What You'll Learn...
- What the “illusion of progress” is, and how it chips away at your savings potential
- 4 steps for securing better shipping rates
- Why now is the best time to negotiate rates with your carrier
What is the illusion of progress?
Interesting fact about people, they love making money more than they enjoy saving it.
There’s actually a name for this bias: it’s called “savings posteriority.” Our brains are wired to value growth over savings.
I’m a consultant who helps business owners negotiate their contracts with UPS, FedEx, and USPS. And in my business, I see this bias play out all the time.
For example, many of my clients could spend all day talking about a $100,000 sale, one that yields them a net profit of $10,000. Somehow, they’re less excited about their potential to save $100,000—or even $1 million—which they could just by negotiating shipping rates with their mail carriers.
Getting a “big” sale might feel more satisfying, but saving millions could be transformative for a business.
It was for one of my clients, Joel. Joel owns an apparel company and he was spending hundreds of thousands on customer returns. For an online apparel company, you have to have a strong return policy because, a lot of times, the clothes just don’t fit! Unfortunately for the company, this leads to a big hit through packaging and handling fees.
Joel and I started working together on this issue, and we negotiated with Fedex a much lower rate, and waived a good portion of those fees. In the first year, Joel’s company saved $2 million. In the second year, he improved his FedEx rates even more and started working with a regional carrier for some of his shipping, reducing his spend by another $300,000.
It’s so easy to think that shipping rates are what they are and just accept them. But I’m telling you right now, as a founder, don’t sleep on shipping rate savings.
There’s a few different ways to get better shipping rates. You could join a group with aggregate buying power. Or you could find a program that best matches the characteristics of your freight or parcel. Or…you could negotiate your own contract DIY-style, which is absolutely within your power. I’ll show you how.
The first step to successfully negotiating your own contract is to understand one of your biggest obstacles. It’s what I call the “illusion of progress.”
Join "Tales From The Tub"
Newsletter Opt-In
How the “illusion of progress” fails you
Here’s the trap founder’s fall in:
Someone starts an e-commerce business. Like every founder, they start small. They get a FedEx account, and over time, their profits grow.
Then one day, UPS offers them a better deal on shipping rates. Excited, the founder presents that to their FedEx rep, who acknowledges the situation and promises them a better contract.
Every year, the founder’s business does better. And every two or three years, again and again and again, FedEx gives them a slightly better contract.
Progress!
At this point, many founders get stuck. They feel like they’ve made so many strides with a carrier that they’re afraid to switch. They’ve worked hard to get these improved rates. I should be showering my FedEx rep with flowers and donuts, they think. I’ll never get these rates with anybody else.
Herein lies the problem: the illusion of progress.
Look, you’re never going to “start over” with another carrier. Those improved rates you got? You got them because your business grew. You got them because you earned them. If you got those rates once, rest assured, you’ll be able to get them again, somewhere else and potentially under much better terms.
Of course, there are 1 in 100 exceptions. For example, let’s say the threshold for a weight-handling surcharge was 71 pounds, but your carrier decreases it to 51 pounds. If you were shipping a 60-pound box consistently, you never got the surcharge. But now you do. Maybe you get your carrier to grandfather you in—so they’re treating your box like it’s still under 51 pounds. If you switch out of that contract, you might lose that benefit and never get it back again, which is something to consider. But that’s a rare exception, 99 times out of 100, you could get the same rate tomorrow.
Those improved rates you got? You got them because your business grew. You got them because you earned them. If you got those rates once, rest assured, you’ll be able to get them again, somewhere else and potentially under much better terms.
4 steps to negotiate better shipping contracts
Shift your mindset away from the illusion of progress, and your savings potential multiplies.
Know that you’re entitled to your rates!
Know that you can get them with another carrier!
Know that you could be doing better!
And after you let that sink in, you’ll be better prepared to negotiate contracts on your own like a pro.
Here are the steps to negotiate better rates.
Step 1: Be disloyal
I know, I know…sounds devious.
But hear me out.
If you want to talk to your carrier’s representative about improving your rates, you NEED to go into your negotiation with another option in hand. You need to be ready to walk away from your contract.
The same thing happens with phone companies. A phone company, like a carrier, will give you better rates if they truly believe you’re going to leave them.
In other words, carriers reward disloyalty.
How do you convince them that you’ll actually walk away, though? Be confident. And the way to project confidence? Enter your negotiation with data. Know what you’re owed, know what’s possible for your company size and parameters, and have the facts to back that up.
Which leads to the next step…
Step 2: Don’t go into a negotiation blind
To get the best deal, you’ll want to talk to multiple carriers.
But before you give an opposing rate to a carrier, understand if they’re in a position to beat those rates by 20%, or beat them by just enough to get your business.
To know that, you’ll need to talk to people: like other business owners in your industry, or an independent consultant. Share information, and find out what rates others have.
(Don’t just talk to your carrier’s reps. They’re incentivized to get the highest rates possible from you!)
After you get some information, set realistic targets for yourself. Determine where you can save. For example, maybe you can:
- Lower your base rate
- Improve your discount percentages
- Increase your accessorial discount percentages
Then, talk to the carriers and give them your package-level data, or PLD, without pricing.
While you’re doing this, understand that negotiation takes time. You might have to meet with a rep a few times over a three-month period.
If you use an independent consultant, you can cut that three-month negotiation time down. That’s because consultants look at data all day long and can arm you with the right information to negotiate more effectively.
Good consultants have the technology to run a specialized report, so they can demonstrate exactly what you could be paying.
If you’re sitting on the sidelines while this story plays out, you’re missing a golden opportunity.
Step 3: Revisit your contract every year.
Some people never think about renegotiating their rate. Others wait to try every two or three years, or even longer.
I encourage you to revisit your contract every year.
Why?
Because the economy is constantly changing. Sometimes great opportunities emerge from the circumstances, giving you access to amazing rates.
For example, during the COVID pandemic, we were in a seller’s market. Carriers could argue they were slammed. You’d be lucky, so they said, to have them pick up your product.
But times have changed. Just last year, UPS lost business because of the Teamsters’ near strike, as did FedEx, after pilots rejected their pay hike negotiations. If you’re sitting on the sidelines while this story plays out, you’re missing a golden opportunity.
Carriers are more desperate to keep your business, so there’s no better time to revisit your contract, especially if it’s been a while. And especially if this would be your first negotiation.
If you use an independent consultant, you can cut that three-month negotiation time down. That’s because consultants look at data all day long and can arm you with the right information to negotiate more effectively.
Good consultants have the technology to run a specialized report, so they can demonstrate exactly what you could be paying.
Step 4: Negotiate with fulfillment centers too
Many business owners who use fulfillment companies don’t realize they can negotiate those contracts as well.
Fulfillment centers mark up their rates. Instead of using their rates, a lot of times you can bring your current mail carrier’s contract to the fulfillment company. If they’re not into that, you might be able to agree on some nominal fee, where you pay twenty-five cents per label for using your own contract…which will save you in the long run.
If you talk to fulfillment companies and they won’t let you use another rate, just like with your carriers, have another option in hand during your negotiation. After they realize you’re serious about leaving, they’ll likely work with you to keep your business.
Take advantage of this year’s market
Like I said earlier, we’re entering a year of great opportunity for negotiating with carriers.
So know what you’re worth. Know that when you negotiate your rates respectfully, constructing and strategizing the right narrative, you won’t look like you’re just nickel and diming carriers—and chances are, you’ll come out ahead. And if you need the extra support, consultants are out there with the expertise and tech to give you the data or buying power you need to negotiate better.
