Understanding how to calculate shipping costs is important. Not only do you need to track how much you’re spending in order to turn a profit, but your delivery fees impact how likely your customers are to buy from you.
In fact, according to Royal Mail's 2017 Delivery Matters UK report, 40% of online shoppers in the United Kingdom abandon shopping carts because they are not happy with delivery costs.
Therefore, having an understanding of the total cost of shipping is key, in order to keep your postage costs low.
But how exactly do you go about calculating shipping costs? How do courier services work out how much to charge you? What unexpected delivery charges are there?
This article will help you to calculate shipping rates so that you can start to turn over a profit and grow your online business.
Your shipping strategy impacts your total shipping costs
It may seem like a bit of a no-brainer, but the shipping strategy you choose impacts your total delivery costs. Generally speaking, there are three key strategies to be aware of:
1. Free shipping
A free shipping strategy is a great way to stand out from your competition, grab the attention of your website visitors and turn them into loyal customers.
In fact, a study published earlier this year confirms what everybody has been thinking for some time now – free shipping correlates positively with online sales.
If you decide to offer free shipping, you will either pay to ship your products out of your own pocket, or you’ll need to factor in a small price increase per item you sell to cover your delivery fees.
The amount you increase your prices by will depend entirely on what products you sell, your total shipping rates and how big your profit margins are. Remember, any increase in the price of your products may impact how many sales you make.
Another strategy you can use is known as threshold-based free shipping – offering free shipping to shoppers who spend over a certain amount in your online store.
(Example of threshold-based free shipping from Rinkit)
In doing this, not only will you benefit as your customers are likely to spend more to qualify for the threshold, but the strategy also gives you an easy way to cover your postage costs on less profitable orders.
It’s worth remembering threshold-based free shipping is most effective when a business communicates its standard delivery fee at the same time as its free shipping threshold.
Communicating the two options together works because customers are sensitive to delivery charges. The way you present shipping fees affects how the information will be processed and received by online shoppers.
2. Real-time shipping
Another shipping option for your online store is to charge the exact amount that you normally would be charged to deliver your products in real-time.
A real-time shipping strategy is achieved by providing a shipping calculator on your website so that your customers can see the real cost of shipping your products.
Not only does this allow you to cover your delivery fees in full, being transparent to about your shipping costs is likely to win you plenty of trust with online shoppers.
It’s worth bearing in mind that real-time shipping is unlikely to be as powerful as offering free shipping for your items, but it does help to cover your total postage costs.
3. Flat rate shipping
Offering flat rate shipping is an easy way to cover most of your shipping costs. You can either offer a standard delivery fee per order or flat rates for weight ranges.
It’s important to remember that what flat rate fee works for someone else may not work for you. There is no standard fee that can be applied to all businesses – it all depends on the type of products you sell and your overhead costs.
The best way to work out a flat rate fee is to work out your average cost for shipping a package. This does require some preparation but prevents you from significantly undercharging or overcharging your customers.
What does the future of eCommerce delivery look like? Find out what delivery management experts ParcelHub had to say.
Product dimensions affect your cost of shipping
The size and weight of your products determine the amount you are charged by your chosen delivery partner. It’s worth noting that some courier services do not carry items over a certain weight, so be sure to do your research when selecting a shipping partner.
Courier services use volumetric weight to work out how large and heavy your items are and will then charge you accordingly. Most delivery companies use the following calculation to determine the weight of your products:
(Length x width x depth) ÷ 6,000* = weight of your products
*Delivery company DHL divides items by 5,000.
It’s worth remembering delivery companies will differ on how much they charge you for shipping and handling, which is why it’s a good idea to check out your shipping partner’s website to see if they have a shipping calculator available to help you.
If you have yet to decide on a courier service, you can check out the following shipping calculators to get a rough idea of your total shipping costs and handling fees:
Product packaging affects your cost of shipping
While many online sellers understand that lighter packages correlate with lower shipping costs, weight is not the only factor that affects the total cost of transporting your products.
Regardless of how heavy your items are, the space your deliveries take up can directly impact transportation costs and the total amount you are charged for shipping. This is why it’s important to consider how best to package your items for delivery.
If the items you sell are small, you don’t need to use a big box to package them. Even if you find large boxes for less money than smaller ones, the size of your shipping boxes directly impacts how much space your deliveries take up when being dispatched by your courier.
It can also be good practice to factor in any extra materials you use to reduce the risk of package and product damage. Although these costs are small, they can add up quickly if you don’t take them into account from the beginning.
It’s worth remembering that preventing product damage is almost always going to cost you less than replacing damaged items. The time it takes to resolve claims can be pretty significant, plus you’ll reduce the risk of having an unhappy customer on your hands.
Just like damage prevention, there may be other packaging costs to consider when it comes to calculating your total cost of shipping and delivery. If you want to stand out and resonate with your customers, branded packaging can be a worthwhile investment for your business.
Courier services price and calculate shipping costs differently
All courier services price and calculate shipping rates and handling fees differently to one another. It’s what makes them appealing to different kinds of businesses and customers.
Struggling to find an affordable shipping solution? Check out eight of the cheapest courier services available for online sellers.
Keep in mind, however, that choosing your courier service based on price alone is not advisable. This is because your customers directly relate their shipping experience with your business – not your courier service.
Parcel insurance impacts your total shipping fees
If you choose to invest in parcel insurance to ensure the safe delivery of your items, you’ll want to factor this extra fee when calculating your total cost of shipping and delivery.
You should also be aware that when choosing a courier service, parcel insurance is an element that most companies will try to add on as an extra cost – a process known as cross-selling.
Parcel insurance tends to be priced quite reasonably should anything go wrong with your product deliveries, so on the surface it can seem like a cost-effective decision (and it is).
However, not every type of product is protected by parcel insurance, so we recommend double checking your items are covered in the fine print of delivery insurance policies.
Unexpected shipping charges
As a business owner, unexpected shipping fees can wipe out your profits so it’s important to be aware of the hidden costs that may appear further down the line.
So what unexpected delivery fees might you encounter?
1. Re-bills fees
A re-bill fee may be charged to your account if you forget to pay your bill on time.
2. Re-weigh fees
If your courier believes your shipment is heavier than the weight you gave them then they may re-weigh your delivery to ensure you’re paying the correct amount.
If there is a significant difference in weight, then you may be charged an additional fee by your chosen shipping partner – the amount that you’re charged will differ from company to company.
The best way to avoid this from happening is to make sure you measure the weight of your shipment as accurately as possible. If you need to estimate the weight of your items, a good place to look is on digital marketplaces for similar items.
3. Customs delays fees
When sending your shipment internationally, you may encounter delays in customs which can result in additional fees.
For example, if your paperwork and documents are incorrect (even a minor mistake) then you may find you have to pay extra storage fees for the time your shipment is delayed.
4. Items that are damaged or lost in transit
Your products may get damaged or lost entirely when being delivered to your customers. If your items are not covered by parcel insurance, then it will be you who has to issue a refund or incur the additional expense of sending another product out.
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 fulfilment (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.
Calculate postage costs to scale your online business
The process for working out your total cost of shipping can be tough and time-consuming, but hopefully this article has shed light on the factors you need understand. If you’ve got a question on delivery fees, drop us a comment below and we’ll do our best to help you.
Remember, calculating your costs is only the first step to running a successful online business. Ready for the next move? Check out our 51 ways and best practices to grow your eCommerce store and take your business to the next level.