Did you know that shipping costs can be the difference between making a sale and losing a sale? Many consumers will abandon their ecommerce shopping carts if extra costs (including shipping fees) are too high.
The takeaway? You need to get shipping costs right.
But determining shipping costs can be tricky. They can vary depending on the products you’re shipping, the carrier you choose, and the destination.
Below, we’ll break down how profit-minded businesses can calculate shipping costs to strike a balance between affordability and reliability. We’ll also cover other shipping considerations and what you need to ship products effectively without breaking the bank.
Steps to calculate shipping costs when selling online
Knowing what impacts shipping costs is one thing, but how do you actually figure out how much your shipments will set you back?
1. Measure and weigh the package
Start by measuring the package size—length, width, and height—and round up each measurement to the nearest whole number. For instance, a package measuring 12.5 x 10.7 x 8.2 inches should be rounded to 13 x 11 x 9 inches.
You can downsize your shipment and reduce shipping costs by using appropriate packaging materials. For example, if you’re shipping a small, relatively flat item, use a padded envelope instead of a box.
Once your shipment is fully packaged, weigh it using an accurate, calibrated scale that shows pounds and ounces.
2. Choose a shipping service
Next, you’ll need to choose the right shipping service. There are a few factors to consider:
- Shipping volume: If you’re shipping frequently or in bulk, try to negotiate a discounted rate with your carrier. Some may provide negotiated rates based on your shipping history.
- Delivery speed: For items that need fast delivery, choose a service like FedEx Express or UPS Next Day Air. Conversely, if your customers are willing to wait, USPS Ground Advantage often offers the most affordable rates for smaller packages.
- Budget and destination: Look at the shipping charges for your specific destination and compare rates from various carriers to find the most cost-effective option.
Here’s how the popular shipping carriers compare when it comes to delivery speed, cost, and best use cases:
- USPS: They’re ideal for small packages and offer the most economical options for lightweight shipments. They provide flat-rate boxes for predictable costs, making budgeting easier.
- FedEx: Known for reliability and speed, FedEx offers a range of options, including overnight, express, and ground service. Their extensive tracking capabilities give peace of mind to both shippers and recipients.
- UPS: Like FedEx, UPS provides multiple service levels, including ground and expedited options. They have a reputation for excellent customer service and delivery reliability, especially for larger packages.
- DHL: Specializes in international shipping. Offers express and economy options for global deliveries.
3. Determine shipping rates
Shipping prices vary greatly depending on the zone or the distance between your location and the destination address. You can use the carrier’s online rate calculator to determine shipping rates for different zones.
Typically, you must enter your package’s dimensions, weight, and the origin and destination zip codes to get an accurate estimate.
- If you ship a feather inside a box meant for a flat-screen TV, the cost will be based on its dimensional weight.
- If you ship a dumbbell in a dumbbell-sized box, the cost will be based on physical weight.
As of 2024, FedEx has a DIM factor of 139.
UPS has a DIM factor of 166 for retail rates, and 139 for daily rates.
And USPS has a DIM factor of 166.
The carriers implemented this rule to make sure large but light packages are fairly priced, as the packages take up a lot of space despite their minimal weight.
To determine your package’s dimensional weight—and see whether physical or dimensional weight will be used—use our dimensional weight calculator.
4. Add in packaging costs
When calculating shipping costs, you must also factor in the cost of packaging materials. Usually, this requires you to estimate the cost of packaging materials per order or per item and add it to your shipping rates.
For instance, if you use a $0.50 poly mailer and $1 of bubble wrap per order and ship 50 orders per month, your packaging cost would be $75.
To cut down on packaging costs without sacrificing protection:
- Use the smallest box or mailer you can (keep a variety of box sizes on hand, so you always have the perfect fit).
- Buy packaging materials in bulk.
- Reuse packaging materials from returned orders or inventory shipments.
5. Calculate the final shipping cost
The final step is to add up all the costs from the above steps to get the total shipping cost. To recap:
- Get accurate measurements for the weight and dimensions of the package.
- Choose the appropriate shipping service based on volume, speed, budget, and destination.
- Determine shipping rates for different zones using the carrier’s rate calculator or our DIM weight calculator.
- Add in packaging costs to get a comprehensive estimate.
Double-check your calculations to avoid any surprises or miscalculations. Remember, the more precise your calculations, the better you can budget for shipping costs, avoid unhappy customers, and protect your profit margins.
Why accurate shipping costs matter
Shipping costs shape the overall customer experience and satisfaction. When customers face high shipping fees, they may:
- Abandon their carts before checkout.
- Leave negative reviews or feedback.
- Avoid repeat purchases.
- Choose a competitor with lower shipping fees.
This makes your business more likely to miss out on sales, damage your reputation, and lose customer loyalty.
On the other hand, if you undercharge for shipping, you may end up losing money on each sale by absorbing the extra costs, which can eat into your profits. Undercharging for shipping may also result in delays or errors in delivery, leading to unhappy customers and potential returns.
What goes into shipping costs?
Knowing which factors affect these costs will help you plan better, choose the right shipping methods, and avoid under or overcharging for shipping.
Package weight and dimensions
Carriers typically charge based on the package’s actual weight, but some use dimensional weight (or volumetric weight).
This method considers the package’s size relative to its weight, meaning larger but lighter packages may incur higher shipping fees than expected.
To measure and weigh your packages correctly, follow these steps:
- Use a reliable scale: Invest in a quality digital scale that measures precise weights, and calibrate the scale regularly for accuracy.
- Measure dimensions correctly: Use a measuring tape to get the package’s actual length, width, and height.
- Include packaging materials: Remember that the weight and dimensions of the packaging itself (box, bubble wrap, etc.) contribute to the overall weight and size. Weigh the package as a whole to avoid underestimating costs.
- Double-check before shipping: Verify your weight and dimensions multiple times to avoid errors.
Shipping destination
Shipping carriers use zone-based pricing models. They divide the country into shipping zones (1 to 8 in the U.S.) based on proximity to shipping hubs. The more zones a package passes through, the more the carrier charges for shipping, due to increased transportation and fuel costs.
Let’s say you’re shipping a package from California (Zone 8) to New York (Zone 1). In this case, the shipping costs would be significantly higher than if you were shipping it to a nearby state like Nevada (Zone 2).
Here’s an example of how much costs can vary between zones:
Besides distance, carriers also consider the final destination of the package. Shipping to a rural or remote area within a zone may incur additional fees due to limited access or longer delivery times.
Shipping carrier and service level
Different carriers, such as USPS, UPS, FedEx, and DHL, offer different service levels at varying costs. Depending on your budget and needs, you can choose from standard, expedited, or overnight shipping options. Standard shipping is more affordable, while expedited and overnight services come at a premium.
When selecting a carrier and service level, you’ll need to take into account:
- Package weight and size: Some carriers have weight and dimension limitations. For instance, USPS has a 70-pound weight limit, while UPS and FedEx accept heavier packages.
- Destination: Compare shipping rates from different carriers to find the most affordable option for your specific destination.
- Insurance and tracking: If you’re shipping valuable or fragile items, consider using a carrier that offers insurance and tracking services for added protection.
Packaging materials
Packaging materials like boxes, bubble wrap, and tape may seem like small expenses, but they add up over time. Using the wrong packaging materials can also damage products and result in additional costs for replacements or returns.
While adequate packaging protects your products during shipping, it shouldn’t add unnecessary weight or size to your packages. Use lightweight, eco-friendly, and durable materials, like poly mailers, padded envelopes, or corrugated cardboard boxes, to save on shipping costs and reduce your carbon footprint.
What else do you need to consider with shipping costs?
Besides the basic package weight and dimensions, destination, carrier, and packaging materials, there are a few other factors that can impact shipping costs:
International shipping fees
If you’re shipping internationally, familiarize yourself with customs duties and taxes that may apply to your shipments. These fees, which vary by country and the type of goods being shipped, will impact your shipping costs and potentially affect the final price for your customers.
To give you a better idea, let’s compare domestic versus international shipping costs for the same package:
- New York City, NY to Sacramento, CA: $18.40
- New York City, NY to London, UK: $82.30
As you can see, international shipping costs significantly more than domestic. So be sure to research these fees beforehand and communicate them clearly to your customers to avoid surprises. It’s also good to compare international shipping rates between carriers to find the best deal for your business.
Free shipping
A free shipping strategy is a widely used tactic to incentivize customers to purchase and increase sales. However, it can also hurt your profitability if you don’t plan and implement it carefully.
Pros of free shipping:
- Increased sales and conversions: Customers are more likely to purchase when they see free shipping, as it lowers the overall cost of their order, boosting sales and conversions.
- Competitive advantage: Today, customers expect free shipping as a standard, and businesses that offer it have a competitive advantage over those that don’t.
- Customer satisfaction: Free shipping creates a more positive shopping experience and increases the likelihood customers will return for future purchases.
Cons of free shipping:
- Lower profit margins: Offering free shipping means absorbing the cost, which can significantly impact your bottom line and profitability, especially if you’re a small business.
- Misaligned expectations: Customers may expect free shipping for all orders, regardless of size or destination, leading to misunderstandings and negative reviews.
- Inflated prices: To offset free shipping costs, you’ll likely need to raise your product prices.
To incorporate free shipping into your pricing model without losing profitability:
- Calculate the break-even point: Determine your average order value and shipping costs to see if you can absorb the cost of free shipping. If not, consider a minimum order threshold for customers to qualify for free shipping.
- Negotiate with carriers: If you have a high volume of shipments, you may be able to negotiate better shipping rates with carriers, reducing the cost of offering free shipping.
- Test different strategies: Find the right balance between offering free shipping and maintaining profitability by testing different pricing models and strategies.
Flat rate fees
Flat-rate shipping is a pricing model with a fixed fee for all orders, regardless of package weight, dimensions, or destination. It’s a simple option for sellers and customers, as no calculations or surprises are involved.
Flat-rate shipping can be beneficial in certain scenarios:
- Shipping bulky or heavy items: For businesses that primarily sell large, heavy, or oddly shaped items, flat-rate shipping can simplify the process and make it more cost-effective for both parties.
- Shipping to remote or rural areas: Shipping costs can be unpredictable and expensive in these areas. Offering flat-rate shipping can help customers in these areas feel like they are getting a fair deal while still ensuring profitability.
Shipping insurance
Shipping insurance helps protect against potential financial losses if a package is lost, stolen, or damaged during transit. While carriers do their best to ensure safe delivery, accidents can happen, and without insurance, the seller is responsible for covering any losses.
Whether or not you purchase shipping insurance will depend on the items’ value. It may not be necessary for lower-priced items, but it’s a smart investment for high-value or fragile items. You may also want to pay for insurance when shipping to an area with a higher risk of theft or damage.
How Red Stag Fulfillment can help you ship smarter
Accurate shipping costs are essential for boosting profitability and providing a stellar customer experience. But there are many factors that influence how much you’ll have to spend, from package weight to shipping destination to the carrier used.
As a leading order fulfillment provider, Red Stag Fulfillment simplifies shipping cost calculations and helps ecommerce businesses ship smarter.
- Thanks to our volume, we can negotiate below-market shipping rates.
- Our integrations with major ecommerce platforms automate shipping cost calculations so you can confidently determine accurate shipping costs.
- We use optimal packaging for each order and offer various shipping options to fit your business needs and budget.
If you want to simplify your logistics and hand off order fulfillment to a trusted partner, we may be able to help. Get in touch today to start a conversation.
