How to Calculate Shipping Costs for Online Store

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Shipping is a key part of your online business. Customers' satisfaction depends upon their receiving the product quickly and in good shape. In fact, your ability to make a profit also depends upon your learning how to factor in shipping costs for each order so that you can charge your customers appropriately and maintain a profit margin. Therefore, a savvy online business owner quickly learns what determines shipping cost, how to control each of these determining factors and how to accurately calculate the cost of shipping your product every time. The shipping cost formula includes more than just basic shipping costs. In fact, several factors are involved in determining shipping costs. They include:

  • Choice of courier
  • Packaging materials and size and weight of the package
  • Origin and destination
  • Customs or duties, if applicable
  • Tracking needs
  • Insurance
  • Delivery speed

For example, if you wanted to answer the question how much does it cost to ship 100 pounds ups, you would also need to determine how quickly you needed the package to arrive, the cost from your origin to the destination, the type of packaging, and how much insurance is needed just to discover your basic shipping costs. To gain a more comprehensive picture, you would also include handling costs, such as warehouse costs and credit card costs.

Shipping Calculator

A shipping calculator can help you accurately determine your shipping costs for every order. While many couriers have calculators on their web sites, you will more accurately and efficiently reflect your unique shipping cost if you develop your own calculator based around your specific needs. You would develop a calculator for each shipping courier you use by using either Excel or Google Sheets and plugging in information obtained from that courier's Web site.

For example, your UPS basic shipping cost calculator for items shipped within the United States would include columns for the weight of the item, the UPS shipping cost per pound using each type of service (next day, etc.) and then a column with a formula for total cost based on weight. It would also include columns for value-added services, such as signature or insurance, and the cost. It would also include columns for surcharges such as residential delivery and fuel, as well as a formula that totals all these costs. It might even include the use of VLOOKUP to link to the UPS shipping rates chart.

A FedEx shipping calculator would include similar columns and formulas. Fedex costs vary based on size as well as weight, so this would also need to be included in your calculator.

Remember for all your calculators to add in the cost of any courier packaging, such as UPS shipping boxes, or special packaging, such as branded boxes.

Ecommerce Shipping Software

If developing a spreadsheet for shipping costs seems difficult or bulky for your operation, you might consider investing in ecommerce shipping software. This software includes an ecommerce shipping calculator based on general rates or your business's contract rates with specific couriers. Many companies offer shipping software. All vary slightly in terms of features offered and the monthly price. For example, some also integrate with inventory management software; many offer bulk label printing. Most offer discounts with various couriers and manage refunds for those times when the courier failed to deliver on time. Some offer features to allow you to easily markup shipping rates.

Before buying shipping software, compare the features of all the brands and select the one that offers the best features for your business at an affordable cost.

Average Shipping Cost Percentage

Shipping costs, as a percentage of the sale, vary depending upon what you are shipping and to where you are shipping. However, in general, the average shipping cost of each household item in the United States ranges from $5 to $15; if an item costs $100 that represents a range of 5 percent to 15 percent. Learning how to lower your company's average shipping costs for online shopping is important to the continued profitability of your business. Four ways to lower shipping costs include leveraging flat rate shipping, negotiating rates, shopping around for shipping supplies and claiming all the refunds you are due, according to Inc magazine.

Inbound freight costs as a percentage of purchases are rising, consuming between 3.6 percent and 5.2 percent of annual sales, according to Logistics Management. Companies are trying to lower these costs through forming partnerships with carriers, establishing performance metrics for carriers, consolidating shipments and improving automation and invoicing procedures, Logistics Management says.

Shopify Shipping Calculator

Shopify is one company that provides ecommerce solutions, including software and a Shopify shipping cost calculator. Shopify shipping rates are based upon your Shopify plan. The Advanced Shopify Plan has the most discounts so the best shipping rates for Shopify will be available to subscribers to that plan. Shopify also provides shipping labels for printing either on your personal computer or through one of several Shopify supported label printers.

If you have carrier calculated shipping Shopify as part of your plan, then you can use your carrier account credentials to display rates at checkout. Shopify also offers the opportunity to display the Shopify shipping calculator on cart page, as well as to display the Shopify shipping calculator on product page. This helps customers estimate their shipping costs early, before they go to check out. Shopify provides the opportunity to customize shipping rates; for example, by product. A plugin is available to help calculate Shopify shipping rates by product.

A significant number of online shoppers do so internationally. For example, 83 percent of online shoppers in Canada are making purchases from international retailers. Eighty-one percent of Brazilian shoppers, 78 percent of Mexican shoppers and 47 percent of U.S. shoppers do so, according to a UPS survey. Customers expect cross-border shipping. Shopify provides its members with mailing labels that meet customs regulations and electronically transmits labels to DHL. A calculator helps you determine Shopify international shipping rates.

Handling fee calculator

Handling fees are different from and, in addition to, basic shipping fees. For ecommerce, handling costs can include warehouse storage costs and packaging costs. To be sure your business is profitable, these costs also should be considered when determining what shipping prices to charge your customers. A shipping and handling costs calculator, whether purchased through a software provider or developed on your own through Excel or Google Sheets, can help with this. To create a shipping and handling calculator, just add a column to your shipping calculator for your per-order warehouse and supplies expense. To determine your per-order warehouse and supplies expense, add your monthly warehouse labor cost, shipping supplies expense, and facility cost (excluding USPS, UPS or FedEx delivery costs) and divide this by your average monthly shipping volume. For example, if your total warehouse and supplies cost is $6,200 per month and you ship 1,000 orders per month, the per order cost equals $6.20.

Ecommerce Delivery Strategy

Because fulfillment is so critical to the success of your business, developing a delivery strategy that works for your company and its customers is also critical. Following are some ecommerce shipping best practices that you may want to consider adopting:

  • Communicate clearly about shipping costs. Research shows that 60 percent of shoppers abandon their shopping carts because extra costs such as shipping and taxes are too high. Another 23 percent abandon because they can't calculate total costs upfront. Include shipping cost information in as many places as possible for your customers; for example, on the product page, and in the shopping cart. You might also consider putting a link to a copy of your shipping policy on your retail home page.
  • Provide flexible shipping options. Fifty-eight percent of those surveyed want free and discounted shipping, while 28 percent want a choice of shipping options.
  • Automate as much as is practical for your business. Automation can keep costs down and standardize processes. This will result in higher customer satisfaction, and, ultimately, in better profits.
  • Use technology. Ecommerce shipping software can quickly compare options and choose the best value. It also can manage local, national and international shipping companies on one platform. Automate your shipping notification process; customers want to know where their order is from the time they place their order until it arrives at their door.
  • Continue to improve your processes such as how you use your warehouse space and how productive your staff is. Provide a good work environment for your employees, such as incentives and opportunities for advancement. Turnover is costly, perhaps as much as $10,000 for each employee lost.
  • Consider outsourcing to a third-party logistics provider who may be able to offer better service more economically than you can, especially if you are a small business.
  • Use the right packaging. Use the right-sized package for what you want to ship. In addition, consider whether you want to invest in packaging that emphasizes your brand or whether to take better advantage of free packaging offered by many couriers.
  • Publicize your returns policy. UPS surveys indicate that 66 percent of customers review the company's returns policy before buying and 15 percent abandon the cart when the policy is unclear. In addition, the most successful online businesses offer flexible return options such as in-store, as well as through courier.
  • Provide a post-purchase experience. This could be done in many ways including sending an email thank you that includes a discount on future purchases.

By carefully developing your shipping strategies, you can reduce your expenses, while also keeping your customers happy.