietnam, Thailand, Malaysia, and Indonesia.
Despite its small size and population of just 5.8 million, Singapore has built a modern and diverse manufacturing base in industries like electronics, aerospace, precision engineering, and biomedical sciences.
It’s also renowned for its manufacturing capabilities in chemical manufacturing, having more than 100 global petroleum, petrochemical, and specialty chemical companies present.
Manufacturing contributes to a whopping 20% of the country’s GDP, totaling SGD 372.4 billion (USD 270 billion) in 2020. That’s considerably high and on par with many of its developing neighbors.
In Hong Kong, for instance, the manufacturing output is less than USD 4 billion and 1.5% of Singapore’s.
What attracts businesses is the skilled and educated labor pool, English-speaking population, transparent juridical system, and ease of doing business. Singapore has continuously been ranked on top of the World Bank’s yearly reports on ease of doing business.
Moreover, it’s a tax haven with a flat corporate income tax rate of just 17% (with part of the first 300,000 SGD exempted) and no capital gain tax.
With that said, what makes Singapore a less attractive country for B2B sales is the small population, developed economy, and its focus on advanced manufacturing. Even if its neighboring countries are less developed and harder to navigate, the large populations, booming manufacturing industries, and developing economies make them more interesting for market entries.
Malaysia shares many advantages with Singapore such as the close distance to global shipping lines, its ease of doing business, and the English-speaking population. Disposable incomes are also higher on average here compared to other Southeast Asian countries.
Electrical products, electronics, machinery, and related equipment contribute to much of the country’s manufacturing industry. Chemicals and petrochemical production also accounts for around 10% of the output.
Just keep in mind that its population of just 33 million and lower economic growth is a disadvantage. Upcoming markets, like Vietnam, have a highly active manufacturing sector, including electronics, furniture, machinery, agriculture, and more. This allows for market entry opportunities as local companies seek to buy foreign products.
Another challenge for Malaysia-based businesses is its taxation system. The corporate income tax is currently 24% which makes Malaysia one of the countries that have the highest tax rates in the region. By comparison, Vietnam has a corporate income tax of 15% to 20%, Singapore 17%, and Thailand 20%.
Indonesia is the second-largest beneficiary of foreign direct investments in Southeast Asia, accounting for around 14%. The manufacturing industry is a large contributor to the economy with a focus on the production of textiles, electronics, automotive, palm oil, petroleum, minerals, and coal.
Contrary to Malaysia, Indonesia also has a major benefit thanks to its big population and future growth prospects. This allows companies to access a wide and well-diversified pool of consumers.
As a result, market entries with a focus on selling products related to the above industries should be a priority. Besides, worth highlighting is the growth of Indonesia’s digital economy, which offers opportunities for FinTech companies, digital banking, and SaaS solutions.
Looking at consumer goods and B2C sales, companies now also seek to target Indonesia’s growing upper and middle class, especially high-end goods and services.
Indonesia also has the highest number of Unicorns in Southeast Asia, including GoJek, J&T Express, and Traveloka. The ease of doing business has been improved in recent years, the corporate income tax reduced, and we’ve also seen an introduction of a single submission system for business registrations.
Manufacturing in Indonesia is one of the most challenging issues when doing business on bureaucratic inefficiency and red tape. Regardless of the attempts to simplify business procedures, companies still struggle with different regulations and required clearances.
Vietnam is the third-largest FDI recipient in Southeast Asia and benefits much from the recent trade tensions globally.
Various multinationals in the electronics and technology industries have relocated manufacturing facilities here, including TCL, Foxconn, and Sharp. Its growing trade relationship with the EU, especially after the execution of the EVFTA in 2019.
As a result, companies that sell machinery for production tend to have many benefits from these factory relocations. Apart from industrial production, the agriculture sector relies heavily on imported machinery, particularly from the EU, Japan, and South Korea. It’s estimated that 70% of the agriculture machinery used in Vietnam is imported.
Some companies also face challenges when entering the Vietnamese market. Foreign ownership is strictly limited in some industries, like logistics and banking. This impacts inbound merger and acquisition (M&A) activities.
The government’s attempt to introduce simpler and clearer regulations has also failed at some stages. Current regulations still overlap and are often opaque, as these are regulated by different governmental agencies.
Sharing the same geographic advantages as other Southeast Asian countries, Thailand has been attracting foreign companies thanks to the continuous improvement of its business environment.
Thailand is now among the top three countries in Southeast Asia in terms of ease of doing business. Different advantages allow foreign businesses to reach their expansion targets by selling consumer goods or investing in local businesses.
Products with the highest growth rate are medical goods and F&B products. This is boosted by the increased middle class and as citizens become more health-conscious and more willing to pay for high-quality international brands.
However, companies expanding to Thailand should be aware of the political uncertainties within the country. Its politics has been volatile over the last two decades, with the involvement of many military coups.
In addition, imported products typically face strong competition from domestic Thai products. Thai consumers are relatively price-sensitive and mainly served by local suppliers. Hence, companies might face issues to remain competitive and profit-making at the same time.
The Philippines is known for its strong reliance on the service sector, which accounts for more than 50% of the GDP. Business process outsourcing (BPO) is one of the key drivers of the service sector.
Hence, foreign companies are strongly recommended to take advantage of this foundation in the Philippines. This, firstly, provides foreign players access to a well-established BPO market. Also, international experience is a competitive advantage over local businesses when it comes to providing services to multinational companies (MNC).
Tourism is also another strength of the Philippines. This has opened the door for businesses in the hospitality industry, such as F&B, traveling, and more. With a long history as an agricultural country, the Philippines allows global F&B manufacturers to have cheap and locally sourced ingredients to lower the cost while taking advantage of its original international brand name.
However, companies expanding to the Philippines also need to consider some common foreseeable challenges there. Infrastructure inefficiency is at the top. Regardless of the Government’s growing spending on infrastructure, it’s common with overcapacities in the international airports, port congestion in many major seaports, and slow and costly internet services.
The Philippines is usually ranked below its neighbors in terms of basic infrastructures, such as roads, railroads, ports, and more.
What Are the Best Strategies to Enter the ASEAN Market?
The Association of Southeast Asian Nations (ASEAN) is a dynamic and diverse region that offers many opportunities for international business development. However, entering the ASEAN market requires careful planning, research, and adaptation to the local context. In this article, you will learn some of the best strategies to enter the ASEAN market, such as:
1. Understand the market diversity
ASEAN consists of 10 member states with different levels of economic development, political stability, cultural diversity, and legal systems. Therefore, you cannot adopt a one-size-fits-all approach to the region. You need to understand the specific characteristics, needs, and preferences of each target market and segment. You also need to be aware of the regional integration initiatives, such as the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP), that affect trade and investment rules and opportunities.
2. Establish a local presence
One of the most effective ways to enter the ASEAN market is to establish a local presence, either through a subsidiary, a joint venture, a franchise, or a local partner. A local presence can help you build trust and credibility with your customers, suppliers, regulators, and stakeholders. It can also help you access local resources, networks, and insights that can enhance your competitive advantage. Moreover, a local presence can help you adapt your products, services, and marketing strategies to the local context and culture.
3. Leverage digital platforms
Another key strategy to enter the ASEAN market is to leverage digital platforms, such as e-commerce, social media, and mobile applications. Digital platforms can help you reach a wider and more diverse customer base, especially in emerging markets where internet penetration and smartphone usage are growing rapidly. Digital platforms can also help you reduce costs, improve efficiency, and enhance customer experience and loyalty. However, you need to ensure that your digital platforms are compatible with the local infrastructure, regulations, and preferences.
4. Focus on value creation
A third essential strategy to enter the ASEAN market is to focus on value creation, rather than price competition. The ASEAN market is highly competitive and price-sensitive, but it also offers opportunities for differentiation and innovation. You need to identify and communicate your unique value proposition and how it can solve the problems or meet the needs of your target customers. You also need to invest in quality, reliability, and after-sales service to build long-term relationships and loyalty.
5. Learn from best practices
A final strategy to enter the ASEAN market is to learn from best practices, both from successful local players and from other international entrants. You can gain valuable insights and lessons from observing and analyzing how they operate, market, and innovate in the region. You can also seek advice and feedback from experts, mentors, and peers who have experience and knowledge in the ASEAN market. And you can also join industry associations, trade missions, and networking events to expand your connections and exposure.
Factors critical to success
Before you execute the strategies above, you need to understand what critical factors are to be successful in entering ASEAN market. These are five factors you need to know.
1. Know your market
Not only do the different countries in Asia present differing market opportunities and challenges, but there can be numerous market characteristics within one particular country, for example, in China and Indonesia which are vast markets spanning a large geographical area. You need to analyze where your product will sell best and the strategies that you need to adopt in the various markets to ensure traction for your products. You need to have the right organizational capabilities and appropriately skilled personnel on the ground to navigate the local market.
2. Know the local culture
Asian markets are not necessarily receptive to the Western way of doing things – from marketing through to pricing and dealing with local staff, cultural issues play a large role. Spend time getting to understand the local culture of the markets that you intend to enter. This will save time and frustration in the longer term.
3. Find the right partners
The right partners in your business journey will make a huge difference to the potential success of your business when expanding into Asia. Reliable partners in your business such as your distributors, marketing agents, and corporate services providers are critical to success. In looking at potential partners, a business should examine its strengths and weaknesses and choose partners that complement their strengths and fill the gaps in the company’s capabilities. There may be bureaucratic hurdles to face, and finding a partner that has successfully navigated similar hurdles in the past can be an invaluable asset. Equally, your business model needs to be adaptable to changes in the landscape of the market as those changes occur. Once the right partners are found, communicating with them effectively is vital to ensure the business evolves in the way needed to be successful.
4. Understand non-trade barriers
There are many barriers and obstacles of a non-trade nature that can be thrown up in the markets in Asian countries. Complying with local licensing regulations is a must. You need a thorough understanding of local supply chains, not only for the importing or manufacture of your products but also for the logistical issues of getting your product to market. Comprehending the local customs can be the difference between success and failure – in this respect, a local partner is essential to give you a thorough understanding of the culture as well as to potentially overcome any language barriers that may exist.
An important quality to possess when expanding into Asia is patience. This is required in setting up your operation, obtaining licenses and work permits. Things don’t necessarily move as quickly in many countries in Asia as they do in a company’s home country. Also, patience is essential in establishing your products and services in the market. Market acceptance of what you have to offer may take some time. Not being discouraged in the short term and having the resilience to overcome the short-term challenges should be rewarded in the longer term. Another key part of patience is possessing sufficient capital to give the business the chance to overcome the shorter-term challenges. This is all part of the planning process before entering the market.
Southeast Asia boasts a population of around 600 million people and is one of the fastest-growing regions globally. Foreign investments and diversifications from the Chinese supply market will allow for growth, increased disposable incomes, and expanding manufacturing activities in the coming years.
As a result, increasingly more foreign companies seek to enter and expand in the markets, either for B2C or B2B sales. You must also consider whether your products are suitable to sell offline or online. For instance, bulkier products for B2B are often more suitable for B2B sales offline and with the help of distributors.
Smaller products such as fashion items can be more suitable to sell online, sometimes cross-border from overseas. The most popular eCommerce platforms, Lazada and Shopee, allow cross-border sales and is something they prioritize.
The most interesting countries that foreign companies should target for market entries in Southeast Asia include Vietnam, Indonesia, Malaysia, Thailand, and the Philippines.
Expand Your Business to ASEAN Market with AsiaCommerce
ASEAN is one of the fastest-growing potential markets to expand your business. AsiaCommerce can help your business explore opportunities in the ASEAN market, especially in Indonesia. We have several warehouses in China like Guangzhou city, and other countries such as Philippines, Thailand, Vietnam, and Indonesia. So, it’s easier for your business to expand in any region of ASEAN country or China. Tell us your business needs by clicking here.
A new customer comes to your website, finds a product they want at a price they like and adds it to their cart.
They get to the checkout page and then it happens. They get hit with the shipping and handling rates and all of a sudden they start second-guessing their decision to buy.
Suddenly a product they thought had a fair price is starting to seem a little expensive. One of two things happens next. Either they decide to press on despite the increased costs, or they abandon their cart and leave your website disappointed.
So what can you do to influence this decision?
Let’s take a look at some shipping strategies and how you can use them in your business.
Shipping Rates and Abandoned Carts
The real challenge when figuring out your shipping strategy is determining a solution that cuts into your margins as little as possible yet remains attractive to your customers.
And this is something you’re going to want to get right. Studies have shown that shipping and handling fees are the number one factor driving shopping cart abandonment.
With this information in mind, let’s look at the three most common shipping options and the pros and cons of each.
Option 1: Offer Free Shipping
Offering free shipping – usually just for domestic orders – is a sure-fire way to get your customer’s attention, however, depending on your margins, it can also potentially cut into your profits.
That said, the marketing punch that displaying ‘Free Shipping’ on your website provides can be a significant advantage over any competitors that don’t offer the same perk. Deciding to offer free shipping will require you to either absorb the cost or slightly increase your prices to cover it.
You could also try offering free shipping with a minimum order amount or minimum number of items. This should drive up your average order value and help you have more profit dollars to apply the shipping cost against.
Prominently advertising that you offer free shipping can be an effective way to drive up conversion rates. Chubbies offers free shipping on all their shorts (including return shipments) and which they proudly display on their website so customers shopping know that the price they see is the price they pay.
Determining whether to offer free shipping or require a minimum threshold often comes down to your margins and the niche you operate in.
If you offer luxury or handmade, one-of-a-kind items, rolling in an extra percentage for shipping and handling into the cost of your products probably isn’t too much of an issue. However, if you’re in a highly competitive market where both free shipping and the lowest prices are the norms, like refurbished cell phones, for example, marking up your products to cover shipping costs may not the best idea. This is where you have to consider either a different option entirely or absorbing the cost for the shipping on most of your items.
There are, of course, exceptions.
Large or particularly heavy items like full tower PC cases or furniture can cause some problems for your ‘Free Shipping’ promotion. Doing your research and knowing your numbers about things like how much each of your products actually costs to ship, how your competitors handle shipping, and your allowable profit margin can help you make the right decision.
Option 2: Charge What You Get Charged
In some shopping carts, it’s possible to set up real-time shipping quotes – in other words, your customers more or less pay exactly what you would pay to ship your products.
There are always small discrepancies that can happen, of course, but in many cases, you can end up breaking even between the shipping charges you collect and what you ultimately have to pay to ship the package.
Simple Sugars, a store that was recently on Shark Tank, employs this tactic, offering real-time shipping quotes to their customers at checkout. Once a customer gets to the checkout, they select where they want their order shipped to, and the calculator does the rest.
Using a real-time calculator like this can win you a lot of trust with your customers. It shows that you aren’t inflating your quoted shipping fees or raising your item prices to cover the charges.
This strategy doesn’t have the same persuasion power free shipping does but it’s an easy way to make sure that you’re not draining shipping costs out your ears, and that your customers are getting the best deal possible.
This is also a good option to use for heavy or oversized shipments that you simply cannot or do not want to allow to ship out under a free shipping promotion.
Option 3: Offer Flat Rates
Your third option is to offer a flat rate for every package, or flat rates for weight ranges and order totals.
This particular method of charging for shipping requires a bit of preparation as you need to figure out your average cost of shipping a package. This is a best practice you should be doing anyway to make sure that you don’t drastically undercharge or overcharge your customers.
When you hit the right cost, you’ll probably be over – or under – the actual shipping cost by a little, but it should even out in the end.
Angela Collison, the founder of Truly’s says her “main focus in setting up my shipping prices was to make it as inexpensive as possible while still delivering the product in a reasonable amount of time. My products are relatively inexpensive and I don’t think anyone wants to pay as much for shipping as they do for the item ordered. USPS was a good fit for us as they are very affordable for single items and their flat rate priority options allow me to ship out multiple items for one flat rate regardless of the weight. I was able to set up price-based shipping as I have only a few different products, but I am not sure how that would work out for someone who has a large number of products.”
The above quote highlights an important point about the nature of flat rate shipping: figuring out what flat rate works for you, and if you need to do it by order totals or weight ranges will require some testing.
Luckily, USPS does offer a few different sizes of flat rates boxes, and if you have particularly small, but heavy objects, taking advantage of the cost savings from cubic shipping prices can help to bring your flat rates into a comfortable range.
Of course, every business is different and only through testing will you find out what works best for you.
You’ll need to find out the statistics on your products and the best ways to ship them to be able to make the most strategic decision possible. This is where additional apps can help you find information and alternatives (both with shipping carriers and methods) that you may not have had access to previously.
Option 4: Outsource shipping to a third-party logistics provider (3PL)
Outsource part or all of your distribution and fulfillment services to a 3PL. They deliver your products with an out-of-box experience—some 3PLs can even handle returns and provide ePacket tracking.
If you have difficulty with setting shipping strategy for your online store, AsiaCommerce has a service to help you. We can also help you to market and sell your products, both a retail product or a product that needs to be sold in a huge amount. We are making it possible for local business leaders to cooperate with the International global market. Besides export service, we can also help you to import, transport, search for foreign products and handle distribution issues of your company in southeast Asia.
Your business is at the point where it is about to explode. How do you transition from a small shop (fulfilling orders from your basement) to fulfilling orders with major retailers too? What are the biggest pitfalls to watch for?
First of all, congratulations! This is an undeniably big moment, and while it comes with a lot of change, and a lot of hard work, so did getting to this point—that’s worth celebrating.
But OK, you’re here now, and you’re wondering about the hard work part of it.
There’s so many things that change when you go from fulfilling orders yourself, in your own little space, to selling to independent stores, to dealing with big box chains. And speaking of fulfilling orders, that’s the first thing you’ll need to get a handle on as you grow.
Managing your (new) fulfillment process
There’s a lot you need to know about working with big box stores, and working within their systems—but don’t worry, they’ll tell you about it. In detail.
All big box stores have vendor manuals, these things are like 200 pages of guidelines on how they want to receive the product, because these companies are getting the product in from hundreds, if not thousands, of different vendors
When they get a shipment in they want it to all look the same no matter who it’s from. They want the barcode printed and placed like one inch from the top right corner of every box so that when they get it they know exactly where the barcode is going to be
Working within that framework is going to be a major change (and challenge) for anyone who’s used to shipping and fulfilling orders themselves.
If you’re at the point of working with major retailers, it’s time to bring in some professional fulfillment support.
You don’t need to become the warehouse logistics expert as well. Found value in outsourcing this. Basically shipped all your goods to a logistics center and then gave them the instructions on where it’s to go, when it was supposed to go, who it was going to, and then they did all the preparation for that shipment properly, so you wouldn’t get any fees.”
Um, fees?! Yeah, large retailers take their fulfillment process seriously, to the point that it will cost you if you’re not compliant.
If you don’t meet their requirements you get dinged. You get fees taken off your invoice. Like, ‘Oh, you put the label in the wrong spot? That’s $200.
You’ll save yourself a lot of time if you focus on your strengths, and don’t try to become a logistics expert on top of everything you’re already doing. And how should you find a fulfillment partner? Dan says it’s all about the legwork.
It’s not hard to do a Google search to find warehouse and logistics or fulfillment centers. Then you just have to interview them and be like, ‘Do you deal with big box store X, Y, Z?’
Getting your legal stuff in order
It’s not just your fulfillment process that needs to change as you grow. You’ll also need to look into legal protections for yourself and your business that might not have been necessary as a smaller shop.
You had to incorporate it because you wanted to separate the business from your personal life now that you’re being exposed to way more customers. If anything goes wrong, you don’t want to be personally liable. Plus, once you realized you were getting way more exposure.
It’s not just your own protection you need to worry about anymore, either, so make sure you read the fine print.
A lot of larger vendors will have specific requirements on how much business insurance you have. You had to up your business insurance because they wanted a certain amount of coverage.”
Managing your cashflow
Cashflow is always going to be a cornerstone of running your business, but it changes pretty drastically when you go from a small shop to working with big businesses.
The other big thing to prepare for is the payment terms. A lot of these big box stores won’t pay you for 60 days after receiving the shipment. Meanwhile, you’ve probably put out all your money 60 days before you deliver the product to them, so you’re out that money for almost 120 days. Cashflow can be a challenge.
Plus, a big order is great for volume, but take cautions that you’ll need to take another look at your numbers when you’re handling large shipments.
Once you’re dealing with these big orders, they’re great, but you have to output so much more because the volume’s so much bigger. Your margins are smaller because you’re dealing with a big box store, and you’re not getting paid for longer. It’s a different game.
If you have difficulty with preparing your store to work with big-box retailers, AsiaCommerce has a service to help you. We can also help you to market and sell your products, both a retail product or a product that needs to be sold in a huge amount. We are making it possible for local business leaders to cooperate with the International global market. Besides export service, we can also help you to import, transport, search for foreign products and handle distribution issues of your company in southeast Asia.
A fulfillment warehouse can help automate and handle the shipping for you. When you choose to work with a fulfillment warehouse, you will store your inventory at one of their warehouses. Depending on their level of integration with your shopping cart, when an order comes in your fulfillment partner will automatically be forwarded the order to pick, pack, and ship the purchase order on your behalf.
There are a number of advantages to using a fulfillment warehouse including:
Cheaper shipping rates. Because fulfillment warehouses ship such large quantities for multiple vendors, they receive cheaper shipping rates. They’re also integrated (usually) with all of the major shipping logistics and 3PL companies, giving you easier access to the widest range of shipping options.
Shorter shipping times. Strategically choosing your fulfillment partner and the warehouse to store your inventory means you can store your inventory closer to the bulk of your customers.
Fulfillment warehouses aren’t for everyone, though. There are several disadvantages as well that you need to consider.
Branding experience. Generally, if you use your packaging presentation as part of your branding experience, like Trunk Club, you’ll be hard-pressed to find a fulfillment warehouse that will work with that level of dedication and customization for your brand.
Additional costs. Although you will likely receive better shipping rates working with a fulfillment partner, there are other rates that need to be paid including what is commonly referred to as ‘pick and pack fees’ as well as warehouse storage fees.
Shipping is a fundamental part of your ecommerce business
Shipping is definitely a challenging aspect for any ecommerce business. Every business will have their own unique challenges they need to work through and overcome to develop the best and most efficient shipping strategy. Like many aspects of building your new ecommerce site, it will take time and tweaking to determine what works best.
Understanding all the variables and evolving your shipping strategy with your growing business is vital to its long term health and success. So once you think you have it figured out, don’t let it go stale. Reevaluate every six months to make sure you’re delivering the absolute best possible service and experience for the best possible price to your customers.
As you can tell by now, shipping can be tough. Deciding what to charge for shipping, then figuring out how you get it to your customer. There are so many decisions to make along the way.
If you have difficulty with packaging and shipping, AsiaCommerce has a service to help you. We can also help you to market and sell your products, both a retail product or a product that needs to be sold in a huge amount. We are making it possible for local business leaders to cooperate with the International global market. Besides export service, we can also help you to import, transport, search for foreign products, and handle distribution issues of your company in southeast Asia.