Logistics is one of the most complex pieces of running an ecommerce company. Cost-effective shipping solutions that don’t compromise customer experience are not one-size-fits-all, and keeping up with the expectations set by Amazon Prime is a constant struggle.
Most often, 3PLs (third-party logistics service), are responsible for storing and shipping products for ecommerce. Casey Armstrong is the Chief Marketing Officer of ShipBob, a 3PL that operates a growing network of distribution centers in major U.S. cities. They’re helping ecommerce businesses run a flexible and speedy supply chain. With tools getting more sophisticated, Casey says long term success comes back to actionable customer data.
On this episode, Casey answers fundamental questions businesses should ask when outsourcing their fulfillment. He shares the cost structure of 3PLs and gives insight into best practices around geography and vendor management. Casey talks about deciding what’s important for your business when splitting inventory, kitting, and shipping cold or bulky items (9:36). He gives indicators for when an ecommerce company should outsource fulfillment (23:46). Instead of solely focusing on the top funnel, Casey gives different levers brands can pull from to improve their bottom line (37:32). With companies like Shopify and Instagram reducing barriers to stay close to the wallet, Casey and Stephan talk about the future of the ecommerce stack, navigating new technologies, and improving instant, one-click checkout (42:25). Full transcript below.
Also mentioned on the show:
- Well Made Episode with Paul Munford: Building on Greenfields
- Well Made Episode 73 with Jenny Gyllander: Testing Things
- Rebel Girls Case Study
- My Calm Blanket Case Study
- iloveplum Case Study
Image via Rihardzz.
Stephan Ango: You're listening to a podcast from Lumi about the people and ideas behind your favorite online brands. I'm your host, Stephan Ango. Casey Armstrong, welcome to the show.
Casey Armstrong: Thank you very much.
Stephan: So you are the chief marketing officer at ShipBob. I think a lot of our listeners would be familiar with ShipBob, but it's a fulfillment service that is digitally native. You are a company working with a lot of brands that we've featured on the show, probably many more who are interested in learning how to build their own ecommerce companies. How do you describe ShipBob Today?
Casey: Yeah, so the buzzword answer would be a tech enabled 3PL. But in layman's terms we're really trying to bring Amazon level shipping and logistics to fast growing ecommerce brands
Stephan: And 3PL is a term that gets thrown around a lot, but what does that actually mean?
Casey: Yeah, we're your third party logistic service. So that's what it exactly stands for and it's a way to outsource that function of your business. So you can focus on sales, marketing, product development, customer service, other elements of the business.
Stephan: What is the difference between a distribution center, fulfillment center, a warehouse, a 3PL? Is there some clean way that you have of describing those things?
Casey: Yeah, so I lump a fulfillment center or distribution center together. We use them relatively interchangeably, but a warehouse is definitely different. A warehouse there are often located in more rural areas. They're really there to store products. If you're not moving a lot of product or if you have a lot of inventory, that's often a better route. And a fulfillment center what's what we run at ShipBob those are to get orders to customers in a timely fashion. Oftentimes they're located in more urban hubs with us. We're in New York, San Francisco, LA, Chicago, Dallas, so large metropolitan areas. And oftentimes there is additional services that the fulfillment centers will provide as well from how they receive inventory, moving inventory across the fulfillment centers, kitting items, packing boxes, using great partners such as Lumi in creating that personal experience, managing returns and other elements like that.
Stephan: So I've been kind of on every side of this idea of fulfillment for a long time because in the first company that I ran with Jesse, we actually did fulfillment ourselves and then started working with a third party logistics company. Not ShipBob, but another one that kind of launched I think earlier around 2010 or something like that. So I packed probably thousands of boxes myself, went to customers and also figure out, started putting stuff in 3PL's and started shipping out of there and started figuring out how to also sell to wholesale to retailers and how to figure out how to send that kind of pallet level product out from a warehouse for a 3PL. And now obviously with where Lumi is today, most of the time when we're producing packaging, the output of that is we're delivering to a ShipBob or another 3PL or oftentimes as well for customers who are doing their own fulfillment at their own distribution centers. I think what it would be fun is to kind of go through a little bit of some of the fundamental questions that I think both of us come across on a daily basis of people who are trying to figure this out. Sometimes for the first time or sometimes it's they've had some experience before, but the market has changed so much in the capabilities that are out there have changed so much. And so maybe the best place to start is just when someone is starting to think about working with a 3PL and they're pretty sure they don't want to do the work themselves. What should they be looking at as the different levers and choices that they need to make when they're trying to choose one?
Casey: Yeah, so I think probably the biggest driver for brands especially that are thinking long term. I mean you're going to make that decision and that investment, and I'll call it an investment, even though you actually might be able to save money, both in the short and the long term by working with the right partner is you're really trying to provide a better experience for your customers. And I'd love to hear what motivated you to outsource it. But oftentimes people realize they're staying up til two or three in the morning and packing boxes themselves. Especially in San Francisco the other week a friend of mine was telling me how he kept getting a roped in on Saturdays where his friend was throwing these "packing parties", which was basically him trying to use pizza and beer as a carrot to get friends to come over to help him pack boxes because his ecommerce store was blowing up more than he thought it'd be.
Stephan: I've definitely watched several movies doing that. Many movies, packing boxes.
Casey: I bet. All of a sudden your house starts to wreak of cardboard and you're like, this is probably not the long term solution. But again, just going back and just really focusing on your customers. And so that's what you're really trying to provide. It's probably, I mean it's at the core of what Lumi is trying to provide, it's at the core of what we're trying to provide, which is a much better customer experience. But also part of that is so how can you get products to customers in a shorter time period? And then also how can you locate your inventory closer to your customers so that you can save money on the shipping costs as well. And so, you know, I can speak for what we do personally and I would hope that a lot of the other solutions that you've talked to as well, it always starts with what is your customer data look like? And so, that's where people should often start. And what I like as well is how can you create actionable data? And so where are people buying from? And you can get that to the SKU level. So, for example, if you're selling baby clothes, for example we had a customer of ours and they had this cute little shark on some baby clothes and unsurprisingly they always sold closer to the coast. And so they would often locate those similar SKU's in Los Angeles or San Francisco or New York or Florida or something like that.
Stephan: So you're bringing up already one of the big things, which is just geography. I guess when I'm thinking about someone who's starting a brand or they've gotten to some level of product market fit, they're thinking about the options there. One that comes to mind is how important is it for me to locate my 3PL close to the manufacturer versus close to my office versus close to my customers? Or maybe I want to go central in the middle of the United States so that I can hit both coasts. Like what makes the most sense?
Casey: The real answer is it depends. Of course every business is different and so we can walk through each of those. So you mentioned your manufacturer. We work with a lot of companies that actually manufacture overseas. And so it's less of an issue there, I guess depending on what you're selling, maybe located in close to the manufacturer would be helpful. But I find that often to be less important. And then to your office, you're for the most part having to hand off your product, which let's just call it your baby off to somebody else to take care of it. And so some people, they really want to be located close to the fulfillment center. But for the long term success of the business, that's often not that important. You know, you should work with a fulfillment provider that you really view as a partner and is doing the best on your behalf and also your customer's behalf. And that takes us to the last one. And that's your customers. And so depending on what your catalog mix and SKU velocity and things like that look like, I would try to be as close as you can to your customers. You also called out being located in the middle of the country versus on the coast. And again, that often depends on your catalog. If you have thousands or tens of thousands of SKUs and you don't necessarily have a lot of cash flow to start to split inventory, maybe it makes sense to be located more in the middle of the US. But if you have fewer SKUs and depending on what your customer profile looks like, or even if you have fewer excuse in general, to be honest from the data that we see, it just, it really makes sense to split inventory at least across the coast and maybe across the coasts and the middle of the country as well.
Stephan: Yeah, and I'm assuming part of it is also, for example, we had several furniture companies on the program before. Those are really big bulky items, relatively few SKU's. There's the notion of zones as well to consider in terms of UPS and Fedex and USPS have this notion of, you know, how far your product is going to travel. Kind of determines the shipping costs, but also for something that's very heavy, maybe it would make more sense to have it closer.
Casey: Definitely something that we look at a lot. My team and I just ran a pretty thorough analysis just on splitting inventory just at a more macro level across, the millions and millions of shipments that we sent out last year. So, basically where you're shipping from, of course, the further you get away from where you're shipping from to where the consumer is there'll be more shipping zones. But the important data underneath that is often transit time. And so we've seen people as they start to split inventory, see improvements from 30% to 40% improvements in a transit time reduction, meaning going from, let's call it a little over three days to barely over two days or at two days. And then of course, on the costs as well. And so of course the closer you are to the end consumer you're able to see a pretty big reduction in cost because obviously it's traveling in fewer zones as well.
Stephan: You mentioned early on the word kitting. I think that's an interesting one that we should dive into. But one of the things that we've experienced at Lumi just kind of from our lens on the 3PL world, is that 3PL's tend to have pretty distinct different features and capabilities and unique things that some are good at and some aren't. Some 3PL's we've seen have a lot of strengths around printing and direct mail and have their own print on demand for apparel, for example. Some are really good at shipping a small number of SKUs. Others are really good at shipping for companies that have thousands and thousands of SKUs. Some do kitting, some don't do kitting, some do custom packaging and some don't. Some have a lot of automation and some are more focused around being able to do very custom stuff and more of the labor and being able to do something special for each package. How does someone get to understand what's possible in the world of 3PL's and decide what's important to them?
Casey: Yeah, that's where I think talking to probably a couple options and well first of course looking at what's important for you and where do you see opportunity in your business. And then starting to talk to some trusted partners against such as ShipBob not just to plug us because you know, we'll be very clear with you. So for example we'll actually work with furniture brands. Like we work with a company called Interior Define, but we might just only ship out their swatches whereas we don't ship the actual extremely large bulky couch, but we do have logistics partners that that's what they specialize in and that's all that they focus on. And so their aisles will be 50% greater than your typical 3PL. And the machinery that they have, we'll be able to take on that bulk of your inventory. But again, they won't touch smaller items because that's not part of their business model. There will be some companies that only want to have a handful of customers and they'll focus, let's just say directly on apparel and like real reverse logistics. We focus primarily on these fast growing, often direct to consumer brands with often a lower SKU count. And because they're taking advantage of our distributed inventory of the technology that we provide, the fact that we own the entire logistics stack and it's also being able to scale up and down with the customers as well. So one of the things I love at ShipBob and when I was at BigCommerce prior and another solution is you get to work with so many brands and I'm sure you love this at Lumi as well, where you start to see you know, highs and lows of these businesses and you talk to them and you hear what's going on. And we had a customer about a year and a half ago that they won the, I think it was like the Time toy of the year. They were doing very modest volume, like let's say a couple hundred units a month and then all of a sudden they had this month where they sold like 25,000 units. Like, how do you scale that fast if you're doing it yourself or if your partner is not built that way. We had another customer of ours where one of the British royal family were wearing their shoe products and then all of a sudden they saw this huge spike.
Stephan: I think you're talking about Birdies, right?
Casey: I'm talking about Birdies.
Stephan: Our listeners will be familiar because they were on the podcast and told the story behind that particular event.
Casey: That's awesome. Yeah, I love those stories. And then we had another customer of ours where there was this natural disaster and they had a very unique solution to help solve this problem. They were shipping probably eight to 10,000 units a month, which is very solid. But then they saw this huge spike between 15 and 20,000 units in a specific month. Before, before Q4 which is when everybody usually sees a huge spike. It's pretty interesting just to see the adds and flows of just different brands. And again just thinking through what actually happens when you have that success that you desire. So everybody will daydream at night and thinking about, well I can't wait for this to happen with my brand. But are you actually built to handle that success? We see that a lot with Kickstarter projects. Have you heard of Rebel Girls? Or do you guys maybe even work with Rebel Girls?
Stephan: I don't know. And I don't know. No, I don't recognize the name.
Casey: It's pretty cool. I highly recommend it. They started by creating these kid books, which would, especially for young girls, which would highlight powerful women throughout history. And they launched this Kickstarter project. I think were based over in Italy at the time. Now they've moved over to the US and they were expecting to sell a few hundred bucks. Next thing they knew they'd sold thousands and thousands of books and these were heavy books. They were like, well how are we going to get these to our customers? Of course they're looking for a partner there. They've actually gone on not through ShipUp because a lot of what they've done is mass wholesale. But since they started working with us about four years ago, I think they've sold like 3.5 million bucks. And then they just keep rolling out Kickstarter project again and again. And it's, it's pretty interesting to see these, these highs and lows.
Stephan: Well talking about Kickstarter is actually what pushed me and Jesse to actually use a fulfillment partner when we were running our previous business Inkodye because we did a Kickstarter campaign and we raised about a quarter million dollars back in 2012. And we knew going into it, we didn't expect to get that big but we knew from the response that we were going to need help doing the fulfillment because it was just not going to be practical for us to pack every box for that project. And you know, that started our relationship with the 3PL. Ultimately we decided to bring it back mostly because we found that they weren't as strong working with retailers and our business had started to shift more towards working with retail stores. And for them the most important thing was being able to receive the products, palletized in a very specific way. This was an art supply product. So we were in Joanne's and Michael's and Urban Outfitters and different stores like that. And they'll give you a compliance manual that's the size of the phone book and you have to make sure that all of your pallets arrive in a specific way and labeled a certain way. And that's a very specific thing that not every 3PL is set up for. If you're a specialty is shipping direct to consumer. You know, your whole assembly area is going to be set up for things going into individual boxes. So that might be another thing that some are better at than others.
Casey: Definitely, B2B, EDI. I think that people selling offline and in some of these, you know, more traditional wholesale opportunities is going to, not that it's ever gone away, but I think a lot of these direct to consumer brands are going to start realizing that they need to start shifting budget, maybe from some of their digital channels back to some of these offline opportunities. And both the malls and the wholesalers they're seeing the shift and they're adopting as quickly as they can. And I think that they're creating options to allow these digitally native brands to go back towards the more traditional channels and that's where you need to make sure your fulfillment provider or your manufacturer can help you facilitate that because there are a handful of ways to navigate that. But I think that people are going to start expanding what their views of customer acquisition channels are. A lot of the more successful brands are already doing that already in that process. Even some of the larger ones, like I saw Wayfair today I believe it was, announced that they were opening their first physical location. And so I think we're going to start seeing that shift where people are maybe they hit like this digital ceiling and they're going to try to break through that and start exploring some of some of the more traditional channels.
Stephan: One of the things that was difficult about our relationship with that 3PL that I was mentioning is that when we wanted to start pulling our inventory back out, it was actually really problematic and led to them actually like wanting to give us a gag order that we were not able to like complain about their service because essentially what had started happening is, as I was describing with the kind of B2B. From our perspective we were sending them pallets of product that was already packed into cartons and everything so that they could be reshaped as palettes, but for whatever reason they would start breaking everything down right away. And so our products were basically small bottles and when they were sending it to retailers, they were just basically dumping the unboxed product into bigger just boxes. And it was just a real nightmare. So when we started telling them we want it to pull all our product out, they got really freaked out. And they were asking us to either they would do it at a low cost or and that we needed to basically sign this gag order or that we needed to pay these really high fees to get our inventory back out. And that was a really pretty upsetting situation, but it really highlighted a dynamic that can be uncomfortable, I think between brands and 3PL's. Which is that your inventory is not in your control anymore. And so if situations like that come up what do you do about that? Obviously, I don't know anything about ShipBob's like way to handle that. But like on a more broad level, like how do you set up good relationships with your 3PL to avoid those kinds of situations?
Casey: There's a term we throw around a lot. People have their, I guess different ways of putting it, but it's basically like reduce surprises. And so, like with us, we'd rather of course looking to grow as you know, efficiently and as fast as we can in the right manner but heavy emphasis on the right manner where it's we'd rather err on the side of bringing on only like the right customers so that you never get in those situations. And I think it's from the brand side, just being completely upfront on what your business is today and we think it's going to be in the future and actually reading through like doing the proper risk analysis of what actually happens if you do try to move because you really need to make sure who you work with view as a partner. And you got to think long. I mean, I think just in general, people need to think long and that's where there’ll be a shame to see like how people view performance marketing. How's that continues to evolve over time? Of course that's very short term which helps drive the business. Because there are a lot of benefits of utilizing a 3PL for example you don't have to sign a long term lease for a warehouse or fulfillment center. You don't need to buy a ton of boxes necessarily and dollies and all the different equipment. You don't necessarily have to hire a bunch of people that work at the fulfillment center. But, to counter that with your example is you also need to make sure that as your business grows, can your partner grow with you. And I'm sure you think about that a lot at Lumi as well, where you're bringing on the right brands. You know, I know a lot of people want to work with you guys, but it's making sure you guys bring on the right brands so you guys can grow together.
Stephan: That brings up a great question, which is I think some 3PL's have strengths with smaller companies versus medium size versus larger companies. How does one go back kind of assessing because what the strengths of any given 3PL is? In your case I would love to hear how you would share it about ShipBob, but what are the types of questions that you would suggest people ask?
Casey: Probably asking if you can talk to some of their customers and just if they're willing to open that up. Because I think that will say a lot about them and then asking them what they think they do well and just ask you for some examples that a different of the spectrum. For us it's really your business type. And like I mentioned, it's often these like lower SKU, high volume sellers and whether you're shipping a couple hundred products a month or tens of thousands a month or a week. We can scale up and down with you. But again, it's, it's making sure that your business type aligns with our model. And then I mentioned that other 3PL earlier where similarly the one that they can take on bulky items, they don't really mind as much about how many shipments per month as long as it's reasonably decent. But it's often they're not going to ship small products and so the more you can dig into like what their customers are saying and possibly talk to some customers, I always find that helps a lot.
Stephan: When we talk about pricing around 3PL, typically there are a few different kinds of things that you're paying for. You've got storage, which is just holding your inventory there. And then there's pick and pack fees and maybe kitting fees. How do you see pricing and what should people look for it when it comes to how much these services cost?
Casey: That's a great question because there's so many different ways you can go about it and regardless of what the business is. So with us it's a nominal receiving fee and then there's some storage fee and then everything else is lumped into a shipping fee. We actually just had a pretty big customer. We'll publish the case study soon or else I would mention their name. They were a ShipBob customer for a while. There were a handful of reasons why they decided to leave. One of them is that they were price shopping and the alternative was to kind of sell them this dream. But they didn't realize because they were comparing their shipping fee to ours. Where ours included a pick and pack, the kitting, and the special handling, and the boxes. Everything like that. All lumped into one price. Were when they moved over all of a sudden they saw this huge spike in their total fulfillment cost and they weren't sure why and then they started digging into line item after line item. And they realized what was happening. They fortunately stayed in good contact with us and they decided to return which we were very happy to see. They're been with us for a while now. But it's really understanding are people going to nickel and dime you for every little thing that you do? And maybe every single phone call that you make and don't you have like an account manager or somebody that you can contact. Or are you just kind of sending your products over there and hoping that they do a good job and you're just going to really get hit with line item after line item. And so there's definitely some complexities there. And the more transparent and simplify the pricing, the better.
Stephan: I would love for you to peel back the layers of how your business model actually works and what are the cost drivers or the things that actually make you choose to go in one direction or another in terms of you've decided specifically to bundle a lot of these things under one fee, but other companies will split them out in different ways. Like what are the economic incentives that you have as a business?
Casey: A lot of it comes and I really saw this a lot when I was looking at ShipBob and made the jump over there, which is the founders focus on the customers and you know, what would be most beneficial for them. And honestly like time and time again, they always just would rather err on the side of what's best for the customer. And in this case it's that transparent, simplified pricing whereas oftentimes, whether you're buying an kind of an old school enterprise technology solution or looking at a 3PL, these markets are getting disrupted. It's just these extremely complex and difficult to understand pricing models. And so people end up just maybe unhappily paying or just getting wound up in a bunch of unnecessary back and forth. And so with us that's definitely the key driver. And then also with ours it's really betting that we can build and scale and expand our network across the US and then in the future across North America and internationally. Where we can take advantage of also a lot of the data that we're able to pull in across the execution again across the entire network. So we can just make much smarter decisions. And again, we'd rather allocate those winds across all of our customers.
Stephan: One thing that maybe is not totally obvious to people is the business model differs a little bit from one, 3PL to the next in the sense that some are more vertically integrated than others. So you have the actual physical location where the warehouse and fulfillment location, and then you have the software that it runs on. And so some 3PLs will use external software to like manage a warehouse management system. And then there's also another layer on top of that which is access to the warehouses and creating a network of warehouses or distribution centers. So you often find that some 3PL will have perhaps a software layer on top and they don't own any of the warehouses or any of the software. You have some that will have a software layer on top and own maybe one or two distribution centers, but then they will outsource other locations to other companies. You have companies that do the full stack so maybe explain a little bit of that in where ship bob fits in.
Casey: Yeah. And I'll try to get fewer ShipBob plugs shortly. But definitely to dive in there. We're in the fullstack department, and again, this is another thing that I give a lot of credit obviously to our founders in driving this where again, I think this is playing the long game where the software that our customers use, the ShipBob product that we built, something that I didn't even realize until I joined was maybe 50%, if not more of our development resources actually goes into the warehouse management software that we use in the facilities. And so that's ShipBob IP as well. And then we run control all of our fulfillment centers and then also all of the people that work in the fulfillment centers are ShipBob employees as well. And so there are definitely other ways you can go about it. Running logistics is not easy. And anybody who tells you otherwise and you're in the same space, like I'm sure you would, smile and nod at that as well where it's not easy. And I see the things that we try to overcome, on a daily or weekly or monthly basis. And that's with us controlling the entire stack. You know, I'm not really sure how businesses do it where they don't. Again, it's pretty interesting to see that so much time was put into building the software that's even used in the facilities. We just really wanted everything just to integrate completely seamlessly.
Stephan: Yeah, I mean, I think that looking at it from the outside, and I don't really understand fully how the money flows through the organization, but I think it makes sense to me that some companies decide to only focus maybe on the top level software because obviously hiring a bunch of employees, making an investment leasing space, having all the equipment is expensive. So having to go out and having the capital to even be able to do that is a big challenge in its own, right? And then on the flip side, you've got people who have that competency or have that warehouse space and they turn it into a fulfillment center but don't necessarily have the expertise to build the software. So I understand where it works in both directions. Having the full stack seems like the benefit there is that perhaps you can capture a little bit more margin because you now kind of own every piece of it and so you're not having to split the margin with a partner. But on the other hand, it seems like the trade-off would be that your growth is automatically slower because if you have to pay for all of that upfront cost of having to set up a new distribution center, it makes it a little less quick to roll out a very widespread network. Is that fair?
Casey: I don't know if it hurt our growth at all. I actually would say it's probably helped just because it's allowed us to make smarter and faster decisions across the entire network and in how we actually distribute the inventory. And something that we're rolling out definitely in Q2 is really a demand planning and demand management at the SKU level for all of our customers. And by having the software that we use in the warehouses or the fulfillment centers of course natively integrate with the software that our customers are using and have that work across the entire network. Just the data flows much cleaner. And I think we can make much smarter decisions in real time. And so it's actually been very beneficial and even as we an order comes in and we think through, okay, where the end consumer is located in this spot, we have these products located in wish fulfillment centers and how are we going to fulfill that and get that to them in the most cost effective manner and as fast as possible. We actually have like a two day express program that does exactly that. It's pretty cool. So actually if you go to a company like My Calm Blanket, we just did a case study with them and when they roll this out, they actually saw almost a 20% reduction in cart abandonment. And so what happens is if somebody is, let's say in Chicago and they go to purchase this specific product while they put it in their cart, Shopify is already talking to ShipBob and saying, okay, this person is located in this location and the product that they have in the cart is x and product x is located in which of your fulfillment centers. Okay, how quickly can we get that to them and what are the different shipping methods that we can get this to the customer. And so a lot of that's running in the background before you then get to the checkout page. Again without, if we didn't own entire stack, I have no idea how we'd be able to pull that off.
Stephan: Yeah. And I think that highlights the value of owning the entire stack. I think where I was going with my comparison is just that it makes it seem kind of obvious that it will make it harder for you to say have like a 40 or 100 different distribution centers overnight because you have to make that investment each time to get it up and going.
Casey: Oh yes, definitely. You can scale pretty big with, for instance we have five right now, but agreed. I mean we're not Amazon who has thousands, that's for sure.
Stephan: Does Amazon actually has thousands of distribution centers at this point.
Casey: They might. So something I think about a lot is there's like this expectation shift that like Amazon and the other kind of incumbent players like Target and Walmart are driving at the top and then kind of bottoms up like with the customers are expecting and therefore it falls to everybody in the middle, which is these kind of cooler, newer brands often selling directly to the consumer. How do they actually provide that at Amazon level service? And some of these larger brands are going about it in a variety of ways. Like for example, Target, I want to say Target has something close to 1800 or 2000 stores across the US and they use 90% of them as basically pseudo-fulfillment centers. So not even pseudo as actually fulfillment centers. And so that's how they're often able to get inventory to their customers very quickly. And so in that case, you know, that's over 1500 fulfillment centers.
Stephan: Let's talk about Amazon for a second because obviously they've been driving a tremendous amount of innovation in the area as well as just consumer expectation. They've been kind of raising the bar of what people expect when they're buying something online that they're going to be able to get free shipping, that it's going to come rapidly, that if they have a problem with it, they can send it back easily. And that's a high bar to meet. If you're a young brand or a company that doesn't necessarily have the ability to build all that stuff. You know, the first one I think that is now, you know, widespread thing and maybe you can shed some light on is just the idea of free shipping. Which is somebody pays for the shipping, right? I mean shipping is not free eventually, you know, either the brand pays for it or something has to happen. What is in your mind, the state of free shipping today? Because Amazon has just continually risen what that means in terms of the amount of time that you can get a product within.
Casey: I mean they basically have made it table stakes and I mentioned Rebel Girls earlier. Their CEO said that to us verbatim during the holidays when she was rolling out free two day shipping. My Calm Blanket, again, they did as well. With Amazon, they have the luxury of, I mean they poured billions of dollars into creating this and then you also pay for Amazon Prime. Which I actually don't even recall what it costs anymore. I remember it used to cost 80 bucks a year. I think it's now what, $120 or so?
Stephan: I think so. I think it might be more than that even. But yeah, around it's somewhere around $150 or something I think.
Casey: And they throw in all these other perks, like movies and other digital products, which the margins there are insane. And again so they're taking a majority of that to offset a lot of the two day shipping cost. I mean I think 80% of US households have Amazon Prime. But what Amazon sees, and we actually see some similar numbers what Amazon sees is, I think an Amazon Prime customer spends like 130% more per year on Amazon than a non-Prime customer. And so it's not apples to apples here, but we've actually seen some similar improvements on the average order value or the AOV where people that have offered that free two day shipping. And I think part of it is, you know, it's kind of like the customer delight. They're happy that they get it. It's what they expect now from Amazon. But it's also like that trustworthiness we've seen customers have between 25% plus improvements in average order value. And then this other company we work with, I Love Plum. They saw like a 97% increase in average order value when they rolled out that free two day shipping. I would not set that as like your expectations now because that's what one company achieved. But that's fascinating. Where if you think through, what are the levers you have as a brand that you can actually pull to him to improve your bottom line? And so there's of course, what does it cost to get somebody on your website? Then what are the conversion rates to purchase? And then what does that average order value? And of course this is an extremely simplified way to view how to calculate revenue but that's basically three different levers and so many people just focus on top of the funnel. But how can you actually focus on someone that post purchase experience? And how can you bring that front and center to your customer where you can improve those conversion rates and you can increase that average order value. And we see it time and time again and Amazon is pretty public with some of this data as well and how they see it. Just that oftentimes can help cover that free two day shipping. Because like you said, nothing is free, somebody's paying for it somewhere.
Stephan: Yeah. And how do you give people advice on how do you blend that into the unit price of the product?
Casey: We will sometimes, it depends. I mean we have a lot of customers, some of them like to work closer with us and some of them like to do everything on their own. But you know, it really depends. Here's a good example. So I mentioned My Calm Blanket earlier. They sell gravity blankets including the packaging and everything. They often weigh between 20 and 30 pounds and they were shipping, I think everything before they moved to us, everything out of Florida. So naturally anything you're going to send to the west coast, is it going to be extremely expensive. And they wanted to offer that two day shipping. And it was costing them over a hundred dollars to ship a product that only costs between $115, $250. That's, you know, that's 40% of the wallet share at the high end, which is astronomical, you know, by splitting their inventory, they were able to now not just offer that two day shipping, but free two day shipping because they were able to get their average shipping costs to be around like $23 to $27. And so saw this huge reduction and then they're able to provide that. And then also by now showcasing this free two day shipping where they're now saving a bunch of money, they were also able to see improvements in conversion rate. I don't know if they saw the average order value improvements as well, but they definitely did on the conversion rate data.
Stephan: Do you see customers gaining more awareness of that simple idea that shipping isn't free? When I see that lately Amazon's been showing in the checkout flow, Hey, do you want to get this slower? I don't think you get a better price or anything because it's already free to get it faster. But there is suggesting, hey, do you care about this? Do you want to get it slower? Does it matter to you? I wonder what that says about, you know, the level of education that customers have today.
Casey: In regards to getting things slower. We actually saw some of that bubble up when we were experimenting with some of our same day shipping and certain regions. Where if it wasn't really a perishable or food product people did not want to pay that extra amount. And so a lot of our products people don't necessarily need their organic deodorant within four hours they can wait that 36 hours or 48 hours or whatever it may be to get the product. And so I think that it really depends on what you are selling. Again, if you're not selling perishables or food, I think you can at least err on the side of like, let's call it two days, which is still extremely fast.
Stephan: One thing that I've noticed Shopify pushing really into lately is improving the experience across all Shopify stores for individual consumers. And what I mean by that is now when I'm checking out on a Shopify store, if I put in my phone number, it remembers that I've already checked out on a Shopify store before and fills out all of my information. Which is kind of fascinating and I wonder in a future world, do you ever imagine ShipBob if ShipBob were partnering with many different brands and you detected, hey, this same person bought something, it's going to the same address, but it's two different brands. Would you ever like combine those together?
Casey: I love that concept. I mean we need to get to the level of scale to do that where it'd almost be like ShipBob plus. Real quick back to the Shopify example. So I was at BigCommerce prior and you know, Shopify was easily our number one competitor when I was there. And I remember when Shopify rolled that out, and I'm not going to lie. I was very jealous because I was like, wow, that is just talk about value to the buyer and also to the Shopify customer. Where you're able to provide such a seamless checkout experience it's almost like them dipping their toes into that kind of Shopify prime type experience.
Stephan: Well it becomes this meta Shopify because each brand gets to be their own thing and have their own place on the web and you know, create an experience that feels unique. But you get some of the benefits of having your information stored across all of the different things that exist in the Shopify universe.
Casey: 100%. And it goes back to like that expectation shift that I was talking about how there's Amazon and some of the other incumbents like really pushing it down from the top and then there are the buyers that are kind of pushing it from the bottom because they're like, well, we need that too, that we want that free two day shipping. Well, what I was so impressed with Shopify ruling this out is of course, Shopify's typical, like most technology solutions, their customer acquisition is going after the brands from the top. But if you can roll out something like this where that ease of checkout is so easy and the buyers start realizing like, oh, I'm on a Shopify site. And if they almost, you know, from now if we start thinking about from the bottoms up, if they start kind of pushing the third party websites that they purchased from to move to Shopify because they want that experience, that's when that's when you've won. And so again, it's the pressure from both sides, which I was just so impressed with.
Stephan: Yeah. And one of the conversations that's been coming up throughout the podcast over the past few months with Paul Munford from LeanLuxe and we had Thingtesting on recently is kind of what's happening on a meta level with so many direct to consumer brands emerging and popping up all the time. Does that create confusion or complexity for the user? Because now instead of being able to go on Amazon and buy all this stuff in one place, they're shopping across dozens of different websites. You know, what does that do to the user experience? Are there efficiencies to be gained there?
Casey: I mean, gosh, we could peel this back for hours. I think what a lot of the brands are realizing and this had been happening for a long time, but is they just need to be wherever their customer is. So basically the customer wants to buy what they want when they want it and get it pretty quickly. And so it's really that omni-channel push where they don't care if they're buying it on your website or if they're buying on Instagram and we can dive into it, but they just rolled shortly or if they're buying it in the store. You need to be where the customer wants to be. But what I do find very, very important, and this is the really one of the few knocks on Amazon who I have that much respect for is: These brands need to own as much of the customer data as possible. And that's not like a nefarious way, but like that's how they're going to actually be able to make smart and actionable decisions on how they should build and scale their brands. Where if you're handing that data everywhere else and you don't understand who's buying and you're not able to engage with them or build a relationship with them or communicate with them or share the latest and greatest that your brand has rolled out. You're always trying to fish again from the same sea that everybody else's. And so again, it's the technology is rolling out at such an incredible pace where people both online and offline, where brands can get in front of their customers in so many different ways, but really having that connection with your customers and also having that data where you can take action off of is just getting more and more important by the day.
Stephan: You mentioned Instagram, I haven't gotten into all the nitty gritty because it was recently announced as of this recording, but we're seeing them really integrate the shopping experience directly into the app where if you see a product you like, you're actually able to check out from right there and buy the product and presumably have all of your payment and shipping and everything information saved so that is a seamless as possible. What's your thought on how that will go over and whether that will be successful and from an implementation standpoint, what that means for brands?
Casey: Oh, I think it was so smart. I mean it's funny like all technology companies become a payments company and that's what Instagram and obviously Facebook who controls Instagram is trying to be, they're trying to get as close to the wallet as possible. I feel like I'm always fascinated how much money these brands will be spending on Instagram and Facebook, but primarily Instagram to drive customer acquisition. I was talking to an agency partner of ours the other day and they said that they spent between $400 and $500 million on Instagram last year. That is insane. And the fact now that these brands can actually spin up a store or sell directly through Instagram and have that checkout experience right there. I was fortunate, you know, while I was at BigCommerce to watch this because BigCommerce along with Shopify and Paypal were launch partners of Instagrams that they announced the other day. And so I was fortunate to see a lot of this coming. What's interesting is while Instagram announced that they did launch with both Shopify and BigCommerce they picked 20 brands to launch with and none of those brands were using native integrations with Shopify or BigCommerce. They were doing it through Instagram. And I think that we'll see a lot of brands, even if they're spinning out test products where they just want to run stuff on Instagram to see how it works. Or you'll see these influencers that want to start spinning up brands and they don't necessarily need to spin up their Shopify store. They can actually just spin up an Instagram store and start selling their merchandise directly there. A lot of musicians and artists can do that where they don't want to necessarily maintain a store. Where they need to be very careful of course is what is the customer data that you're getting so you can continue to interact with them. But you know, Instagram controls all of that as is. And then a company that hasn't been really getting much publicity I feel like over the last year compared to some of the other players is Paypal and Paypal right now is powering the wallet for Instagram. How long do they do that for? I don't know. I believe they signed a somewhat long term contract. But what that means, I don't know. But you know, they might have a similar agreement to like what Shopify has with Stripe, where Shopify essentially white labels stripe for Shopify payments. And if Instagram's doing that with Paypal, Paypal's going to be a huge winner in this space.
Stephan: I wonder what the expectations are if you're someone who's shopping on Instagram for kind of the end product, because I think that currently brands who are really trying to create an amazing, you know, unboxing experience and checkout experience and like browsing navigation experience. They're trying to think about that from a very branded standpoint end-to-end. But what does that mean? If you're just scrolling through your feed and you see your friend's cat and then the next thing you see is a product and you buy that. Are you thinking this is like Amazon and it doesn't matter if it comes in a brown box and it's sort of just like a thing that I got from Instagram or are you expecting for it to come in an Instagram branded box? Or you expecting for it to come from the brand itself and be very branded. I'm not totally sure what people will expect when they do that.
Casey: I agree. And it'll be interesting to where having some layers of friction is actually a good thing because, these customers are actually not just showing you that they want your product, but they're also kind of every layer of friction that they overcome. They're also selling themselves on the product. And so, there are theories like, well, will these brands start to see like a huge influx in return orders? Will they see a bunch of people that are not return shoppers because you might not. I don't know what Instagram, I don't know all the nuances of the data that they're sharing, their ability to allow you to retarget or even like message the customers that purchase. So are you going to see a huge reduction in repeat visitors? And also will you see the average order value drop? Which is extremely important. And so, I don't know, I mean there's gonna be a lot that we're going to see. And I think this is where also thinking through that post purchase experience is actually maybe more important because if you order a handful of things through Instagram and they are coming in the brown box and they're coming late and the hype and the quality is not that strong. I mean, honestly, that sounds to me kind of like what Kickstarter was in the early days. And you're not going to come back. But for the brands that do take it seriously and they are getting you your products in a timely manner and it is coming in that custom box or there's some type of like personalized experience there. I think that those are the types of brands that people will then share further and also then seek out to make sure that they're visiting them on their website and then hopefully reentering their ecosystem there as well.
Stephan: I've got a prediction, I wasn't thinking about this before, but with your description and just came to mind, I think what we'll do really well is just impulse buys. Amazon sort of does this to some extent, you know, here's some up-sell type of things. And a lot of ecommerce websites do up-sell, but there isn't necessarily a thing where you're walking down the aisle of a grocery store and as you get to the checkout, there's all the chewing gum and silly magazines and all that kind of stuff. Is there a version of that that populates in your feed? Is the customer acquisition cost of that make sense. But is there a way that you're scrolling through and you see this thing and it's like $5 or $10 bucks and you buy it instantly? What is that thing? Is it a pair of socks? Is it chewing gum? If it's something that can be shipped in a very simple envelope or something that is, you know, pre-packaged to be shipped, I could see that doing really well because it's an instant purchase. And if they make the checkout flow within Instagram super easy where it's literally basically instant buy. I could see that working really well.
Casey: I agree. There was this brand I worked with a couple of years ago. They sold those car mounts for your phone. I think they were very popular with moms and like Uber drivers and people who often like maybe needed to be able talk on the phone while driving of course because you need to be hands free. And this guy, his site blew up. I think he scaled it up to 5 million plus within like a couple months. And I remember talking with him, I'm like, well you know, what was your thought process to scale to this amount? Because this was like his 25th ecommerce store, so he was not a rookie. And he was telling me, he's like, well all of our marketing is through Facebook and Instagram. I worked with our designer and developer where I was like, I don't want to see a desktop mock up until the very end. We're going to create everything mobile responsive and then we can scale it out to desktop and I want as few pages and clicks as possible. And on the checkout page there's the ability to get one, three and five and so you can kind of get those. And he viewed it's like you're at the grocery store and it's an impulse buy. He wanted people to see it and I think even for five of them it was less than $30 and he wanted that checkout extremely quickly and he was using all those one click buy button.. Like the Amazon buy button, the PayPal one click and the Apple Pay. And I remember he emailed me, he was celebrating that he actually had this first purchase that was less than a minute because he'd keep a close eye on that. And so of course the person had to click the ad and navigate through a site. You click one of the one click payment buttons and then check out. But now you think about it with Instagram what you were saying talk about impulse buy. If I see whatever it may be, Bomba socks or something cool like that, I click on it. And then if my payment credentials already saved, I mean in theory I could probably purchase in like 10 seconds, which is mind blowing.
Stephan: Yeah. For anything where there isn't that much of a decision, like either you already know the product, maybe you've bought it before and it's like a replenishment of that thing. Or it's something where you're willing to take the risk because it's like, hey, you know, I know the concept of just think about a grocery store. If you understand the concept of a candy bar, it's not a big risk to buy one. The question would be the acquisition costs and the advertising costs on Instagram have gone up so much. Is it possible to sell an impulse buy in that context? And does Instagram want to be the checkout line of the Internet?
Casey: I mean they're basically like the QVC of the Internet. But what will be also interesting too is will they reward those that sell through Instagram? Because what if you actually got benefit by getting like a reduction in your cost-per-click, therefore, or at least in theory, your cost per acquisition by selling through Instagram?
Stephan: Fascinating. Well these are all questions that we don't know the answer to yet, but it'll be fascinating to see. And what does that mean for fulfillment? Is there anything that it inspires you to think about when it comes to the integrations with the different storefronts? The actual like of receiving a product that you would buy that way?
Casey: Yeah. Well I'm glad you brought that up because that's something that I thought about quite a bit where especially with these buy buttons, again the PayPal one click which is still extremely popular.The Amazon checkout button, Apple Pay as you go through the experience and let's just take the Amazon buy button, which is very popular. It's also at Kickstarter used from the beginning. But again you go through this beautiful branded website, you purchased a product you're going for. You use the Amazon buy button. It takes you a couple of clicks to checkout. You never had to hit your keyboard on the way. And so you get this Amazon level purchase experience, but then on the checkout page it says, great, it will be there in seven to 10 business days. And so you don't get that Amazon level fulfillment. It's such a disjointed experience. You only got half of that Amazon experience and I think that's what brands are realizing and trying to focus on. Outside of the fact that they're seeing wins elsewhere. But how do you create that entire experience? There's a reason why Amazon, was at least for a time $1 trillion company because they did that the entire experience. It wasn't just the purchase experience, so it wasn't just the fulfillment experience, it was everything.
Stephan: Awesome. Well, it's been amazing to talk to you. I think if people are curious about ShipBob itself, you can go to shipbob.com. If they want to hear more of your insights. Where can they find you? Twitter?
Casey: Yeah. Twitter @caseya. So, @kca or you can always email me too, carmstrong@shipbob.com.
Stephan: Is there anything else you want to point people to? You've been publishing a lot on the blog, different case studies, different guides, that kind of stuff?
Casey: We put a lot of time and effort into our resources and our case studies. And I think hearing from those that are in the trenches is the best way to learn. And so I would always start there and I think the fastest way to accelerate your professional growth is to talk to those, preferably in person or, you know, over Skype or somewhere else. The people that have done it. And so that's where I would recommend people to start for sure.
Stephan: Cool. Thank you, Casey.
Casey: Thank you very much.
Stephan: Oh, one last thing before we go. I'm talking to you at home. What's your favorite brand these days? Is there something that you think is really well made or maybe someone that you love for me to talk to? Send us a tweet. We are @lumi on Twitter. We're making this show for you, so tell us what you want to hear and we'll make it happen. Thanks. See you next time.
You can find this and all future episodes on iTunes, Google Play, and here on Lumi. This episode was edited by Evan Goodchild.
