Shipping costs are one of the top reasons for cart abandonment, making it crucial to keep your delivery fees low or free for customers.
But, with customer shipping speed expectations becoming faster, it’s becoming increasingly expensive to deliver online orders. And if your customers aren’t footing the bill, you are.
You must offer customers the fastest shipping service possible without losing money for your business, which requires an understanding of shipping costs – specifically how to calculate shipping costs and how to reduce them.
Luckily, this is something we’re an expert on.
The importance of calculating your shipping costs
Knowing how to calculate shipping costs and shipping estimates for online products is vital for four main reasons:
1. Using the right service for your products
Shipping costs influence the price of your products and the shipping services you use. For example, you might raise a $1.99 glasses case to $4.99 to cover a $3.00 shipping fee. Or, you might ship the glasses case using an economy shipping service to keep your prices competitive.
Related reading: Shopify pricing strategies for your business
2. Offering customers free shipping
Cost is the most important fast shipping factor for 79.3% of shoppers. Calculating different carriers’ shipping costs enables you to find the quickest and most cost-effective 2-day delivery service for offering free shipping without sacrificing profits or pricing your products out of the market.
3. Charging customers for the correct shipping fee
If you charge customers for shipping, calculating your shipping costs in advance ensures you charge correctly. Failure to do so can cause negative reviews or you paying the difference.
4. Reducing your shipping costs
By understanding the different factors influencing shipping estimates, you can reduce your shipping costs by changing how you fulfill orders or the services you use.
How to calculate shipping costs
An online shipping cost calculator provides instant shipping estimates for your packages. To use a shipping cost calculator, you need the following information:
Shipping origin and destination zones
The distance between the shipping origin and destination is measured in zones. Higher zones equal further distances and, generally, higher shipping costs. If you’re shipping to a location not regularly serviced by your courier, you may pay a remote area surcharge too.
The weight of a package determines which shipping service you can use. For example, USPS flat rate shipping is only available for packages up to 70 lbs in weight.
Use digital scales to weigh your package, remembering to include all packaging materials and inserts too.
The dimensional weight of a package is usually used instead of package weight to calculate delivery costs. You can measure dimensional weight (also known as DIM weight) by:
Length x width x height
Packages exceeding a certain dimensional weight may incur additional fees.
Packages requiring extra care and attention cost more to ship. For example, lithium batteries are classified as dangerous goods and, therefore, attract a shipping premium. Your shipping carrier will have a list of such items.
The speed at which your items need to reach buyers will affect your prices. For example, 2-day and next day delivery.
Finally, selected shipping services affect final shipping estimates, with some being more expensive than others. For example:
- Package insurance.
- Tracking numbers.
Shipping estimates and calculators
Use the above information and a combination of shipping carrier, courier, and fulfillment service calculators to calculate shipping estimates and compare prices, such as:
- USPS shipping cost calculator
- FedEx rate finder
- UPS estimated shipping cost calculator
- Deliverr fulfillment cost calculator
Forgotten shipping costs
While this article focuses on shipping carrier and courier costs, there are other shipping overheads to consider too.
Packaging costs include all materials used to package items ready for shipping, including boxes, tape, inserts, protection, and labels.
Any time involved in shipping items costs too, including the time taken to pick, pack, print labels, and deliver packages to your carrier.
International duties and taxes
If you’re shipping orders overseas, you must pay international duties and taxes, depending on the package’s destination, contents, and value. Three fees to be aware of are:
- Delivered Duty Unpaid (DDU) – the buyer is responsible for any taxes to release the package from customs, but you become liable if they do not pay.
- Delivered Duty Paid – you pay all taxes, which usually involves paying a DDP handling fee to your courier.
- Undeclared value – if you don’t declare your goods’ proper value, you must pay additional fees and fines for issuing a new invoice and storing the package in the meantime.
How to reduce your shipping costs
Unfortunately, shipping is a cost that no one wants to pay for. Customers want free shipping, and sellers want large profit margins.
Fortunately, there are ways to reduce your shipping costs, regardless of who pays.
1. Using packaging that suits the size of the contents
Package orders in the smallest box possible, that still protects the contents, to ensure you don’t pay for dimensional weight you’re not using.
Most sellers achieve this by stocking four different packaging sizes: envelopes, small boxes, medium boxes, and large boxes.
Related reading: Why branded boxes are hurting your profits
2. Following shipping best practices to avoid costly mistakes
Avoid unnecessary fines by adopting shipping best practices, including:
- Using secure and sturdy packaging that remains intact throughout the delivery journey and doesn’t require repackaging by your carrier.
- Ensuring the customer’s address is correct by using order management software to generate accurate shipping labels and an address checker tool to ensure the address is to USPS standards.
- Labeling your parcels correctly following your carrier’s instructions.
3. Disbursing stock closer to your customers
A dispersed network of warehouses across the US enables you to stock inventory closer to end customers, reducing the distance orders must travel. This allows you to use cheaper ground carrier methods for more efficient services, such as overnight shipping.
4. Partnering with a fulfillment service to access cheaper rates
Most shipping carriers and couriers provide bulk discounts for volume shipping, giving fulfillment services such as Deliverr access to highly competitive shipping rates that aren’t available to the average seller. When you partner with a fulfillment service, you get access to these cheaper shipping costs, in addition to:
- Multiple warehouse locations to achieve stock disbursement, mentioned above.
- End-to-end fulfillment services so you spend your time on more profitable tasks, such as business growth.
- All-inclusive fulfillment pricing to guarantee customers competitive shipping rates, regardless of what they buy, where they live, or how fast they want their order.
The key takeaway from this article isn’t necessarily how to calculate shipping costs; it’s the importance of knowing how to calculate shipping costs so you can find the most cost-effective method for delivering orders within 2-days and 1-day, to remain competitive and profitable.