How To Calculate Shipping Costs For Your Business
Recently, online shoppers were asked how much they would be willing to pay for shipping on the items they purchased — and their answers could give many small business owners cause for concern. A whopping 72% of consumers said the max they would be willing to pay was $5 — and, in even worse news for small businesses working with slim margins, shoppers want their merchandise fast, with 58% of online buyers expecting to receive orders within one week, at most, even on orders that ship for free.
Free, fast shipping is great for consumers. Unfortunately, expectations around shipping cost and speed can present challenges for small business owners and their bottom lines.
If you’re feeling the squeeze between your customers’ expectations and the reality of your shipping costs, you’re in the right place. This article will show you how to calculate shipping costs, trim them, and price your products to protect your profits.
Table of Contents
What Are Shipping Costs?
How much do you pay for shipping? It’s more than the postage you put on the box or envelope. To gain a realistic picture of what you’re spending to put your products into buyers’ hands, you need to factor in all the hidden costs. Think about:
- Packaging materials
- Time spent packing shipments
- Postage or freight costs
- Money lost on damaged, missing, or returned shipments
Gaining a fuller understanding of your shipping costs is vital for businesses small and large. To maintain your profit margin, you must factor shipping costs into your budget — and into your prices. If your profit margin is already razor-thin, or if you’d simply like to keep a bigger slice of each sale, take a look at your shipping practices. Chances are, there are many small improvements you can make that will add up to savings.
How To Calculate Shipping Costs
To retain as much money as possible from each sale in the form of profits, your goal is to spend as little as possible on shipping. That goal is complicated by your customers’ demand for fast, reliable delivery. Fortunately, you can balance those competing needs by checking out a variety of shipping carriers and choosing the one that best delivers on both your customers’ expectations and your own.
From the start, you’ll notice one frustrating issue. If you contact a carrier directly to ask “How much does shipping with you cost?” you’re bound to receive a variety of this answer: “It depends.”
They’re not hedging. The truth is, shipping costs are determined by multiple, complicated variables. Here are some of them:
Carriers that rely primarily on air transportation for long-distance delivery place emphasis on package weight when determining shipping costs. Airplane cargo is limited by total weight, so it makes sense that heavier packages cost more to send, because carriers can fit fewer packages on the plane.
When your shipping carrier is trying to fit as many packages as possible into a truck for transportation, package size is a major factor. Carriers want to pack their trucks tightly, so they can fit as many shipments as possible. That’s why some carriers encourage you to ship products in the uniformly-sized boxes they provide or charge rates that depend on package size limits.
With the exception of the United States Postal Service (USPS), most carriers’ rates vary by distance. Packages that go further cost more to send, unless you’re willing to sacrifice speed to save money. If half your shipments go to destinations relatively close to where they’re made, you may be able to save money by using a local carrier in addition to a nationwide shipper.
How quickly do you need your shipment to arrive at its destination? Generally speaking, the faster it goes, the more you can expect to pay.
Some of the biggest shipping carriers will offer discount (sometimes called corporate) rates to businesses that regularly ship a lot of packages.
Getting a package to a customer’s doorstep is one thing. What additional services do you require? Think about things like insurance, signature, tracking, proof of delivery, and weekend delivery. Depending on the carrier you use, you may pay extra for those things.
Some carriers provide — and motivate you to use — their own boxes and envelopes. Those shipping materials generally come to you at no charge. When you can save money using materials that are provided for free, you’ve got a good head start on reducing the cost of shipping.
Let’s Try An Example
It’s a given that different packages will cost varying amounts to ship. But here’s another factor: Different carriers might charge very different amounts for the exact same package.
It’s impossible to list in one article all the different shipping rates you could possibly be charged. But we can provide a small view into the different rates you can expect to pay with a few of the major carriers. Let’s start with a simple mailing envelope, and look at what you’d pay to ship it with USPS, FedEx, and UPS. For this example, let’s assume that we are mailing a 9.2″ x 12.5″ flat envelope that weighs 12 ounces, and you’re shipping it from your warehouse in Tennessee to a destination in Wyoming, with no additional services (insurance, proof of delivery, and so on) required.
Let’s try another type of package. We’ll keep the same to and from destinations, but change the type of package. This time, our shipment will go in a small box. What carriers consider “small” varies a bit, so for this exercise let’s assume our package measures less than 14″ x 12″ x 4″, and it weighs four pounds. Again, we won’t opt for any additional services, just quick shipping.
There you have it, two examples of fast shipping options from three major carriers. Remember, the price you pay varies widely depending on factors like weight, package dimensions, shipping time, and distance shipped. So unless you happen to live in Tennessee and do a lot of shipping to Wyoming, the examples above won’t actually satisfy your need to know exactly you can expect to pay for shipping.
In that case, read on!
Shipping Cost Calculators
While it may be an interesting academic exercise to compare shipping costs on two made-up packages, what really matters is your very real packages and the customers who are waiting to receive them. If you want information about your own company’s expected shipping costs, so you can choose a good carrier to do business with, you’re in luck. Many major carriers have online shipping calculators you can use to get real quotes for actual shipments. Pick a package and take a tour.
How To Calculate Shipping Costs With USPS
USPS is a public service, and its business model doesn’t center on profit. One benefit of that is that shipping distance does not affect USPS shipping prices. No matter where your package is headed, anywhere in the United States, you’ll pay the same price for the same transit time. That’s unique among carriers.
So how does USPS determine shipping cost? The primary factor is package size. USPS Priority Mail Service has the motto “If it fits, it ships,” and if you can fit your package into USPS’s free flat-rate boxes, you can send anything up to 70 pounds in weight anywhere in the U.S., with guaranteed one- or two-day delivery, no matter what’s in the box.
Can you take advantage of flat-rate USPS fees? Check out this shipping calculator to determine whether your items will fit into a flat-rate package — and to find out what it would cost. If you can’t use flat-rate, you can get a custom quote and purchase postage there too. If you regularly ship items classified as media — including books, sound recordings, videotapes, printed music, or computer-readable media such as CDs or DVDs — you can save money using USPS’s medial mail shipping rate. And if you regularly ship items weighing less than one pound, you should be able to take advantage of First Class postage rates, which will be lower than Priority Mail.
How To Calculate Shipping Costs With FedEx
Although on the surface FedEx seems like one of the most expensive carriers, you automatically qualify for discounts when you sign up with a business account, and you will be eligible for the FedEx rewards program too. FedEx does offer an easy to use shipping calculator, but be aware that you are likely to qualify for a rate that’s lower than the advertised cost.
FedEx prices depend on package size and weight as well as delivery speed. While the company has earned a reputation for dependable overnight service from its start in 1973 (and continues to offer overnight shipping), today you can save money by choosing speedy, reliable service that takes just a little longer. You can also keep costs down by using free FedEx packaging for your shipments.
If speed is the most important component of shipping to you, and you either 1) don’t mind what it costs or 2) can pass those costs on to customers, FedEx will be a good choice for your shipping needs. Don’t overlook FedEx’s seven-day delivery option. By allowing a week for delivery, instead of going with overnight, you can cut shipping costs by nearly two-thirds.
How To Calculate Shipping Costs With UPS
For UPS, delivery speed and distance are the biggest factors in shipping costs. The next most important consideration is “dimensional weight” or “package density,” meaning the amount of space a package takes up in relation to its physical weight. UPS says you can calculate dimensional weight on your own. Just multiply the package length by the width and the height to find its size in cubic inches, then use the UPS rate type divisor to determine the dimensional weight in pounds, and you’ll end up with the billable rate.
Or, if that sounds a little complicated, just use the UPS shipping calculator and let the online system do the work for you.
UPS is known for its reliability and excellent package tracking system, but it’s not always the lowest-cost option. However, if you’re regularly shipping oversize or heavy packages, you may find it the best option, especially because UPS offers reduced rates to shippers who enter into shipping agreements with the carrier.
How To Price Products To Accommodate Shipping Costs
From clothing and footwear to furniture, appliances, and even snacks and household supplies, online shopping in major categories has experienced double-digit growth since the COVID-19 pandemic arrived in the U.S. That means it’s more important than ever to fine-tune your shipping costs to maximize your profits. Here are some tested strategies:
Add A Threshold
Sure, customers expect free shipping. But does it really make sense to spend $7.75 to ship them an item that they pay $8 for? Expert marketer Neil Patel says adding a threshold, or minimum sales amount, for free shipping leads customers to spend more to gain free shipping, raising your sales and margins in the process. Check out what your competitors are offering, then experiment with your threshold to see what makes sense for your industry and your market.
Build In Shipping Costs
Customers don’t want to pay for shipping. But they may be willing to pay a slightly higher cost for your products, so long as you ship them for free. That means you can adjust items’ pricing to absorb some or all of the typical cost of shipping them. Shipping and Marketing expert Kristina Lopienski also suggests figuring out average shipping costs for all your products, then using that blended average to set shipping fees for customers.
All the major shipping carriers take package size into consideration when determining the price you’ll pay to ship something. Whatever carrier you choose to work with, make sure that you’re using the right kind of packaging to net you the best rates. If you use the packaging your carrier provides, you’ll probably be able to access the best rates.
Almost without exception, envelopes are less expensive to ship than boxes. So if you’re able to ship your items safely in an envelope or padded mailer, be sure to do so.
Look For Alternatives
Take some of the sting out of shipping costs by making it easier on yourself. After all, your time is worth a great deal, and if you’re lugging packages to three different drop-offs each week to take advantage of different types of shipping savings, you may be better served by automating the process with a shipping software app. You have lots of options when it comes to shipping software. Find out what service makes the most sense for you.
Let Customers Pay for Shipping Extras
Suppose you are able to use a relatively low-cost shipping option that costs you about $7 for three-day delivery. You’re able to shift $4 of that shipping cost to customers by raising the price of your products slightly. That will keep the majority of your customers happy. But what about the 18% of online shoppers who, according to Statista, want next-day delivery? Many of them will be willing to pay a premium for even-speedier delivery. Try making rapid shipping an add-on service that customers can select and pay for at checkout. You’ll be improving your overall service by offering more options to meet customers’ individual needs. And that’s a good thing.
No matter what, where, and how often you ship, understanding your options is the key to keeping shipping costs in line. If you’re interested in even more smart tips, check out our top shipping hacks! You’ll find some sure-fire strategies you can use to make fulfilling customers’ orders as easy and inexpensive as possible.