Small Package Shipping & Merchant Services — Distribution

Distribution businesses ship constantly and collect payment constantly. Both activities generate fees that accumulate quietly and are rarely benchmarked against what the market actually offers. The carrier relationship and the payment processor were set up when the business was smaller. The business grew. The pricing didn't follow.

The two categories worth examining first are small package shipping and merchant services. Together they often represent the largest controllable cost exposure in a distribution operation.

Small Package Shipping

Carrier agreements with FedEx and UPS are structured around volume tiers, negotiated rates, and a constellation of surcharges and billing variables that compound in ways that aren't obvious from a single invoice. A business that set up its carrier relationship when it was smaller — and most did — is almost certainly not getting pricing that reflects its current volume or market alternatives.

The variables that govern what a shipper actually pays are numerous and interrelated: tier placement, accessorial charges, dimensional weight calculations, fuel surcharges, service-level mix, and specialty pricing programs. Each is negotiable. Few are revisited without a specific reason to do so.

The questions worth asking

• When did we last formally review our carrier agreement — and what has our shipping volume done since then?
• Do we know our effective cost per shipment across all service levels, or only what appears on the invoice summary?
• Have we benchmarked our current rates against what's available in the market in the past two years?
• Is anyone reviewing carrier invoices for billing inconsistencies, or do we accept them as issued?
• Are we leaving volume-based discounts unclaimed because our agreement hasn't kept pace with our growth?

Merchant Services

Shopify and Stripe are excellent platforms. They're also expensive at scale. Both bundle payment processing into their platform fees in ways that make sense for early-stage businesses and become harder to justify as transaction volume grows.

A business processing $500k annually in card payments pays meaningfully more through a bundled platform than through a negotiated arrangement with a dedicated processor. The gap widens as volume increases. At $2M annually it becomes difficult to ignore.

The questions worth asking

• What is our effective processing rate — total fees divided by total card volume — across all payment channels?
• Is our current processor relationship tied to a platform contract, or is it separable?
• Has our processing rate been benchmarked against current market rates in the past two years?
• Are we paying for platform capabilities we don't use, as part of a bundled pricing structure?
• What would our processing costs look like at our current volume under a negotiated arrangement?