How to Calculate Shipping Costs for Your Ecommerce Store

After building your ideal eCommerce website and adding all the stunning product images, you’re ready to put your goods on sale. But have you considered how these goods will reach your customers? All those box sizes, delivery options, and shipping services may be overwhelming. At the same time, shipping costs are a crucial component of your price.

Why? The reason is that you need to keep potential buyers interested in your offerings. If the price is hefty due to shipping, you may lose them at a critical moment of decision-making. If you offer free shipping, you may not make a profit.

Thankfully, you have numerous options to choose from. In this article, we’ll go over them in more depth. Let’s get started and become experts at determining shipping fees because nobody wants their customers to abruptly abandon their order due to a huge error in the fee calculations.

Understanding eCommerce Shipping Costs

Many online sellers struggle to price their products fairly without cutting into their bottom line. Plus, the total shipping rates should be affordable to potential customers. Guess what: According to statistics, 49% of shoppers often cite the extra, unanticipated e-commerce shipping cost as the main reason to abandon the shopping cart.

Shipping costs basically refer to whatever expenses your business incurs when transporting your product from its storage place to your customer’s residence, including labor, postage, packaging, warehousing costs, fulfillment costs, and import and export fees. The total shipping cost also depends on whether your warehouse is located in other countries or if you are delivering internationally.

To calculate the shipping rate, follow an easy formula:

The total handling and shipping cost = Packaging (P) + Shipping (S) + Handling (H)

Note: There is one subtle factor affecting expenses. It’s inflation. Always keep an eye on your shipping rates to make sure they are correctly calculated and competitive in your market.

Why Is Shipping Cost Calculation Important?

Among numerous factors on your business’s budget, shipping costs stand as a critical item. How correctly you calculate shipping rates will affect several other aspects of eCommerce operations, such as:

• pricing strategy;
• customer satisfaction;
• business profitability.

Here is what we mean. Suppose you want to ship a decorative vase. The cost will be $15. Who’ll cover the expenses? You have several options:

• absorb this cost yourself;
• split it with your customer;
• pass it on entirely.

When making that choice, you should determine what you’re ready to sacrifice: competitiveness, client happiness, or profitability. Of course, all buyers love free shipping, even on orders under $50. However, meeting these expectations might erode your profit margins. And vice versa, being confronted with enormous shipping costs is the most annoying thing for a consumer.

Let’s put it this way: a brand’s success depends on its shipping cost management. For instance, optimizing package dimensions for a set of books could reduce shipping costs by dozens of percent, directly boosting your bottom line.

Key Factors Influencing Shipping Costs

To plan your shipping strategy, you need to consider the following variables:

Package Weight and Dimensions

Larger, heavier items will cost extra to ship. Carriers like UPS and others use dimensional weight pricing, adjusting the shipping cost according to package volume or actual weight. For example, shipping a lightweight, bulky comforter could cost as much as sending a small, heavy set of dumbbells.

Shipping Distance (Zone)

That’s where the shipping rate depends on how long the package has to travel. The further the destination, the more it will cost. Carriers like USPS divide domestic shipments in the US into zones. So, cross-country shipments from New York to California are more expensive than shipping within the same state.

Delivery Speed

Do you want your products to arrive earlier? Be ready to pay for that. Standard ground shipping might be economical but slow, while options like FedEx Express Saver or USPS Priority Mail offer quicker, albeit pricier, alternatives.

Carrier Rates

The carriers themselves set various shipping rates. Take USPS as an example. It can be more economical for small packages under 2 pounds. UPS and FedEx, on the other hand, could offer competitive rates for larger shipments or business accounts. Visit carriers’ websites or aggregators to check whether there is a shipping calculator to compare the rates.

Additional Fees

These include fuel surcharges, residential delivery fees, Saturday delivery premiums, and others. For example, FedEx and UPS may require a residential surcharge for deliveries to a home address, impacting the final cost to your customer or your business.

Real-world example

Let’s say you’re shipping a ceramic mug from Dallas, Texas, to Miami, Florida. It weighs 1 pound and measures 6x6x6 inches. Using an online eCommerce shipping calculator, you (hypothetically) find that USPS Priority Mail offers a rate of approximately $8.25, while UPS Ground quotes $11.50 for the same package. This difference explains why you should compare shipping options to find the most cost-effective solution.

Shipping Rates Overview

Types of Shipping Rates

Now, let’s dissect the existing shipping rate types for you to apply the best-suited solution:

Flat Shipping Rates

Here, the shipping cost remains the same regardless of the size of the customer’s order. It’s a straightforward approach to charge for shipping. There is a precise upfront cost, which is understandable for both consumers and sellers. The package size, weight, or destination doesn’t influence the final price.

This is among the most popular types of eCommerce shipping rates, as customers can add as many products as they wish, and the price will remain the same. Flat-fee shipping streamlines the delivery process and saves time by eliminating the need to weigh and measure each package. Although it works well for consumers and small businesses, you won’t have much pricing flexibility, and you’ll lose out on extra money on larger orders.

Price-Based Rates

Shipping fees vary based on the total price of the order. This method encourages larger purchases. For instance, orders over $50 could ship free, while orders under this amount have a $7 shipping fee.

Weight-Based Rates

It’s a bespoke/calculated shipping rate adapted to the package weight. In this case, the more the item weighs, the more you pay. If you sell large and heavy products and charge customers for shipping, this shipping rate will be the most cost-effective.

However, predicting how much they’ll need to pay may be hard. Hence, there is a high chance of nasty surprises at checkout and soaring abandonment rates. To provide transparency, configure a shipping calculator where they’ll be able to insert the item’s dimensions, weight, destination, and other parameters.

Free Shipping Rates

In this situation, a business allows customers to avoid paying this extra charge by absorbing the shipping cost. It can be a good, unique selling proposition, but as we know, nothing is completely free.

You should either pay for the shipping service yourself or increase the product price. Another way to make this type of shipping less expensive for you is to improve the average order value. That is, you can establish a free shipping threshold, for example, to ship goods free of charge for orders over $100.

In the screenshot below, you can observe that Cocofloss informs shoppers about the availability of free shipping in the shopping cart. The requirement: orders not less than $25.

However, given that you will still have to cover the shipment of items exceeding the threshold, it might not be the ideal choice for you.

Calculated shipping rates

Any shipping provider or app you add to your store will offer you calculated shipping rates. Once a shopper completes the checkout process, the shipping carrier or app receives the information from their cart and returns the amount that should be charged for shipment. Here, you have two shipping options:

• Carrier-calculated rates: The fees are calculated based on real-time data, including box dimensions, weight, shipping origin, and destination. You can add some carriers directly to your shipping settings in an eCommerce platform like Shopify.
• Shipping rates computed using applications: If you want a more sophisticated shipping configuration or the carrier you ship with utilizes an app, you can access your platform’s app marketplace, like the Shopify App Store, to integrate it with your platform. Suppose you use Salesforce as a CRM solution. With the inbuilt Salesforce CPQ features, you can dynamically calculate pricing and incorporate accurate shipping costs directly into your sales quotes, enhancing efficiency and accuracy throughout the sales process.

International Shipping and Local Delivery

Shipping Abroad

When determining how to calculate shipping rates for your online store, bear in mind that the cost of sending goods to a different country varies greatly. International shipping will most likely involve additional charges like fuel, import and export fees, and further delivery efforts if the first attempt fails. The shipping cost may also rise if you use expedited services to deliver rapidly.

Take a look at the screenshot of the checkout page on the Hiut Denim website. Based in Cardigan, Wales, the British company supports international shipping to the US. Standard delivery is free, while the expedited service will set you back $15.

Apart from that, there are several other price influencers:

• package details: dimensions, weight, size;
• carrier-specific rates;
• country regulations and insurance;
• destination.

Remember that countries have varied laws, taxes, and customs procedures, requiring you to keep your documentation in order to avoid any complications or unexpected costs at the border.

Local Delivery and Pickup Options

Local delivery is a cost-effective solution for businesses with a physical presence. Display such an opportunity at checkout:

• Specify a minimum order value and a delivery fee.
• Indicate whether your delivery is accessible by listing postal codes or showing a radius around your business location.

For example, a boutique in Toronto might offer next-day local delivery for a flat fee of $2 or free with orders over $50.

Allow consumers to order goods and pick them up in-store. It’s an excellent way to save on shipping costs and increase foot traffic to your location. For example, a bookstore could implement a system where online orders are ready for pickup within a few hours, offering convenience without the wait or cost of shipping.

Optimizing Your Shipping Strategy for Cost-Effectiveness

Now that you understand the available shipping rates, let’s determine how to reduce overhead costs and improve customer satisfaction with effective shipping management. First and foremost, compare carrier rates and negotiate discounts.

Visit the websites of major carriers like USPS, FedEx, and UPS. Each has a chart with the average shipping costs for online shopping based on package size, weight, shipping origin, destination, and speed of delivery or a dedicated shipping calculator.

Negotiate with the carriers for discounted rates and other perks if you require special terms (or if you use fulfillment centers or fulfillment companies, leverage their preferred freight rates). FedEx is a case in point. It offers the FedEx Advantage program, which includes up to 50% discounts. Some companies are flexible with pricing and offer special deals, especially during off-peak times.

Another way to calculate shipping rates is by utilizing platforms like ShipStation or ShippingEasy. These tools compare rates across different carriers in real time, allowing you to select the most cost-effective option for each order.

Another way to fine-tune your shipping strategy is to reconsider your packaging. The box size should coincide with the item size without much space inside. Maybe you can consolidate multiple items going to the same destination into one package.

As more and more buyers become eco-conscious, switch to eco-friendly packages made from lighter, recycled materials. At last, buy a good scale to determine the correct weight of your packages to avoid overestimation, particularly when shipping smaller items.

Enhancing Customer Experience with Strategic Shipping Options

Customer experience goes beyond convenient navigation and mobile-friendliness. A frustrating shipping experience can also spoil the CX and divert users from buying. This process starts on your eCommerce website and ends when the product is unpacked. Here are some tips to make this experience unforgettable in a positive sense:

1. Be transparent about shipping options and costs at checkout. For instance, dynamically update the order summary when the shopper edits the cart. Avoid adding unexpected fees at checkout.
2. Provide detailed shipping information on product pages. Allow users to calculate various details and display estimated shipping times and costs next to the product description.
3. Embed the shipping calculator into the store to determine how location, box size, weight, and destination impact the final cost.
4. Keep in touch with buyers and inform them about their order status. This includes confirmation emails, dispatch notifications, and expected delivery dates.
5. Diversify the shipping options, such as standard shipping, expedited shipping for a higher fee, and free shipping for orders over a certain value. This way, you cater to various needs. One customer might agree to wait, another would want to pay more but receive the product sooner, and another would be eager to make a larger order.
6. Send a tracking number offered by shipping service providers like USPS. You can do it via email, enabling users to click a link and proceed to a page where they can see the status of their shipment.
7. Offer shipping insurance, especially for high-value items. You can increase the shipping cost by 2% in exchange for the insurance, protecting clients from damage and loss. Include this feature at the checkout stage.
8. Invest in robust customer service. From employee training to chatbots, there are multiple ways to improve client support regarding shipping, boosting their satisfaction, trust in the brand, and the likelihood of making repeat purchases.

Leveraging Analytics for Improved Shipping Efficiency

Analytics provides invaluable insights into your eCommerce operations. Shipping management can also benefit from regularly analyzing key performance indicators (KPIs), such as:

• average pickup and delivery time;
• order picking accuracy;
• delivery cost per order;
• inventory accuracy;
• return rate.

No matter what carrier you choose, you need to analyze their performance with time. How fast do they deliver goods? What are their metrics compared to those of their competitors? How frequently do they deliver damaged packages? That’s where tools like ShipStation or Shippo can help with their data aggregation capabilities.

For example, you may find that USPS consistently delivers packages three days faster than UPS for a similar cost on a specific route. Based on this information, you might consider switching to USPS for that shipment segment.

Analytics is also essential for forecasting and budgeting. Historical data makes it easier to predict trends, seasonal variations, and, consequently, future expenditures. Using a shipping calculator, model different scenarios based on changes in fuel prices, carrier rates, or shipping volume.

Employ this knowledge in inventory management, too. Locate inventory in warehouses where your primary customer bases ship goods. Plus, get rid of unnecessary large boxes. Optimize the box size according to the dimensions and weights of your most frequently shipped products.

Implement a just-in-time (JIT) inventory system to keep your stock levels closely aligned with demand. This not only reduces storage costs but also minimizes the risk of overstocking or understocking items.

eCommerce Shipping Cost: Conclusion

Here is how shipping rate calculations and strategies work. Now, it’s up to you which option to choose. Whether you decide to offer shipment at a flat rate, calculated shipping based on package size or eliminate shipping costs, you need to balance the pros and cons of each method.

Note that no calculation or strategy is flawless. Feel free to play around and enter new approaches. Now, you’re ready to launch your online store. Select trusted partners like USPS, introduce a shipping calculator, and always put your customers first.