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It costs five times as much to acquire a new customer as it does to retain one. Therefore, increasing customer retention by just 5% can increase profits by much more — 25% to 95%. One highly effective — and simple — way for ecommerce companies to increase customer retention is to decrease order fulfillment time.
Consumer expectations around order fulfillment time are trending toward shorter time frames. Ecommerce companies must adjust accordingly to meet these new expectations. Consumers expect fast shipping by default, with the timeframe considered “fast” continually shrinking year over year. According to McKinsey, as many as 90% of consumers expect two- to three-day delivery.
This is not merely an expectation, as consumers also factor shipping speed into their purchase decision-making process. In 2021, 77% of consumers said they were more likely to purchase an item if the retailer could deliver it in two days or less. Among consumers aged 18-34, 56% of shoppers have come to expect same-day delivery. For comparison, in 2016, online shoppers expected to wait 4.8 days to receive a package.
Statistics like this reveal that time to fulfill orders is a major factor in a consumer’s decision to pick one brand over another. But shipping speed does not simply affect customer acquisition. It affects customer retention as well. As many as 45% of consumers say they are unlikely to order again from a company if it delivers a package late. A separate survey shows that 84% of consumers will avoid shopping from a store again if it provides “poor delivery service.”
Decreasing time to fulfill orders
Even if only 45% of consumers can be discouraged from repeat purchases by delivery delays, the effects of slow fulfillment time on customer retention are substantial. For that reason, it is important for ecommerce companies to be able to decrease order fulfillment time. There are several ways to do this.
The fulfillment process can broadly be split into two sub-processes: preparation and delivery. Preparation involves retrieving inventory from storage, packing it, applying postage, and turning items over to mail carriers. Delivery involves the process of transporting goods to the consumer via a service such as the U.S. Postal Service or FedEx.
Accordingly, to reduce the negative impacts of slow fulfillment on customer retention, ecommerce companies have two main levers. Either reduce delays in preparation or reduce delivery time.
Reducing delivery time
Ecommerce companies frequently rely on the delivery services of carriers such as UPS or FedEx. While those companies may be responsible for the physical delivery of the package, consumers still associate ecommerce brands directly with their delivery experience, even though the ecommerce company is directly involved. Significant evidence is that, as previously mentioned, 45% of consumers are unlikely to order again from a company if a package arrives late.
Bearing this in mind, ecommerce companies can still indirectly reduce delivery time. One way to do this is by selecting one or more third-party fulfillment companies with warehouses located close to customers. For example, an ecommerce brand whose customer base is split primarily between Dallas, Philadelphia, and New York City would likely want to have two warehouses — one close to Dallas and the other in the middle of New Jersey. Inventory would not need to travel far to reach most of the brand’s customers, substantially reducing delivery time.
Real-world scenarios are seldom straightforward, but the core concept remains the same. Companies must know which items they sell in various geographic locations to choose strategic locations for warehouses to reduce delivery time and store inventory accordingly.
In addition to storing items closer to customers, ecommerce companies can also provide expedited shipping options. While most consumers expect free shipping, 47% of consumers are willing to pay more for faster shipping. It is worth noting that 95% of consumers consider same-day or next-day shipping to be fast.
Reducing order preparation time
Another way ecommerce companies can reduce the time to fulfill orders is by reducing the time it takes to turn over products to carriers for delivery. Ecommerce companies can do this by outsourcing fulfillment to one or more third-party fulfillment companies, a decision that 86% of shippers find contributes to improved customer service.
When selecting a third-party fulfillment provider, retailers must be careful. Ecommerce companies must choose a reputable warehouse to reap the benefits of improved customer service. Of particular importance are speed of receiving and “pick and pack” services, which involve retrieving items from storage, packaging them, and applying postage. The former affects how quickly retailers can put items into stock, and the latter directly impacts the minutes and hours between when a customer places an order and the order being ready to ship.
Consumers expect fast delivery and companies must deliver
Consumer expectations for fast delivery have been increasing for several years and are likely to continue doing so. Many consumers consider two-day delivery the “standard” delivery option, with same-day and next-day delivery being considered “fast.”
Ecommerce companies that wish to stay competitive must meet these expectations. By storing inventory closer to customers, providing expedited shipping options, and selecting good order fulfillment partners, ecommerce companies can meet consumers’ high expectations. This, in turn, can lead to increased customer retention and ultimately increased revenue.