How to Calculate E-commerce Shipping Costs: A Beginner’s Guide

Running an online store is exciting, but it comes with its own set of challenges. One of the trickiest parts? Shipping costs. If you don’t have a clear idea of how shipping works, you could end up with unexpected fees that eat into your profits or confuse your customers.

In this post, we will break it down, step by step, and help you understand exactly how to calculate shipping costs for your e-commerce store.

What Is a Shipping Cost?

Simply put, a shipping cost is the price you pay to send an item from your warehouse or fulfilment centre to your customer’s doorstep. Shipping cost factors for online stores don’t just include the price of postage. Shipping costs encompass everything from packaging to shipping fees and any extra services, like insurance or tracking.

What Affects Shipping Costs?

Size and Weight of Shipment

Get the accurate dimensions and weight of your product. Remember, even small changes in weight or size can affect shipping costs, especially if the shipping partner charges on the size of the package, not just the weight.

Some of the major carriers use dimensional weight to calculate your cost. Dimensional weight shipping calculation considers the size of your package in addition to its weight. Shipping companies like USPS, FedEx, and UPS will charge you based on what is greater—the weight or the DIM weight. The higher number is your billable weight.

Value

It’s a good idea to consider insurance when shipping valuable items like jewellery, artwork, medical supplies, and industrial equipment. Shipping insurance can protect you if your items get lost, damaged, or stolen during transit. Note, however, that insurance can add to your overall shipping costs.

Type of Delivery

The type of delivery will also determine your cost. Generally, express delivery can get pricey. For example, sending something 2-day shipping to a customer in a nearby zone (like Zone 1) could be cheap with ground shipping. But, 2-day shipping to a distant location (like Zone 8) is going to require more expensive air shipping to get it there on time.

Are you going to charge your customers exactly what you pay for shipping, or are you going to mark it up (or offer free shipping)? Remember that your shipping charges will affect the overall customer experience, so try to find a balance that keeps both your profits and your customers happy.

Carrier and Service
Select which carrier you plan to use. Keep in mind that each carrier has different pricing structures, features, and special rates. Some charge by weight, while others might charge by volume (dimensional weight). Be sure to explore all available services and compare prices. If the carrier website offers a shipping cost calculator, use it.

Destination
The destination plays a huge role in the cost of shipping. The farther your product needs to go, the higher the shipping cost will be. Make sure you’re using a shipping calculator (many carriers have one on their websites) to get accurate rates for various locations.

As a rule of thumb, the higher the shipping zone, the more expensive a package will be to ship. If your customers are spread out across the globe, it’s worth considering offering tiered shipping rates based on the distance.

Additional Costs
Do you want to include tracking, insurance, or signature confirmation? These services usually come with extra charges, which can add up quickly. A lot of these can be calculated using the same calculator tools on carrier websites. It’s important to weigh whether these services are essential for your business or if they’re just adding unnecessary costs.

A variety of factors can influence how much you pay to ship a product. Understanding these will help you set realistic expectations and price your products accurately.

How to Estimate Shipping Charges

Calculating shipping costs can seem complex, but breaking it down into manageable steps can make it much easier. Here’s a simple e-commerce shipping cost formula you can use:

Step 1: Measure and Weigh the Product
Get the accurate dimensions and weight of your product. Remember, even small changes in weight or size can affect shipping costs, especially if you’re using carriers like UPS or FedEx, which tend to charge based on the size of the package, not just the weight.

Step 2: Choose Your Carrier and Service
Select which carrier you plan to use. Keep in mind that each carrier has different pricing structures. Some charge by weight, while others might charge by volume (dimensional weight). Be sure to explore all available services and compare prices. Some of the best carriers for online store shipping have shipping cost calculators

Step 3: Input the Destination
The destination plays a huge role in the cost of shipping. The farther your product needs to go, the higher the shipping cost will be. Make sure you’re using a shipping calculator (many carriers have one on their websites) to get accurate rates for various locations.

Step 4: Add Additional Costs
If you’re including packaging, tracking, or other services like insurance, be sure to add them into the total cost of shipping. A lot of these can be calculated using the same calculator tools on carrier websites.

Step 5: Decide on Your Shipping Model
Are you going to charge your customers exactly what you pay for shipping, or are you going to mark it up (or offer free shipping)? Remember that your shipping charges will affect the overall customer experience, so try to find a balance that keeps both your profits and your customers happy.

How to Reduce E-Commerce Shipping Costs

Shipping costs don’t have to be a burden. Here are some smart shipping cost-saving strategies to help you reduce costs without compromising service quality:

 Negotiate with Carriers

If your business ships a large volume of packages, you might be able to negotiate discounted rates with your carrier. Most major shipping companies are willing to work with you, especially if you ship regularly.

Read this blog post to learn how to negotiate the best rates with your logistics carrier.

Optimize Your Packaging

Find a balance between keeping things safe and keeping the weight and dimensions low. Using the right-sized packaging can help you save on shipping costs. Smaller, lighter packages cost less to ship, so make sure you’re not wasting space in your boxes.

Offer Multiple Shipping Options

Not every customer needs their product the next day. Offering a range of options (like standard, expedited, and economy shipping) gives your customers flexibility and can save you money.

Use a Shipping Software

There are many shipping tools available that can help you compare rates, print labels, and streamline the shipping process. One of the e-commerce shipping software benefits is that these tools also offer discounts for bulk shipments, which can make a big difference.

Discover best-in-class e-commerce shipping with ShipDelight.

Offer Flat-Rate Shipping or Free Shipping

Flat-rate shipping for e-commerce can simplify your pricing structure and make shipping costs predictable. It might seem like a great option, but it only works if your average shipping costs align with your flat-rate fee. Alternatively, if you can incorporate shipping costs into the product price, you could offer free shipping. While this might seem like a hit to your profit margins, it can increase conversions and improve customer loyalty.

Hidden Charges You Should Watch Out For

While shipping costs are usually clear, there are a few hidden fees you need to be aware of:

Fuel Surcharges: Since gas or fuel prices fluctuate, many carriers charge additional fees for fuel. This can push up your shipping costs. Make sure you’re accounting for this, especially if your shipping volumes are high.

Handling Fees: Some carriers charge extra fees for handling shipments, especially for items that require special care or are difficult to manage, such as large, heavy, or fragile products. This could include packages that need to be handled with specific equipment. These fees are typically small, but they can add up over time.

Residential Surcharges: Shipping to residential addresses is often more expensive than shipping to commercial addresses. Some carriers apply extra charges for deliveries to residential areas.

Delivery Area Surcharges: If your customers are in remote or hard-to-reach areas, you might encounter delivery area surcharges. These are extra fees to deliver to locations that are outside a carrier’s typical delivery zones. This could include rural areas or places that are harder to reach.  If you’re shipping to less common areas, it’s worth checking if any delivery area surcharges apply so you can plan ahead for those extra costs.

Returned Package Fees: If a customer refuses a delivery or there’s an issue with the address, you could be hit with a return shipping fee. These costs are typically passed along to the seller, so factor them into your pricing strategy.

Discover how you can prevent your deliveries from becoming an RTO with our NDR solution.

Restocking Fees: When a customer returns an item, it needs to be checked and added back into inventory before it can be resold. If you’re working with a third-party service for storage and inventory management, you’ll need to factor in a restocking fee. Make sure to discuss and agree on a fair fee with your partner ahead of time.

You decide which of these are hidden shipping fees to avoid if you want to keep your profits in a healthy place.

Final Thoughts

Understanding shipping costs is crucial for any e-commerce business. While the process might seem a bit complicated at first, once you understand the key factors and have the right tools in place, you’ll be able to calculate and control your shipping costs effectively. Don’t forget to communicate clearly with your customers about shipping options and costs, as transparency can help improve customer satisfaction.

With the right strategy, you can reduce your shipping costs, offer competitive pricing, and keep your customers happy at the same time.

About Us

ShipDelight is an award-winning logistics technology company. We offer software platforms and solutions to cater to B2B, D2C, and Retail businesses. Get in touch with us to discover how D2C Delight can help your e-commerce business.