How to Calculate Online Seller Shipping Costs: A Guide
Online selling is different in many ways from bricks-and-mortar retailing. One of the most obvious differences is that instead of transporting their purchases themselves, your customers rely on you to arrange fast, affordable shipment to their doors. Another is that an entire world of competitors are just a click away. Together, these facts mean that online sellers absolutely have to get online shipping right.
But most retailers aren’t experts at shipping. In this article, we’ll show you how to determine shipping costs when selling online. We’ll also provide answers to the questions you may have, such as “How much does it cost to ship a package?” Or “What’s the best online shipping option?” Or “How can I avoid extra charges?” There’s a lot of ground to cover, so let’s get started.
Table of contents
How to calculate online store shipping costs
What are the factors in shipping cost?
How to reduce online shipping costs
How can you prepare to save on shipping and mailing costs in 2023?
What are shipping costs?
Before we dive into how to determine shipping costs when selling online, we need to understand what shipping costs are. Shipping costs are the expenses of getting the items you sell from your location to the customer’s door. Some of the costs of online shipping are incurred in-house, including labor to process and pack the order, and packaging supplies such as boxes, bubble wrap, tissue paper and tape. Other shipping costs are from the shipping carriers. These include basic transport costs as well as surcharges, customer returns, third party-fees for insurance or import duties, etc. Whether they are internal to your business or external, there are effective ways to manage shipping costs and minimize their impact on your bottom line.
Why shipping is important
Shipping is a crucial business function for online retailers, and far too important to be treated as an afterthought. The reason? Online shipping is the final step to complete the sale—and completing sales is the only way that you make money. Shipping also plays a central role in customer satisfaction. If you don’t offer the speed, shipping cost and visibility that customers want, they’ll buy from a competitor instead. Next, we’ll look at how to determine the right shipping costs when selling online.
How to calculate online store shipping costs
There are many factors you need to consider in order to determine the right shipping costs when selling online. These include, but aren’t limited to:
- The products you sell
- What your products cost
- Who your customers are
- Average package weight and size
- Shipping distance
- Delivery speed
- Labor costs
- Import and export fees
- Carrier rates
What are the factors in shipping cost?
Next, we’ll guide you through the steps to determine your online shipping costs. Here’s what you need to know about the various factors that impact your shipping costs.
Dimensions
Package size is a major factor in shipping cost because the amount of cargo space is limited in both planes and trucks. Package dimensions can increase your shipping costs in two ways.
- Packages that exceed maximum dimensions can be hit with additional handling charges.
- Large lightweight packages may be charged for their dimensional weight, resulting a higher shipping cost than the actual weight.
Weight
Heavier packages are harder to handle and require more fuel to transport, so heavy packages cost more to ship. Carriers have set maximum weight limits for most options, and exceeding them can result in additional handling fees. The one exception is USPS flat rate shipping; you can ship anything that fits into the USPS flat rate box anywhere in the U.S. for one shipping cost, regardless of weight.
Destination and shipping zone
Generally speaking, the farther a package has to travel to reach its final destination, the more you will pay. Carriers use zones (usually 1-8 in the 48 contiguous states) to determine the distance and shipping cost. Zones are relative to your location: Zone 1 is where the package is shipped from, and Zone 8 is the farthest zone from Zone 1 in the continental U.S. It’s also important to know that some ZIP codes within zones (either outside of metropolitan areas or far from major highways) may be designated as “extended delivery areas” or remote zones – in which case the carrier will charge an additional fee because it takes more time and fuel to deliver there.
Surcharges
Surcharges are extra charges above and beyond the basic shipping cost, and may be added to your invoice for anything that makes the shipment require more time or expense to deliver.
Some surcharges, such as fuel surcharges, extended delivery or demand surcharges, are difficult if not impossible to avoid. Others, such as additional handling costs, can be avoided with planning. If you negotiate rates with your carriers, you may be able to negotiate a reduction or have a surcharge waived. However, it’s possible to avoid surcharges altogether with USPS flat rate shipping, or by using Pitney Bowes shipping software.
Shipping insurance
Although all three major carriers include coverage for up to $100 in declared value with every shipment, it is important to understand that this is not insurance. It is a statement of the carrier’s maximum liability in the event that your item is lost or damaged. To submit a claim, you must be able to prove that the item has been lost or broken, and that the carrier is at fault.
Even with limitations, insurance is a good idea when shipping fragile, perishable or high value items. Although insurance will slightly increase your shipping cost, you won’t have to worry about the additional expense of replacing a lost or damaged item. You can purchase additional coverage from the carrier at the time of shipment, or purchase insurance coverage from a broker that will cover the full value of your item.
Product packaging
Packaging, which includes boxes, envelopes and packs as well as tapes and cushioning materials, can easily add a dollar or more to your online shipping costs. Although that may not seem like much, it can add up to thousands of dollars over the course of a year. It may be possible to minimize or even eliminate these expenses by using free, carrier-supplied packaging. If you buy your own packaging, it’s important to check that it is sturdy enough to prevent damage in transit. Cheap, flimsy packaging may cost you more in the long run if you have to replace broken or damaged items.
How to apply shipping costs
There are several strategies for applying shipping costs, including calculated shipping, flat rate shipping, free shipping and international shipping. Each strategy has its own pros and cons that we will explain below. Your decision should be based on multiple factors including customer preferences, average purchase value and where your customers are located.
Calculated shipping
Calculated shipping gives the customer a shipping quote based on the specific item (or items) purchased. The shipping cost will vary based on the package weight and dimensions, the shipping speed and the distance to the destination. Benefits of calculated shipping include price transparency (customers know exactly how much they will be paying) and higher margins (because customers pay the full cost of shipping). However, calculated shipping can be time-consuming, and it may sometimes result in high shipping costs and cart abandonment.
Flat rate shipping
Flat rate shipping is simple and convenient, and it makes shipping costs predictable for both you and your customers. It reduces the need to weigh or measure packages, and if you are using USPS flat rate shipping, you don’t need to worry about surcharges. It can also reduce your packaging costs if you use the branded packaging that carriers provide free of charge. However, some items, such as oddly shaped or large products, may not fit into a flat rate package. Also, although it is often an economical choice, flat rate shipping is not always the cheapest option.
| feature | UPS Simple Rate |
FedEx One Rate |
Priority Mail Express |
|---|---|---|---|
Packaging options |
5 boxes |
12 boxes/envelopes |
8 boxes/envelopes |
Shipping speeds |
4 (up to 5 days) |
3 (up to 3 days) |
2 (1-2 days) |
Declared value |
$100 |
$100 |
$100 |
Coverage |
Nationwide |
3 zones |
Nationwide |
Cost (small box) |
from $13.35 |
from $12.40 |
$10.20 |
Free shipping
Offering free shipping can provide a competitive advantage because customers want it. Some won’t buy from retailers that don’t provide free shipping. But it’s up to you to make the numbers work. Many online retailers set a minimum threshold to qualify for free shipping, a strategy that may increase the average order amount. Some retailers choose to build shipping costs into their product prices, while others are content to settle for smaller margins.
International shipping
International shipping is a great tool for winning new customers. Orders can be delivered to most countries around the world in as little as one day. But international shipping is more complicated than domestic shipping. To determine the full landed international shipping costs, you need to take duties, taxes and currency conversions into account. Different countries have different rules and require different forms. If anything is incorrect or incomplete, your shipment may be delayed.
How to reduce online shipping costs
If you’re new to the world of shipping, you may be surprised to learn that shipping rates aren’t set in stone. Shipping carriers have different rates for the general public, for businesses and for high-volume shippers. You can find the retail and commercial rates by visiting their web sites, but you can only access the lowest rates – the ones reserved for high volume shippers—through negotiation, a third-party logistics provider or by using shipping software. But there’s much more to reducing online shipping costs than just rates. Here is a list of the many ways that you save money on online shipping:
Negotiate rates.
You don’t have to be a retail giant to get better rates. Carriers want your business and will work with you to help you control costs.
Rate shop multiple carriers.
Shipping software like PitneyShip® Pro makes it easy to compare prices on all the available shipping options.
Weigh and measure accurately.
Avoid penalties for packages with incorrect weights or measurements.
Optimize package size.
Ship items in the smallest possible package so you won’t have to pay the much higher volumetric rates.
Ship via ground to nearby zones.
Your packages don’t all have to travel by plane to get to the customer quickly. Sometimes ground shipping may be just as fast as air and less than half the cost.
Verify addresses.
Even a minor error can result in extra charges for address correction.
Take advantage of free packaging.
Save a bundle with carrier-supplied packaging.
Stock up on discounted supplies.
Shop around for the best deals and buy in bulk to maximize savings.
Use lightweight poly mailers.
Sometimes you don’t need a box for items like clothing, accessories or paperback books.
Quote shipping costs accurately.
Get the rate right in advance. When additional charges appear on your invoice, it’s too late to pass them on to the customer.
Pay online.
Order USPS shipping labels online at discounted rates with Click N Ship.
Get insurance from a broker.
They usually provide better coverage at a lower cost than carriers do.
Audit your shipping invoices.
Carriers occasionally make mistakes, and they can be costly. So it pays to double-check your invoices for accuracy before you pay.
How can you prepare to save on shipping and mailing costs in 2023?
Online shipping can be very complicated, but Pitney Bowes shipping can help you make things simple while saving money on every package you ship. In just a few clicks you can compare rates and options from all the major carriers—and that’s just the beginning. You’ll also have access to the deepest discounts available anywhere, full visibility into your entire shipping spend, and the ability to set rules, impose spending limits and easily add or delete users, groups or locations as needed.