Note: If you’re interested in details about international shipping and fulfillment, please check out some great content written by our partners at Shipbob and Passport.

Determining your stage

It’s important to first understand what stage your business is at before you identify the best solutions for your operations, logistics, and fulfillment. For example, if you are a brand new subscription business, you need to focus on quality assurance with your packaging and materials to ensure a quality experience for your newly acquired customers. It’s essential to focus on maintaining a connection to your product and customer as you establish market fit. New businesses are usually best left handling things in-house. Expansion stage businesses, who’ve established product and market fit, will likely focus on establishing a relationship with a third-party logistics (3PL) partner to optimize their operations to handle their rapid growth. If you’re shipping hundreds of boxes a month, the benefits of using a 3PL start to outweigh the costs. Finally, a large and mature-sized company will likely focus on improving visibility into their shipping and logistics. An emphasis for companies at this stage is to refine their analytics tools so they can prioritize optimizations that will help scale the business, improve their profit margins, and leverage economies of scale.  

That said, there are other factors that come into play as well. Our friends at Shipbob point out in their awesome guide on subscription box fulfillment that determining whether or not you should outsource your fulfillment to a 3PL depends on your monthly shipment volume, and the complexity of “kitting and assembly” your subscription business requires. For example, if you have a pretty standard set of SKUs that go into each box delivery, and they don’t require a lot of customization and packaging, a 3PL is likely the best way to go. If you have a premium box of the month club with rotating product SKUs, the ability for subscribers to further customize their individual boxes between shipments, and a lot of complex packaging, then very few 3PLs will typically handle this well. Building up your in-house fulfillment capabilities may make more sense in this case even if you’re operating at scale.

Overall, key considerations for fulfillment logistics are:

• Managing inventory
• Assembling and packing
• Delivering fast and on-time
• Customer support
• Costs for shipping and fulfillment

We’ll dive into each of these components below:

Managing inventory

Planning for inventory is essential when you’re managing subscriptions. If you also offer a one-time purchase option along with an option to subscribe and save, then you have to plan in advance to ensure your products are available for purchase on demand, as well as being available for your upcoming recurring subscription orders. Your subscription customers typically expect their deliveries on time on the same day each month, so you’ll also need to ensure your manufacturer/supplier is able to get the products over to your fulfillment center. The key is to avoid stockouts.  

If you’re a newly started business, you’ll typically want to manage your own inventory. Select turnkey ecommerce platforms like Shopify and, ahem, Recharge update inventory for you and give the basic visibility into orders you need to fulfill.

Rapidly growing businesses may want to consider outsourcing their more complex inventory management to platforms like Shipstation, since they offer shipping, turnkey software that helps you manage your orders and inventory, and a portal for customers to track packages all in one place.

Mature businesses operating at scale, or any business that may have customers in diverse geographic locations, should consider distributing inventory across multiple fulfillment centers. This ensures they can deliver to their customers quickly and at a lower cost. Shipstation has a large network of fulfillment partners that you can reference, which includes global logistics platforms like Shipbob. 

Assembling and Packing 

A Dotcom Distribution Study found that over a third of people believed the use of branded packaging had an impact on their impression of the retailer/brand that shipped the item. 

How your boxes look after they make it through the warehouse and ship to your merchant is incredibly important. From branded packaging to designing a box that delights your customers when they open it, your subscription deliveries are part of the rich experience you’re offering your customers. Customers typically want a deeper relationship with the brands they subscribe to, and packaging design is the first impression they get with your actual physical product.

Questions to ask:

1. If you have multiple SKUs, how do your products fit together in a box?
2. Is their unused space in your package?  
3. Is their sensitivity to damage or temperature when shipping?
4. Can you add anything as a surprise gift or bonus?
   • Recharge churn prevention tools can help you identify at what delivery in your customers’ subscription lifecycle typically results in the most cancellations/churn. With this knowledge, packing in a bonus free gift in the delivery beforehand can reduce this churn and keep customers engaged.
5. How sturdy is your packaging? How will it look when it arrives at your customers’ doorstep? 
6. What are the dimensions and weight of your products? The more you know about this, the easier it will be to calculate your total costs.  

As you navigate the above questions, you’ll want to ensure you have a good amount of space to store your product inventory, and that there is extra space for putting together an assembly line and organizing your finished packages. Make sure the storage area for your products is clean (no one likes animal fur in their box, unless that’s what you’re selling). You’ll also want to ensure the packing and storage itself doesn’t affect the aesthetics of your shipments, like stacked boxes getting squashed or damaged. Take a look at the location of your fulfillment and packing space. Ideally, it’s near commercial shipping docks, to ensure you’re not moving packages a long way to get them shipped out. All of the above points apply if you’re using a 3PL. You want to know they’re handling these things efficiently and with an attention to detail/quality. 

If you’re labeling your own packages, you’ll want to consider the surface of the boxes you’re packing products in. Labels can peel off uneven or matted surfaces. If you’re handling label printing yourself, pick a label printer that is fast. You never want to have a major bottleneck in the fulfillment process, especially if you ship on a specific day of the month/week. Testing out your labeling and packaging with some sample quantities is a great idea to ensure the full lifecycle of a shipment works.  

Delivering fast and on-time

When a customer subscribes to your product, they are engaging in a long-term relationship with your company. Building trust with your customer and ensuring that your products are delivered quickly and on time is tantamount to a successful subscription business.  

When selecting the right shipping carrier, you’ll want to consider parcel consolidators and delivery services. Parcel consolidation means that several deliveries will be sent to the final destination in a single container. The shipments that arrive from various suppliers and locations are consolidated into a single shipment to save on shipping costs. In comparison, regular delivery services are typically faster and more customizable but are more costly.  

When evaluating a carrier, you’ll want to review pricing, shipment history, and quality of service, with an emphasis on speed, managing returns, and damages. Additionally, reliable order tracking is essential so you know the exact delivery time. You’ll also want to evaluate the quality of their support team. If shipments are lost, damaged, or late, how helpful and communicative is the carrier’s customer support team?  

Large carriers include UPS, UPSP, and FedEx, or Canada Post for Canadian-based businesses. 

You can also evaluate a shipping partner or 3PL.  These companies will handle the above but also have direct access, better conditions, and cheaper shipping prices that they can extend to you. That said, having someone else manage your products requires an investment of time, trust, and money. 

Communication to customers

From the second a customer checks out or places a recurring order, they will typically want to know where their product is in the shipping lifecycle, and exactly when it’s going to arrive. If there are any delays, stockouts, or other issues with their order, the more pre-emptive the communication the better.

Most ecommerce platforms will message (e-mail and SMS) a customer with order confirmation notifications and product has shipped notifications. These platforms usually have a customer portal where customers can log in and track their order. Additionally, most shipping software and carriers have even more accurate tracking pages for customers to check.  

Personalizing and branding these notifications and portal pages is a way to tie together the rich customer experience you’ve designed. Being responsive to questions or messages from customers who are having issues, or may just have great feedback, is a huge opportunity to build trust and loyalty with your audience.  

Costs for shipping and fulfillment

Deciding upon your pricing strategy for shipping is one of the most important decisions you can make for your business. Free shipping, for example, can be a huge incentive for customers to buy from your brand, but can be very expensive. Merchants have offset these costs by leveraging the following strategies

• Bake the full or partial cost of free shipping into your product pricing
• Offer free shipping only when certain price or quantity thresholds are met
• Grant free shipping only to members and/or subscribers
• Distributing discount codes for free shipping to a smaller cohort of customers

There are plenty of merchants who don’t offer free shipping, finding it’s not the differentiator for their own product and business.  They instead charge a flat rate that averages their typical cost of shipping. Other merchants also just pass the exact cost of shipping directly to the customer. To do this, they typically integrate shipping software into their ecommerce platform, and either offer major carrier rates (USPS, UPS, FedEx) and/or leverage third-party postage providers. 

Recharge and Shopify both offer the ability to charge current carrier rates for shipping at checkout (or for recurring purchases).  Recharge natively fetches shipping rates from Shopify for UPS, USPS, Canada Post, and FedEx and can be configured with custom shipping zones and rules. Additionally, Recharge has direct integrations with Passport, Shipstation, Advanced Shipping Rules, and Bespoke to ensure the correct rate and rules are calculated at checkout or for recurring purchases.  These are especially handy if you’re shipping globally, or want to leverage custom shipping rates based on minimum quantities or for specific products.  

The cheapest and fastest method to ship is typically via USPS Priority Mail Cubic Service. As long as your package does not exceed 18 inches, 20 pounds in weight, and .05 cubic feet in volume, then USPS will ship your package within 1-3 business days and calculate based on the outer dimensions of your package instead of weight. This can lead to huge cost savings. They also offer free package tracking and include $100 of insurance at no additional cost.  

3PLs also may be able to offer cheaper rates on shipping that they only have access to. Shipbob points out that, “Very few fulfillment companies offer the attention to detail and manual processes necessary to successfully complete the second box that’s customized and curated — and those that do are often very expensive given the work and time involved to fulfill a single subscription order.”

They also add, “Any extensive kitting can be expensive or not provided by 3PLs, so we recommend pre-kitting items — assembling the boxes before shipping them to your fulfillment company — or working with your fulfillment company to create bundles of products that make orders easier to pick and pack.”

With a fulfillment provider, you’ll want to know how they can fetch the necessary submitted orders for fulfillment. This can be done with manual spreadsheet uploads or via ecommerce platform integrations. Recharge and Shopify will submit order data to many 3PLs like Shipbob or Shipstation via automated integrations. Be sure to evaluate what data these fulfillment companies fetch from the orders automatically submitted — for example, do they get the full details on what products go into the package?)

One additional great benefit to these 3PLs is that they also have software to update the customer on their shipment status.

In summary, as you evaluate what products are best for subscriptions and how to optimize your operations and logistical planning, you’ll want a comprehensive strategy that leads to sustainable profitability. As discussed, consider how you’re going to manage inventory, assemble, and pack your orders. Select a good shipping carrier or partner to ensure your prized packages arrive fast and on-time. Maintain clear communication with your customers so they know when they’re going to receive their package, and what to do if there are issues with delivery. Lastly, do some business modeling to factor in the costs for shipping and fulfillment and ensure your profit margins are worth your while!

There is some terrific reading material online on subscription and ecommerce shipping and logistics that we’ve assembled for your convenience as well:

Logistipedia

Mastering the Internal Operations and Logistics Before Shipping

The Cheapest Way to Ship Subscription Boxes

Choosing the Best Shipping Software

3 Secrets to Cheaper Subscription Box Shipping

Kitting and Assembly

Subscription Box Fulfillment Guide

3 Genius Hacks for Better Subscription Box Shipping

Ecommerce Shipping and Fulfillment: A Complete Guide (2021)

The post Let’s talk subscription fulfillment and shipping appeared first on Recharge.

Predictable, recurring revenue has tangible benefits for subscription businesses, but it compounds the sales tax liability for business owners.

Ready to develop an action plan towards ensuring your subscription business is compliant with the sales tax laws everywhere you sell? We’re here to help. The first step is to determine your sales tax liabilities. 

How do I ensure compliance with sales tax laws?

Sales Tax Nexus for subscription businesses

Sales Tax Nexus can be difficult to determine for subscription ecommerce brands. It essentially means that if a company has a physical presence in a state, they have to pay sales tax for that state. 

Avalara, a trusted partner for many merchants to automate tax compliance developed this free assessment to help determine your Sales Tax Nexus and confirm if you technically have physical presence in a state. 

To figure out if you have an obligation to collect sales tax, essentially figuring out the economic nexus laws on transactions in a state, you’ll want to ask yourself the following questions: 

1. Do I have warehouses or distribution centers in a state? If so, you very likely have Sales Tax Nexus in that state. 
2. Which states do I have sales transactions in? Depending on the states, county, and district regulation, you may have tax liabilities for each of those states if you meet the threshold.
3. What kinds of products/goods do I sell? Digital downloads or goods, as opposed to subscription boxes, for example, can have complex nexus rules that vary state to state. Merchants selling beverages may even have varying bottle-tax tax liability. In other words, it’s not as straightforward as many would like.

Tax liabilities post nexus

Another important question to ask yourself is, Where are my transactions taxable? Once nexus has been determined in a state, you need to determine the exact location where a transaction is taxable. There can be multiple tax rates in a state that vary greatly. For example, one county could have a tax rate of 6%, while a neighboring county could have theirs set at 7%. Understanding the sourcing rules of each state, at a minimum by zip code (this is how Shopify and Recharge determine taxes), is a good starting point. However, states with complex tax rules in many cases require more detailed information.  

Additionally, ask yourself, Have I determined origin vs. destination-based tax in every state I sell in? Sales tax also is determined by the source of the purchase/item. Most states are origin-based, meaning that sales tax is determined by the source of the transaction (i.e. where the customer made the purchase). Others are destination-based, meaning that sales tax is determined by the location where the item is shipped. Even more confusing: Some states have both origin and destination rules.

But what about your customers? Are some of them tax-exempt? Customers do not always need to pay tax on their purchases. There are certain circumstances that make a consumer tax exempt from a certain product. It’s important on your end to collect certificates for any tax exemptions. For example, our friends at Avalara point out in a great article on taxes for subscription businesses that:

Subscriptions sold to nonprofits are tax-exempt; however, in these cases, a use tax is still required by most jurisdictions. You can reduce your audit risk by developing a comprehensive and robust method of tracking, filing, and verifying the certificates.

The final question to ask yourself is, Do I have products and services that have unique taxability? Products and services can have different requirements for the collection of sales tax that vary by state. Furthermore, some states are members of the Streamlined Sales Tax Program (SST), and are able to offset the costs associated with calculating tax as well. These states tend to use more unified definitions for digital goods, making it a little easier to figure out once time comes to pay taxes.

Calculating your subscription sales taxes

Understanding your tax liabilities can definitely be complicated, but once you feel like you’re in a good place, the work doesn’t end. You’ll need to determine a way to calculate your sales tax during checkout and when customers add products via the customer portal (or via other third-party apps).

For rate calculation

Merchants can use Recharge tax rates, which are informed by ecommerce platform that we’re integrated with (e.g. Shopify tax rates and BigCommerce tax rates).

If a merchant is on Shopify Plus or BigCommerce, they can also leverage our Avalara Avatax integration.  When enabled, Recharge defaults to Avatax for rate calculation at checkout and anytime we generate or regenerate a charge.  This is best used if you have product specific tax requirements that are specific to certain regions.

For remittance/reporting

It’s recommended that merchants export data from Shopify or BigCommerce for reconciliation with your tax platform of choice. Some applications like Quickbooks also integrate with these platforms and will usually fetch the tax rates that we calculated and included on the order in each platform.

For more sophisticated use cases 

Merchants can also use a third-party integration like Taxjar, Avalara Avatax for reporting and remittance. Use these great solutions if you have a lot of unique filing requirements and deadlines in different locations, to enable the power of the experts. For example, some state tax laws mean that sales tax due dates can fall on a non-business day, such as a weekend.

Happy tax season!

Many merchants saw unexpected growth numbers in 2020. Perhaps you’re one of those who sold to customers in new locations that you before were unable to reach. There’s celebration due, but also… so are taxes for those new sales. 

Develop a plan to appropriately determine your nexus status, then figure out how and when to collect taxes, understand the tax rates and all of the nuances associated with them, and eventually pay sales tax on the tax owed. Be sure to maximize all the benefits the subscription business model has to offer by doing your due diligence to minimize the risk of sales tax errors. Streamlining your operations in this way is all part of an effective recurring billing strategy and a healthy subscription business.

The post It’s tax season: tips to optimize your subscription taxes in the US appeared first on Recharge.