CALCURATES BLOG

How to Calculate / Estimate Shipping Costs

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To accurately calculate/estimate shipping costs, a business owner needs to know 5 things:

  1. Package dimensions;
  2. Package weight;
  3. Shipping destination;
  4. Value of the product shipped;
  5. Speed of delivery.

What are shipping costs?

To understand shipping costs, think of how much it costs you to deliver a product from your store (or warehouse) to your customer's door. Usually, the following costs are involved:

  • Packaging, boxes, envelopes, tape, etc.
  • Paying someone to pick, package, and drop off a product.
  • Export/import taxes involved in international shipping.

There are additional costs as well, such as insurance, and handling fees, which we will cover later.

The importance of calculating shipping costs

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To see shipping cost reduction, a small e-commerce business needs to strike a balance between meeting its customer needs and keeping shipping costs low. In other words, you need to calculate your shipping costs correctly. If you charge your customer too little or offer free shipping, it may affect your profit margins in the long run. But if you overcharge your customers, they might opt for a cheaper option. A thorough shipping cost calculation will allow you to maintain your profit margins at an optimal level while decreasing e-commerce shipping costs whether you offer free shipping or not. Nowadays, online shoppers are used to seeing several shipping options at checkout. So, it is crucial for an e-commerce business to accurately calculate shipping costs and provide their customers with an instant shipping quote. It pays off - you will see many happy customers who feel empowered when making their own decisions at checkout.

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What information do you need to calculate shipping costs?

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To accurately calculate shipping costs, you need to know:

  1. Shipping point (origin of the package);
  2. Weight of the package;
  3. Package dimensions;
  4. Delivery time.
With all this information available, you can use a shipping cost calculator to compare shipping rates between different carriers.

Factors that affect shipping costs

  • 1
    Shipping destination and origin
    The carrier will determine how many shipping zones your package will travel. Your shipping cost will be determined based on this distance. Prices vary depending on the carrier.
  • 2
    Weight or dimensional weight
    Carriers use either weight or so-called Dimensional Weight (DIM) to calculate shipping rates. For example, if your item is light, but you are using a huge box, this box will take up a lot of valuable space in transit. In other words, you will need to pay MORE for large, odd-shaped, and lightweight packages. Carriers will calculate shipping rates based on the volume of the package shipped. DIM is calculated as follows: multiply the length, width, and height of the package, and then divide it by the dimensional factor (varies for each carrier).
  • 3
    Delivery times
    To win customer loyalty and gain a competitive advantage, it's essential to deliver as fast as possible. With Amazon Prime's lightning-fast delivery speed, customers constantly raise their expectations in terms of delivery times and shipping options. Generally, the faster you want your package to be delivered, the higher your shipping cost.
  • 4
    Type of packaging used
    If you want to save on shipping costs, you need to be proactive in your choice of packaging materials. For example, low-quality materials endanger the safety of the goods in transit, while using oversized boxes raises shipping costs unnecessarily.
  • 5
    Hidden fees
    There are also fuel costs (which account for as much as 50-60% of all operating costs), fuel surcharges (you pay a fuel surcharge on top of your shipping rate), and handling-related charges.

How to calculate shipping costs

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Accurately calculating shipping costs helps you to achieve several important goals:

  1. You will provide your customers with full transparency of how much they will need to pay for shipping (and increase their trust). Cart abandonment is, sadly, a common phenomenon. Did you know that 23% of those who shop online abandon carts due to shipping issues? (45% abandon their cart when they see that the items added to their cart do not qualify for free shipping, 52% choose to add items to their cart to qualify for free shipping, and 56% end up paying the shipping fees because they don't want to lose the product just because of the shipping costs.) You can avoid it by giving your customer several shipping methods at checkout.

  2. If you know your shipping costs, you can proactively set your margins to make sure you don't lose profit whether you are offering free shipping or not.

  3. Are you offering free shipping? Free shipping attracts more customers to your store, but you need a clear strategy to offset the costs that fall entirely on you.

There are several key factors that can affect your shipping costs. When you know them and see how they affect your budget, you can develop an effective strategy on how to save money on shipping. Here they are.

Package dimension

The general rule of thumb - the bigger the package, the higher the shipping costs. Carriers estimate their shipping rates based on the package's weight vs. dimensional weight (the volume occupied in transit). DIM becomes a factor when the weight of the package is less than its volumetric weight (dimensional weight). In other words, your shipping rate will depend on which value is higher - the package's actual weight or its volumetric weight. Almost all companies like FedEx, UPS, and DHL calculate their shipping rates based on the correlation between these two values. Use the dimensional weight calculator from Calcurates to save on shipping costs. This tool allows you to compare which value (weight or DIM) will get you the most savings.

Package weight

This one is simple - if the weight of the package is higher than its dimensional weight, the shipping rate will be determined based on the package's actual weight. Generally speaking, the heavier your packaging, the more you will be charged for shipping.

Use scales to accurately weigh your item before shipping - to eliminate unpleasant surprises in terms of shipping rates. Choose smaller boxes to save money - as a rule, the smaller the box, the less you pay. Use quality packaging materials to avoid returns and reputational losses.

Shipping destination

Shipping costs largely depend on how many shipping zones your package will go through. Does your ecommerce store ship domestically or internationally? Ecommerce shipping costs will be different depending on how far your item is traveling. "Shipping zone" is one of the major factors that helps shipping service providers set their price points. For example, in the US, there are 8 shipping zones. The more zones your package travels through, the higher the cost of shipping. If your ecommerce business needs to ship long distances regularly or you ship internationally, a 3PL will help you reduce shipping costs significantly. With multiple warehouse locations, 3PLs can store products closer to your domestic buyers or international customers. As a result, your item will travel through fewer zones, which will help you reduce shipping costs. Calcurates provides the most geo flexibility for your shipping by assigning methods and rates to specific Shipping Zones (Areas) or by creating location-based rules and restrictions. You can customize shipping zones to set rules and restrictions or offer special rates and shipping methods based on the customer's location.

Value of contents shipped

Whether you are shipping internationally or domestically, carriers will ask you to declare your item's value. Shipping high-value products generally costs more. The reason your product price affects shipping costs is that it is used to determine the maximum amount your shipping insurance will cover if your item is lost or damaged. With FedEx and UPS, this value is set at $100 by default. However, this is not how much insurance will owe you in case your package is damaged or lost. It is just the legal financial liability of your shipment. This value is very important especially if you ship globally - to avoid delays with customs clearance. If a customs official has reasons to believe that your package value has not been declared correctly, they might hold your package, which will negatively affect your international shipping costs.

Delivery times

Generally, the quicker you want to package to be delivered, the higher the shipping costs. Different carriers offer different delivery speeds. For example, if you offer your customers 1-day shipping, you will need to find a shipping service that provides overnight delivery. Another way to do it is to offer your customers a wide range of shipping methods and delivery times at checkout so they feel more empowered. Customers will be able to compare shipping costs and decide if they want to pay for fast shipping or not. Providing your customers with clear choices tends to significantly reduce cart abandonment. With expedited shipping, you get a same-day, next-day, or 2-day delivery. Typically, this type of shipping is faster than Standard but slower than Priority. If you are looking for an overnight service, USPS Priority Mail Express usually works best if your packages weigh less than 70 lbs.

Unexpected problems

Now that so many people shop online, most shipping companies provide more and more shipping insurance options for ecommerce businesses. Shipping insurance is an important factor in determining shipping costs. What situations and scenarios are covered varies between different shipping services. Typically, insurance covers unexpected problems outside of your control such as delays in delivery, damaged items, or shipping malpractices during transit. Before choosing shipping insurance, check your shipping company's requirements and restrictions to see what situations are covered. Remember that if you ship medical supplies, you will need to meet special requirements.

Comparing average shipping costs

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When it comes to choosing your shipping strategy, regular shipping cost comparison will allow your e-commerce store to cut shipping costs and charge customers less. Use a shipping calculator to calculate shipping costs and know exactly which shipping method helps you to save money.

Shipping carriers usually have a shipping calculator integrated into their websites.

Calcurates offers a multi-carrier shipping solution, which means that you can connect your carrier accounts and get real-time rates for your shipping methods, generate shipping labels, and track your orders.

See the table below for an average shipping cost comparison between the major shipping services.

What if I am Shipping Globally?

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If you ship globally, free shipping is usually not an option. Of course, shoppers like the magical phrase "free shipping," but as the saying goes, "Free shipping isn't actually free." However, flat-rate shipping may work depending on your destination country. This type of shipping is based only on the size of the box.

Keep in mind that shipping fees vary greatly from country to country.

Also, if you are shipping internationally, you need to know the so-called landing cost - all the expenses incurred when shipping a product.

For international shipments, shipping-related charges usually include taxes and fees such as:

  • Transportation fees;
  • Currency conversion;
  • Duties and taxes;
  • Parcel handling-related charges.

Your landing cost will vary depending on the destination country. Sometimes, the costs of international shipping are covered by the buyer, and sometimes, shipping costs can be split between your ecommerce business and the buyer. It all depends on the terms you have agreed on. So, how do you find the cheapest international shipping rates?

Check out this side-by-side comparison of the three major carriers from Calcurates to calculate shipping costs correctly.

International shipping rates usually depend on the size and weight of the package, so we have compared shipping prices for a 5 lb package in a standard medium box from New York City to London.

How Small Businesses Reduce Shipping Costs

There are several ways for an ecommerce store to reduce shipping rates, whether you are shipping domestically or internationally.

Try to reduce the weight of the packaged item

Weight is money. When it comes to calculating shipping costs, reducing weight even by a fraction of an ounce reduces your shipping cost quite a bit in the long run when you think in terms of hundreds of orders.

When packing an item, choose lightweight packaging to reduce the shipping cost.

You can reduce the weight of your packaging like this:

  1. Use corrugated boxes. Corrugated boxes are lighter and more sturdy than ordinary cardboard ones. The math is simple: the more you save on weight the more you save on shipping.

  2. Use lightweight packaging. Consider using lightweight packaging materials like packing paper, bubble wrap, foam, air pillows, wadding rolls, and excelsior. Also, pack your items as tight as possible to reduce your shipping cost.

  3. Design your own package. The more you follow the shape and size of your items when packing, the less packing materials you need. For example, if one of your items sells very well, you can quickly compensate for the time and money spent on designing a unique packaging.

Ensure that your packaging is the right size

Shipping costs are calculated based on size and weight. If you can, replace cardboard boxes for corrugated ones. You can also replace boxes with poly mailers - anything you do to cut the weight will help you save money.

Use flat-rate shipping

Using USPS flat-rate boxes is an excellent way to save money. Remember the famous slogan: "If it fits, it ships." USPS has several flat-rate options, and free boxes and envelopes can be ordered online and delivered to your door for free. Nowadays, postal carriers struggle to keep shipping costs low. Since shipping prices are always changing, ecommerce brands opt for flat-rate options more and more because they guarantee fixed costs. With flat-rate shipping, the shipping price is fixed regardless of weight, shape, or size of the package. The advantage is clear - you know exactly how much shipping will cost ahead of time and will know how much to charge customers. And last but not least - if you are looking for cost-effective shipping, keep in mind that all major carriers provide shipping discounts for businesses.

Using a Shipping Cost Calculator

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A shipping cost calculator is a shipping software that uses basic information about your shipment to calculate the best shipping rates.

This is a great way to make shipping rates and other related information crystal clear to your customers before they place an order. Whether your ecommerce store offers domestic shipping or ships globally, you can accurately estimate shipping charges ahead of time. For example, a USPS Shipping Calculator shows you exactly how much to charge your customers for shipping. Other major carriers, such as FedEx, UPS, and DHL also have shipping calculators integrated into their software.

FAQ

Shipping rates are calculated based on the weight of the item and the distance it has to travel (how many shipping zones it goes through).
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