The way you figure shipping costs out for your business, like life, needs to be all about balance.
If you’re deciding how to calculate shipping costs for your business, you have to find a happy medium.
You can’t (and shouldn’t) spend hours and hours every week manually analyzing and estimating shipping prices until you get them to where you want them to be. Likewise, you may want to take it easy most of the day, but your shipping margins won’t magically improve on their own.
When it comes to shipping, your customers only want the top of the line and quickest means of delivery. But oftentimes, this can be cost prohibitive to your bottom line.
Undercharging probably means you’re losing money, threatening your long-term sustainability as a whole. And overcharging can create unhappy customers, with the potential of losing sales. What should you do then?
To help you figure out how to calculate shipping costs, we’ll outline many major factors to consider. It’s easy to think of shipping as one size fits all, but as you’ll see, there is a lot to think about.
However, knowing is half the battle, and once you get the hang of calculating shipping costs, it should save you time and money.
What are Shipping Costs? 8 Things that Determine How Shipping Rates Are Calculated
Naturally the first thing to consider when figuring out how to calculate shipping costs is “where is this item going?”
It seems like such a simple question. But when you break all the individual issues down, you’ll see it can be quite complicated.
1. Distance from you to the customer
This one most people find intuitive. The farther the item has to travel, generally the more expensive shipping is going to be. And that’s especially true if your item has to cross an international border.
2. The delivery’s physical location
Is the location an office or commercial location? Great, you may not have any further issues. This type of address typically saves you money since the delivery man can cluster package drop-offs together (versus going to individual residences).
Most carriers charge a small extra fee to ship to residential addresses. The same goes for a military base, a school, or even a large institution like a hospital. Many carriers also charge more when they have to deliver to out-of-the-way places or if the delivery will take more time than usual.
3. Speed of transit
These days, customers love options, and they want an item at their own pace.
If they need an item yesterday (like a last minute birthday present) same-day or 1-2 day delivery is likely what they desire. But if it’s something they’ve had their eye on for weeks – like a new pair of sneakers – they may like it tomorrow, but don’t need it immediately.
Whatever the case, you need to know what options are feasible to offer, and how each price point affects your shipping margins. Same-day is generally more expensive, but you don’t want standard shipping to be a non-option either.
Finding a good balance between price and speed is key here.
4. Size of the item
A crystal vase isn’t going to cost the same to ship as a guitar. Even small differences can be an issue.
For example, is the item a weird shape, and require a unique box? Does that crystal vase require extra space for packing peanuts?
An item’s dimensions will affect how much you charge for shipping.
5. Shipping more than one package
Say a customer ordered multiple items. Packaging them together typically makes more sense and saves both you and the customer money. However, sometimes items need to be packaged separately.
For example, you probably don’t want to ship perishables that require special packaging along with non-perishables. Or maybe one of the items is delivered to you already boxed, and it saves time and money to just ship as is.
6. Prohibited items
In the US, you are unable to ship items like ammunition, gasoline, and air bags through the mail. However, there’s also state level regulations to consider.
Do you sell food? Then be careful about shipping to California, as they have severely strict quarantine laws. Shipping a gift box of fruit to a customer in that state without going through the proper channels could end up with some big trouble on your end.
7. Rural addresses
While this is somewhat rare, a truly rural address can have an additional “rural delivery fee” attached to it. The customer has to really be out of the way, but it certainly happens. These days, nearly everybody has the Internet, and they all want stuff, even if they live alone on the top of a mountain or way out in the middle of the desert.
8. Other hidden fees
So you think you have shipping under control, but not so fast! Additional services that customers might want – like delivery confirmation, tracking, and insurance – can all add up, too. Don’t forget these extras when calculating shipping costs.
Navigating How to Calculate Shipping Costs
The simple days of dropping your item off in the nearest mailbox or post office are over.
When determining how you calculate shipping costs, you need to have a plan in place that marries your shipping requirements with the type of checkout experience you want to offer online.
But figuring all this out on your own seems like it would be a giant headache. Luckily, there are many resources available to you so you’re not drifting out to sea.
UPS and FedEx are legally required to keep up-to-date Retail Rate Cards available to the general public. These help you choose the right service, prepare shipments, determine rates, and assist with tracking and payment options.
USPS isn’t quite as in-depth, but they do have the USPS Shipping Cost Calculator. This package calculator can at least give you an idea of what boxes you should be using, especially if it’s a weird dimension or weight class. This will cut down on any surprises you or the customer may incur when you shipping their item.
Shipping Technology to the Rescue
If you want truly automated and customized rates in your checkout, consider signing up for ShipperHQ. We let you craft tailored, real-time shipping rates based on rules or restrictions you set.
For example, if you sell items that have tight restrictions to certain regions you can prevent shipping from even being available to a customer located in that area.
You can also specify the shipping methods and carriers associated with a product, or set up promotions, discounts and surcharges for shipping.
Our convenient and easy to use Rate Calculator also helps you determine if your shipping price and options are up to par.
You simply enter basic information, including country, zipcode and product quantity. Then you can see before your eyes what your checkout will look like, including associated shipping methods, carriers and prices for one or multiple items.
It’s easy to adjust your rates and options if there’s a discrepancy, or if you want to take your shipping strategy in another direction. Plus, you can use the Test Your Rates tool anytime, meaning you’ll never be in the dark about shipping again!
Deliver on customer expectations by starting your 15-day free ShipperHQ trial today.
FAQs About Calculating Shipping Costs
1. What factors influence shipping costs?
Shipping costs are determined by various factors, including:
- Package dimensions: Larger packages may incur dimensional weight charges.
- Weight: Heavier packages typically cost more to ship.
- Shipping distance: Costs increase with the distance between the origin and destination.
- Shipping method: Faster options like overnight or express shipping are more expensive than standard delivery.
- Special handling requirements: Fragile or hazardous materials may have additional charges.
2. How can I calculate shipping costs for my eCommerce store?
To calculate shipping costs, you can:
- Measure the package’s weight and dimensions.
- Use a shipping carrier’s online calculator by entering the weight, dimensions, destination, and service type.
- Consider integrating shipping software, like ShipperHQ, to provide real-time carrier rates at checkout.
3. How can I reduce shipping costs for my business?
To minimize shipping expenses:
- Negotiate rates with carriers based on your shipping volume.
- Use flat-rate shipping for standard-sized packages.
- Optimize your packaging to avoid dimensional weight charges.
- Consider offering in-store pickup to eliminate shipping costs.
- Leverage shipping management platforms to compare carrier rates and find the best deals.
4. Why are dimensional weight charges important when calculating shipping costs?
Dimensional weight (DIM weight) reflects the space a package occupies in a carrier’s vehicle.
If the DIM weight is higher than the actual weight, carriers charge based on the larger value. Calculating DIM weight ensures accurate cost estimation and encourages businesses to use packaging efficiently.
