Offering customers the best shipping rates is essential in a highly competitive retail environment.
You don’t want to guide customers through the entire purchase journey only for them to abandon their basket at the end due to high shipping rates. The influence of shipping costs on purchase habits is sizable.
Finding that delicate balance between delivery speed and profitability is one of the most challenging (yet essential) parts of running an eCommerce business.
In a recent study conducted by Convey of 2,500 U.S. consumers, 64.3% of respondents said price is the most important factor related to shipping.
In this post, we walk you through both of these points and more, so you can calculate the best shipping rates for your business. Let’s dive in.
What are shipping costs?
Shipping costs are the direct costs of moving an item from a shelf in your shop or warehouse to a customer’s doorstep.
These costs include but are not limited to:
- The cost of boxes, packaging, tape, and stickers
- The cost of paying a worker to pick, pack and dispatch an item
- The cost of a courier to collect and deliver an item
- The cost of import/export fees when shipping internationally
Later on, we will discuss additional costs such as insurance and handling fees, but let’s stick with these for now. As a retailer, you aim to get an item from your shelf to your customer in the agreed time frame, for the lowest price, and to ensure it arrives in good condition.
Why is calculating shipping costs an important process?
As a retailer, you must balance customer satisfaction and profitability when calculating shipping costs. Charging too little will eat into your margins and isn’t sustainable in the long run. Charge too much, and you might lose business to competitors.
You might see many of your competitors offering free shipping or shipping deals. While it may be tempting to do the same, they’ve likely been through a thorough shipping cost calculation process to be able to offer such deals. When you know your shipping costs, you can provide an instant shipping quote at the checkout which is now expected by consumers shopping online. Often this requires work in the back end, like setting up shipping rates for each product and inputting shipping zones. However, doing this will build trust and customer loyalty and ultimately drive more sales. Transparency about your shipping costs is also great for building brand loyalty.
Offering multiple shipping options at different prices is another way to lower cart abandonment rates. It makes customers feel like they are making the decisions and having a personalized experience.
How to determine shipping cost
There are three categories of shipping costs that we have outlined below. Each has advantages and disadvantages, and deciding which is best for your business and customers is up to you. There is no ‘one-size-fits-all’ answer which is why calculating shipping costs is essential.
1. Calculated shipping
Using calculated shipping is one of the simplest and most straightforward ways to ship packages. In this method, the shipping charge is calculated based on the weight and dimensions of your parcel, and the customer’s location.
This means that your customers get a shipping quote based on the actual product they purchase, which enhances transparency. However, this approach can be labor-intensive, especially if you offer a wide range of products.
- Enhances pricing transparency as customers pay exact shipping costs
- Useful for heavier items that may be costlier to ship on a flat rate
- Can be more cost-effective for businesses, as it ensures shipping costs are covered accurately
- Time-consuming to calculate for a large number of products
- Variable costs might confuse some customers
- May result in higher shipping costs for customers, compared to flat rate or free shipping
2. Flat-rate shipping
Flat-rate shipping is a method where you charge one fixed price for shipping, regardless of the package’s shape, weight, and size.
This method is particularly popular with small businesses due to its convenience and reliability. However, it may not be suitable for larger businesses with more significant logistical challenges, particularly those dealing with heavy or oversized items.
- Simplifies budgeting as the shipping cost is constant
- Can encourage customers to buy more items per order without worrying about additional shipping costs
- Easy to understand and communicate to customers
- Might not be cost-effective for lighter, smaller items
- Requires businesses to calculate an average cost that won’t erode profits
- If set too high, the flat rate could deter potential customers
3. Free Shipping
Free shipping is a method that many retailers offer to attract customers. With this method, businesses can either absorb the shipping cost into their margins or incorporate it into the product’s list price.
While consumers love free shipping, it can be a tricky balancing act for businesses to ensure they don’t cut too much into their profits.
- Highly attractive to customers, can boost sales and reduce cart abandonment
- Simplifies the checkout process with no additional costs
- Can give businesses a competitive edge, especially if competitors charge for shipping
- Margins can be significantly affected if not managed carefully
- Might lead to pricing products higher than competitors when shipping cost is included in the product price
- Not always sustainable, especially for small businesses or businesses with tight margins
A closer look at major shipping carriers
The United States Postal Service (USPS) is still a major player in the shipping industry, especially for small businesses and individuals, thanks to its cost-effectiveness and accessibility.
USPS offers various services, including:
- First-Class Mail
- Priority Mail
- Priority Mail Express
USPS First-Class Mail: This is an affordable ground delivery service to send envelopes and lightweight packages weighing up to 13 oz. It’s ideal for businesses sending out small items or correspondence. The delivery standard for first-class mail is 1 to 3 business days.
USPS Priority Mail: This service offers fast domestic delivery within 1, 2, or 3 business days based on where your package starts and where it’s being sent. It is also cost-effective for shipping items weighing up to 70 lbs.
USPS Priority Mail: This service offers fast domestic delivery within 1, 2, or 3 business days based on where the package is sent. Pricing is dependent on weight, size, and distance traveled. USPS also offers USPS Flat Rate boxes for Priority Mail.
This service allows you to pay one flat rate regardless of the weight of the package as long as it fits within the specified box size.
USPS Media Mail: This is a cost-effective way to send educational materials. This service has restrictions on the type of media that can be sent.
This includes books, films, manuscripts, printed music, printed test materials, sound recordings, play scripts, printed educational charts, loose-leaf pages and binders consisting of medical information, and computer-readable media.
- Access to every residential and business address in the U.S.
- Offers a range of cost-effective services
- Provides free packaging for certain service levels
- May be slower than other carriers for certain types of packages
- Tracking updates may not be as timely or accurate as other carriers
- Limited insurance options for high-value items
To calculate the most up-to-date rates, use USPS’ shipping rate calculator.
UPS is a reliable carrier that’s often chosen for its strong track record in handling larger packages or high-volume shipments.
UPS services include:
- UPS Ground
- UPS 2nd Day Air
- UPS Next Day Air
UPS Ground: A cost-effective service for routine shipments. The delivery timing is typically within 1-5 business days.
UPS 2nd Day Air: This service provides guaranteed 2nd-day delivery for urgent but less time-sensitive shipments.
- Reliable and comprehensive tracking updates
- Strong delivery network, especially for large or heavy packages
- Good for high-volume shippers
- Can be pricier, especially for small businesses or infrequent shippers
- May charge extra fees for services like pickup or rural delivery
- Weekend delivery often comes with an additional charge
To calculate the most up-to-date rates, use UPS’ shipping rate calculator.
FedEx is known for its speed, tracking capabilities, and service options. The carrier is often chosen for its overnight shipping options, making it a good choice for urgent shipments.
- FedEx Ground (FedEx Standard rate)
- FedEx 2Day
- FedEx Overnight
- FedEx Express Saver
FedEx Ground: This is a cost-effective service for businesses requiring routine shipments within 1-5 business days in the continental U.S.
FedEx 2Day: As the name suggests, this service offers delivery in 2 business days for time-sensitive packages that can tolerate a slightly longer transit time.
FedEx Overnight: This service is for those extremely urgent shipments. Depending on the selected service, it offers next-business-day delivery by morning, noon, or afternoon.
FedEx Express Saver: This is the ideal service for non-urgent, time-sensitive shipments. It offers value-oriented, three-business-day delivery to the continental U.S, ensuring safe and reliable delivery without the rush.
- Strong, real-time tracking capabilities
- Broad range of service options including same-day and overnight delivery
- Known for its excellent customer service
- Tends to be pricier than USPS
- Extra fees for additional services such as pickup or Saturday delivery
- High-value insurance may not be as comprehensive as some other carriers
Please note that the prices for these services vary based on package weight, dimensions, and destination, among other factors.
To calculate the most up-to-date FedEx prices, use their shipping rate calculator.
DHL is a global market leader in the logistics industry, especially known for its international shipping services.
The carrier provides solutions for an almost infinite number of logistics needs.
DHL’s services include:
- DHL Express Worldwide
- DHL Express 9:00
- DHL Express 12:00
DHL Express Worldwide: This is DHL’s most popular option for time-sensitive international shipments. It offers end-of-business-day delivery to more countries than any other carrier.
DHL Express 9:00: For your most time-critical shipments, this service offers a guaranteed delivery by 9:00 a.m. on the next possible business day.
DHL Express 12:00: With this service, DHL guarantees your package will arrive by noon on the next possible business day. It’s a slightly less urgent but expedient option for important shipments.
- Extensive global coverage, offering services to more than 220 countries and territories
- Reliable and timely international deliveries
- Strong, real-time tracking capabilities
- Can be more expensive than other carriers, particularly for domestic shipments
- Certain locations might face customs delays that are out of DHL’s control
- Pickup may not be as readily available as it is with carriers like USPS
Just like the other carriers, pricing for DHL’s services can vary widely based on the package’s size, weight, and destination.
We recommend getting a quote directly from DHL for the most accurate pricing.
What if I’m shipping globally?
If you’re shipping globally, you must factor in landed cost, the total cost of shipping a product globally.
These might include:
- Purchase price
- Transportation fees
- Currency conversion
- Duties and taxes
- Any other associated costs like shipping discounts
Determining landing cost isn’t always straightforward because of the variables involved. It also heavily relies on the country of export. In some cases, the costs of importing a product lies with the buyer, but sometimes it can be split between buyer and seller. Any agreements like this should be made before sending goods.
What information do you need to calculate shipping costs?
The four elements required to calculate shipping costs are:
- Shipping point and origin
- Package weight
- Package dimensions
- Expected delivery times
You can calculate the majority of postal shipping rates using these figures. You can compare shipping rates using a shipping cost calculator with this information.
Most shipping companies let you check shipping costs before sending a parcel. If you send multiple items, you might qualify for bulk shipping rates or business shipping rates.
Shipping point of origin and destination
Generally speaking, the further the package travels, the higher the shipping cost. This is especially true for international shipping rates. Shipping the same package to California will cost less than shipping to Europe. U.S. shipping rates are based on shipping zones.
These are used by companies like UPS, USPS, FedEx, and DHL to calculate shipping costs for domestic delivery. You can specific zoning information on their websites.
The weight of the package
Calculating the shipping cost of a package based on weight is simple. Just weigh the package and use a shipping cost calculator to get a shipping price. If the parcel is small but heavy, get a shipping cost based on dimensional volume which might be cheaper. Remember that when calculating postage by weight, use the package’s total weight and not the product’s weight.
Suppose you use additional packaging for breakable items like cardboard, bubble wrap, and shredded paper. In that case, it could increase the weight of the package. The extra weight would increase the cost of shipping.
Dimensional weight is package length x width x height. Dimensional volume is useful for odd-shaped and bulky items. Couriers often use dimensional weight and product weight together to calculate shipping costs. The aim is to estimate how much space the package will fill on the delivery truck to make their deliveries more efficient.
Using dimensional shipping weight can work out cheaper for some packages. Buying a range of shipping box sizes will help to reduce overall package volume and reduce shipping costs.
Delivery times for shipping
Delivery times are usually linked directly to your service offer. So, if you offer one-day shipping, you must use an overnight service. Alternatively, you might offer multiple shipping services for the customer to choose from based on how quickly they need the item.
The costs of shipping services directly relate to how long it takes for the time to be delivered. Overnight shipping costs more than three-day shipping, for example. Of course, weight and dimensions will also determine the shipping cost.
Overnight shipping: when speed is of the essence
In today’s fast-paced world, customers often need their purchases delivered as quickly as possible, and overnight shipping serves as the answer to this requirement.
It is the fastest delivery service offered by most shipping carriers, ensuring that parcels are delivered to the destination within the next business day.
Whether it’s a last-minute gift, urgent business documents, or time-sensitive medical supplies, overnight shipping provides the quickest route from point A to point B.
Several carriers offer this premium service for overnight shipping, including UPS, FedEx, USPS, and DHL.
Each of these companies has a specific overnight shipping service:
- UPS offers UPS Next Day Air
- FedEx has FedEx Overnight
- USPS provides Priority Mail Express
- DHL offers DHL Express Worldwide
These services promise delivery by a certain time the next business day. For instance, USPS Priority Mail Express guarantees delivery by 10:30 am, depending on the destination. However, speed comes at a price. Overnight shipping is often the most expensive shipping option due to the rapid turnaround and the resources required to ensure next-day delivery. It is also affected by factors like package weight, size, and travel distance, much like other shipping options.
But despite the cost, businesses and individuals who need immediate delivery are willing to pay the premium. Offering overnight shipping can greatly enhance customer satisfaction, particularly for last-minute shoppers or customers who need urgent deliveries.
Shipping cost comparison
Even if you’ve been shipping parcels for a long time, you should regularly conduct a shipping cost comparison. Regular comparisons ensure you are offering your customers the best deal. To do this, you can use a shipping cost calculator.
Most courier websites will have these and allow you to book shipments directly. For example, this is a shipping cost comparison for a box weighing 4lb with dimensions of 8 11/16” x 5/7/16” x 1 3/4 “.
Courier Service Delivery Time Shipping Cost
- UPS Ground 4 days $9.25
- UPS 2nd Day 2 days $21.25
- USPS Ground 3-5 days $20.85
- USPS Priority Mail 2nd Day 2 days $23.15
- FedEx Ground 4 days $18.19
- FedEx 2 Day 2 days $52.62
As you can see, the shipping cost varies hugely between different services and courier companies. Making a shipping cost comparison will ensure you get the best bang for your buck.
What can affect my shipping costs?
We’ve seen how destination, size, weight, and delivery service impacts shipping costs, but what else affects shipping costs? To give your customers the best experience when shopping online and to reduce the likelihood of cart abandonment, you must factor in these services when calculating shipping costs.
Buying shipping insurance is essential if you are shipping expensive, personal, or fragile products. Shipping insurance will protect you and your business against lost, damaged, or stolen items during shipping and handling. Although delivery rates are high, losing one or two expensive shipments that aren’t insured could impact your profits, especially if you have tight margins.
The cost of buying shipping insurance will likely be minor compared to the cost of the product. Sometimes as low as 3% of the shipment value. It’s worth comparing shipping insurance costs between couriers and third parties to get the best deal.
2. Shipping-related charges
Due to the nature of shipping and handling it’s inevitable shipping related charges are sometimes incurred. This can happen when shipping domestically and internationally. The three shipping-related charges to look out for are pickup location, fuel surcharges, and fees when mistakes occur.
Pick up related charges are broad and courier specific. They could relate to deliveries made outside usual service areas and pickups from residential addresses. Fuel surcharges are common when using express services like overnight or same day.
These costs vary based on the cost of fuel which makes forecasting difficult. Fees that might come under ‘mistakes’ include:
- Returning an item to the sender
- Parcels being refused
- The package requiring multiple attempts to be delivered
- Addresses needing to be amended during transit.
3. Parcel handling-related charges
The most common parcel handing-related charge is for sending dangerous goods. This could include anything from batteries to needles to guns. You will likely need special packaging stickers if you send items like these.
Another example of additional handling charges is when a parcel takes two people to deliver. Bulky and heavy items like couches and refrigerators are typical examples. Similarly, odd-shaped and sized parcels may be subject to these fees, such as crates made from wood or metal.
4. Duties and taxes
As we mentioned in the ‘shipping globally’ section, more factors should be considered when shipping internationally. The most likely additional cost you will come across is duties and taxes. These depend on what you are shipping and the value of the item. Sometimes they are covered by the buyer, the seller, and sometimes they’re split between both.
You need to be aware of the two types of taxes:
- Delivered Duty Unpaid (DDU)
- Deliver Duty Paid (DDP)
Failing to understand these may result in hidden fees.
- DDU Shipments – Apart from duty or taxes due when the package arrives in the importing country, the seller must pay all charges. In simple terms, this means the sale price of the goods must include all of the costs of delivering the goods to the recipients doorstep. The seller handles everything from transportation costs, customs charges and handling charges.
- DDP Shipments – In the case of Deliver Duty Paid shipments, the seller must cover all of the costs associated with DDU shipments as well as duty and import taxes. Couriers may have additional charges for paying taxes and duties on your behalf when your package arrives in the destination country.
Another potential charge you could be subject to is if you under-declare the value of a shipment. This can have huge implications on delivery times as customers may require a new invoice to be sent before the shipment is released.
Warehouse fees and additional courier charges are also standard.
How to determine product pricing
Many factors influence your product pricing strategy, shipping costs included. Firstly you need to calculate how much it costs to run your business. From here, you can calculate the price of your products to ensure they cover the running costs and generate a profit. If you haven’t already, you should have a profit and loss spreadsheet containing your income, fixed costs, and variable costs.
Things like property and equipment leases, salaries, inventory, and utilities should be detailed in this document. You can use this to calculate the price of your products and ensure your margins (the difference between your costs and product price) are sufficient to generate a profit. If these numbers don’t match up, you risk exhausting financial resources, and ultimately the business will fail.
How does product pricing relate to shipping costs?
Understanding the relationship between product pricing and shipping costs is crucial for ecommerce businesses, as these two factors play an instrumental role in determining profitability and customer satisfaction.
- Cost Absorption: One of the common strategies businesses employ is to absorb shipping costs into the product’s price. In other words, you increase the product price slightly to cover the shipping fees. This strategy often works well with the ‘free shipping’ incentive, as customers perceive that they’re receiving a bargain. However, keeping a close eye on the market prices is important to ensure that your products aren’t overpriced compared to your competitors.
- Price Thresholds for Free Shipping: Another strategy is to offer free shipping once a customer’s order reaches a certain price threshold. This can help to increase the average order value, as customers are motivated to add more items to their carts to qualify for free shipping. The threshold should be set at a level that covers the shipping costs and still ensures profitability.
- Shipping as a Separate Charge: Some businesses choose to list shipping as a separate charge at checkout. This makes the product pricing more transparent, but it also risks causing cart abandonment if the shipping costs are perceived as too high. Therefore, negotiating the best possible rates with your shipping carriers is essential to keep these costs as low as possible (we’ll talk more about negotiating the cheapest shipping rates in the next section).
- Variable Shipping Rates: For some retailers, variable shipping rates based on factors like weight, size, and destination can be the most equitable solution. This way, lighter, smaller items cost less to ship, which is reflected in the shipping charge. This method requires real-time shipping calculations at checkout, which many ecommerce platforms support.
How to negotiate shipping rates
Negotiating shipping rates can significantly reduce operational costs for your eCommerce business. Here’s a step-by-step guide on how you can go about it:
- Understand your shipping profile: Before you start negotiations, understand your shipping needs and habits. This includes knowing your packages’ average weight and dimensions, the volume of packages you ship, and the destinations you usually ship to. This information will help you negotiate a deal that’s most beneficial to you.
- Research different carriers: Don’t limit yourself to a single carrier. Research and understand the pricing structures of multiple carriers (even going beyond the major carriers in this article) to find the one that best aligns with your shipping profile. Each carrier has its strengths and weaknesses, and knowing these can be a strong negotiating point.
- Ask for volume discounts: Most carriers offer discounts based on the package volume. If you have a high volume of shipments, use this as leverage during negotiations. Even if you’re a small business, don’t hesitate to ask for volume discounts, as your business growth can lead to increased volume over time.
- Explore discount programs: Carriers often have discount programs in place. For instance, USPS offers Commercial Plus Pricing for businesses that ship a certain volume. Be sure to ask carriers about discount programs you could qualify for.
- Consider a shipping consultant or third-party logistics (3PL) provider: If you find shipping rate negotiations too complex or time-consuming, consider hiring a shipping consultant or working with a 3PL provider. They have expertise and relationships in the industry and can negotiate better rates on your behalf.
Negotiation is a two-way conversation. Be honest about your needs; don’t be afraid to walk away if a carrier can’t meet them.
“Meticulously analyze shipping zones and optimize shipping routes for cost efficiency,” says Normand Chevrette, President of healthcare equipment logistics company CME Corp.
“Study geographical zones to identify carrier networks with strong coverage and competitive rates in specific regions. You can save significantly when strategically planning shipping routes based on proximity to distribution centers. This is so because it minimizes the distance traveled, avoids congestion, and reduces fuel consumption.”
The goal is to find a solution that suits your business needs while saving you money.
How to calculate handling fees
As you may already know, a handling fee is the amount charged to one of your customers in addition to the order subtotal and shipping fees.
Handling fees cover expenses that are related to order fulfillment (e.g. packing cost, shipment cost and warehouse storage cost) and are generally charged once per order, not per product.
So, how exactly do you calculate handling fees?
If you have a team fulfilling orders, then all you need to do is multiply how long it takes them to process an item ready for shipping by their hourly rate.
Try using this formula:
(Average number of minutes taken to pack item / 60) x Hourly rate
As an example:
(5 minutes / 60) x £7.50 per hour=£0.625
Rounded up, your total handling fee is £0.63 on each order, plus your cost of shipping.
How to create better shipping with inventory management software
Aside from returns, shipping is the last big decision to make or break a purchase. It’s therefore critical to understand different shipping offers’ impact on your customer’s purchase habits.
With the purchase made, correct items don’t just magically appear at the shipment stage. If done correctly, they go through a calculated pick/pack/ship process regulated with inventory management software. Inventory management software provides complete inventory visibility and an automated quality control process to ensure correct shipments. Returns cost retailers a lot of money, so investing to ensure the right products are sent is worth every cent.
When you know where an item is and how much of it is in stock, you reduce the risk of overstocks, stock-outs, or lost inventory entirely. And with quality control processes, incorrect or damaged items are caught before reaching shipment. This improved approach to inventory management helps to create:
- Better shipping by reducing delays in dispatch
- Reduced returns rates
- Increased efficiency
As both a small seller or an established brand, it’s imperative to implement smart inventory management to keep customers both satisfied and loyal.
FAQs about ecommerce shipping
What are the benefits of using shipping software in ecommerce?
Shipping software in eCommerce offers several benefits. Most notably, how easy it is to create and manage shipping labels.
Using a robust shipping software solution allows you to automatically generate shipping labels for various carriers, saving time and reducing the chance of human error in the process.
It can also simplify the process of tracking shipments, providing updates on their status in real-time.
Moreover, shipping software often has features that can help you optimize your shipping processes, like comparing shipping rates and delivery times, resulting in cost and time efficiency.
What is the cheapest option for ecommerce shipping?
Identifying the cheapest shipping option for your eCommerce business depends on various factors, including package size, weight, and destination. Some carriers offer more affordable shipping options for lightweight or local packages, while others might be cheaper for heavier or international shipments.
To maintain steady shipping costs, it can be beneficial to negotiate rates with multiple carriers or use shipping software that allows you to compare prices across carriers. Look for volume discounts, prepaid shipping, or flat-rate options to find the cheapest way to meet your shipping needs.
How can I utilize USPS discounts?
USPS offers several ways to obtain discounted shipping rates, especially for businesses. These discounts can be accessed through online postage services, where prices are often lower than at a physical USPS location.
USPS also offers discounts for certain types of mail, like Priority Mail and First-Class Package services, and for those who use their Click-N-Ship service.
Understanding and incorporating these options into your shipping strategy can help reduce your shipping costs.
How can I choose the best shipping method for my business?
Choosing the best shipping method involves considering several aspects, such as the size and weight of your products, their value, and the typical destination.
To cut costs, businesses with high shipping costs might look to methods like ground shipping for domestic shipping. It’s also important to consider customer expectations around shipping times and factor these into your decision.
The “best” method is not only about cost – it’s about balancing cost, speed, reliability, and customer satisfaction.
Where are the best places to source free shipping supplies?
You can source free shipping supplies in numerous places to save money.
For example, USPS, UPS, and FedEx all offer certain types of shipping supplies for free, especially if you are shipping through their express or priority services.
You can also check with local businesses or community groups to see if they have unused boxes or packing materials they want to get rid of.
What is the best way to ship lightweight packages?
For shipping lightweight packages, first-class mail services offered by USPS are often the most cost-effective method.
This option is available for packages weighing up to 13 ounces. Other carriers also have options optimized for lightweight packages, so it’s worth comparing rates.
Many shipping software solutions offer rate comparison tools to help you find the most cost-effective and reliable method.
What is the best way to ship hazardous materials?
Shipping hazardous materials requires special care due to regulations and safety concerns. The best method often depends on the specific material and its classification under the Hazardous Materials Regulations (HMR).
Many carriers, like FedEx and UPS, offer services specifically designed to transport these materials safely. They provide resources to help ensure your packages comply with regulations, such as packaging guidelines, labeling requirements, and shipping documentation.
Now that you’ve learned how to calculate shipping costs, check out our guide on 19 Shipping Tips For Small Businesses.
If your business is at the point where a spreadsheet no longer suffices your shipment strategy, consider integrating with one of our many shipping partners. See the full list here and schedule a free demo to try the software for yourself.