Calculating and optimizing shipping costs
Calculating shipping costs will help you choose a shipping strategy and decide at what price to sell the products. In addition, when you clearly see how much you spend, you can find ways to cut your spendings and optimize your expenses.
Different factors can affect the actual cost of sending your products to the buyer, such as:
- Package weight and dimensions. Shipping carriers like USPS, FedEx, and UPS calculate shipping charges based on the actual weight of the package or its dimensional weight.
- Shipping destination. Your shipping costs will be higher if you offer international shipping in your store.
- Value of shipped products. If you sell high-value products you may want to insure their shipment which will increase shipping costs.
- Delivery times. Some buyers prefer to pay for expedited shipping; this cost is based on where the buyer is located.
If you want to use custom rates or compensate for free shipping, you need to calculate your shipping costs to learn how much to charge customers. Knowing your shipping costs is also helpful if you want to charge customers for any extra spendings that are not included in real-time rates (e.g., luxury or handmade package).
Shipping costs are based on your products’ dimensions, your shipping destinations, and carrier’s rates. If you deliver yourself, your main costs will be on gas, driver salary, insurance and vehicle maintenance.
Shipping with carriers or delivery services
Package weight and size. As a general rule of thumb, the smaller and lighter a package is, the less it will cost to ship. That’s why it’s important to choose a box that’s big enough for your products, but not so big that it increases your package’s dim weight needlessly. Remember that carriers calculate the total weight of the package and not the weight of the product itself.
Destination. The farther your destination is, the more you’ll pay for shipment. This is true whether you’re shipping domestically or internationally. Considering this, you may want to start with local delivery if you are only beginning with online selling.
Delivery time. Carriers usually offer a range of standard and express service times. Express delivery takes 1 day, standard delivery takes 2-3 business days. The faster delivery or shipping is, the more expensive it will be for you. If you use real-time rates in Ecwid, you can choose whether to offer customers express or standard delivery methods.
Taxes. Keep in mind that international shipments may also be subject to taxes and duties that need to be paid separately. To find out which charges apply to your shipment, consult with your carrier or the customs authorities of the country you’re shipping to.
Outstanding packaging. If you want to create a splendid experience with your product, you might use a handmade or luxury package for your products. To calculate packaging costs, divide the total amount you spent on packaging by the number of goods that can be packaged with it.
To optimize your shipping costs, you can compare rates from different shipping services and choose the most affordable. Here’s the list of online shipping rates calculator for:
You can calculate the shipping costs for one package or add up shipping costs for a week/month and then divide it by the number of deliveries made during the time period. That will be your average delivery cost for one order.
Gas. Your fuel expenses will fluctuate depending on how busy your delivery drivers are, and how well your routes are planned.
Labor. You must pay a salary to each courier you hire. If you are not sure how much to pay, look up this average pizza delivery driver wages by state table.
Vehicle maintenance. It can be a rental cost if you rent a vehicle, or price for a service that is required for your car or bike when they are not functioning properly.
Insurance. When offering delivery, you need insurance for general liability coverage and driver commercial coverage.
Packaging. This includes the box or envelope to pack items and packaging materials.
Find out how much you’re spending weekly or monthly and divide this by the number of deliveries made during the time period. That will be your average delivery cost for one order.
Once you get to know your shipping costs, you can add custom rates to your Ecwid store, add a handling fee for each order, or compensate free shipping by higher prices.
Let’s take a closer look at how it works with an example. Sara from San Diego sells jewelry online. She decided to ship across the US and charge customers the exact shipping costs. Sara chose small boxes to fit her rings and pendants and then looked up on the USPS site how much it will cost to ship small boxes to different states:
Product cost: $30.00
Shipping fee: $15.00
Packaging cost: $0.75
Credit card processing: $0.85
Total cost: $46.60.
To make a profit of roughly 30% for each product, Sara should sell it at $60 (before taxes).
If your margin is high, you may want to absorb the costs of shipping domestic orders and offer free shipping to your local customers. To compensate for shipping expenses, you can slightly increase product prices in your online store.
Alternatively, you can choose to charge your customers the exact amount that you pay for getting their order shipped. You can use online calculators to check how much shipping carriers charge to ship products of different weights and dimensions to different destinations from your location:
If you’ve just started your online business and sell locally, you can offer a local pickup, or deliver the ordered goods yourself. You can also use simple packaging for orders and hand-write shipping labels to reduce expenses at the start.
While your business is growing, review your shipping strategy from time to time and make any necessary adjustments.
Undercharging your customers for shipping can eat into your profit if you absorb the costs yourself, while overcharging customers for shipping can lead to abandoned carts and lost sales. Here are some tips on how you can optimize your shipping costs and, in turn, charge your customers accurate or even lower rates when possible:
Pack as small & as light as possible. Shipping companies charge by size and weight (unless you’ve opted for flat-rate shipping). To reduce shipping costs, use as little packaging material as is safe for your items. When possible, switch from boxes to poly mailers if you sell small non-fragile items like clothes or use bubble mailers if your products need some protection.
Find discounted supplies. Many shipping carriers offer free packaging materials with their specific shipping methods: USPS supplies, UPS supplies. You will need to open an account with the carrier, so they send you the packing supplies free of charge. Besides saving money on packaging, you can thus avoid additional dimensional fees if your own packages exceed size regulations set by carriers.
Get discounted shipping rates. If you ship often or expect high-volume shipments, you can negotiate lower rates with carriers. Discuss the possible discounted pricing with your carrier to make sure you’re getting the best pricing for your online business. Stick to fewer carriers to have a good volume of shipments with them and thus maximize your bargaining power.
Pay for shipping online. You can have additional cost savings by paying for shipping online. If you ship domestically with USPS, you can purchase and print shipping labels right from your Ecwid admin.
Get third-party insurance. If you sell high-value items, you are likely to need shipping insurance to get reimbursed for shipments that are lost, stolen, or damaged in transit with a courier. Third-party insurers usually charge less than carriers, which can bring you significant savings if you frequently ship expensive items. USPS includes insurance in some shipments, so you may already have insurance when you buy a shipping label from your Ecwid admin.
Factor in all shipping fees. Carriers have lots of special charges like a Saturday delivery fee or a fee for requiring a signature from the recipient, to name a few. Be sure to include all the extra costs in customer bills, so you don't end up absorbing them yourself. In Ecwid, you can charge your customers extra by using a handling fee on all orders or a hidden shipping markup on live rates. Besides, you can cover the shipping expenses just for certain products (e.g., for fragile or large items in your product line) by adding a hidden fee as a fixed rate per item on top of your regular shipping costs. Be careful when adding extra fees as you want to keep your prices competitive on the market.