How to Calculate Shipping Cost
In the world of eCommerce business fulfillment and online shopping, it's important to calculate more than just the price of the products you're shipping to customers. Because of the nature of online shopping, it's also necessary for eCommerce businesses to calculate costs for storage facilities, special packaging, and shipping services, to name a few.
There are different ways to calculate shipping prices depending on a variety of factors, such as the carrier, package dimensions and weight, and shipping point and destination. A shipping cost calculator or shipping cost comparison table can be a helpful resource to estimate shipping costs, and working with a 3PL (third-party logistics) provider can decrease some of the pressures of shipping and reduce shipping costs. However, it's important to know that the carrier will determine the final shipping charges, not the 3PL provider.
Each shipping carrier charges differently, so it's critical to remember that what one carrier does is probably different from another. You should research carriers in advance to get a feel for their shipping prices and what they're like as business partners before shipping with them.
In general, though, carriers calculate the final shipping cost based on six factors: package measurements, package weight, value of shipment contents, shipping destination, delivery times, and unexpected issues.
Package measurements
Most carriers use a pricing technique called dimensional weight (DIM) to calculate shipping rates. DIM weight is a separate variable from the actual package weight and is calculated by multiplying the length, width, and height of the package or box size, then dividing by a standard DIM divisor. Most shipping carriers charge by whatever value is greater: the actual weight or the DIM weight.
Package weight
If the package's own weight is greater than the DIM weight, carriers will adjust their shipping costs based on that number. The heavier and bigger a package is, the more expensive the total cost will be.
Shipping destination
Carriers use shipping zones to calculate the shipping rate. These zones measure the distance between the point of origin and the destination and are calculated based on the point of origin. So, two items that are shipped from different warehouses but sent to the same zone will have different shipping costs.
In the U.S., shipping zones consist of Zones 1-8. The zone numbers depend upon how far away the destination is from the point of origin. The farther away a zone is, the higher the zone number will be, and the more expensive the shipping rate will be. As can be expected, shipping over longer distances--especially distances which require air shipping--can make shipping costs very expensive.
There may be additional costs in the case of international shipping, especially since this goes outside of the U.S.'s shipping zones, so make sure to check with your carrier so you aren't surprised by any unexpected fees.
Value of shipment contents
Some products require special packaging or are time-sensitive, and these factors can affect the final shipping cost because they can change the package or DIM weight, as well as the delivery time. If you have products that are time-sensitive, such as food or medication, this will also affect your shipping arrangements and costs. Using a service like USPS priority mail or 2-day shipping may be prudent in these situations but may otherwise be detrimental to your bank account.
If you're shipping valuable or dangerous goods, you may want to consider getting shipping insurance. This ensures you will be reimbursed in case the shipment is lost, stolen, or damaged. While shipping insurance is helpful, it can get pricey. Consider the benefits and disadvantages of getting shipping insurance before you send out any valuable items.
Delivery times
These days, people expect fast, same-day shipping on online orders. Unfortunately, this type of premium shipping usually leads to more expensive shipping rates. Other factors which decrease delivery time but increase the price tag are the shipping zone numbers, pickup location, and air shipping. As shipping zone numbers get higher, so do shipping costs. While ground shipping may be cheaper, air shipping ensures that products arrive to their correct shipping zone earlier and, consequently, that customers receive their orders more quickly. Depending on your business's needs and how quickly your customers expect their products, you can decide what you want your average delivery time to be and then figure out an appropriate carrier arrangement.
Another consideration with delivery times--and distance--is whether or not you're shipping internationally. International shipping costs differ depending on the carrier and are in their own category of shipping rates. Additional services, hidden fees, and shipping-related charges may apply to international shipping, so be sure to check with your carrier if you plan to ship products abroad.
Unexpected issues
Life is unpredictable, and there's no exception in the world of shipping and delivery. Delays, lost or damaged items, split shipments (when customers order multiple items and receive part of their order before the rest), and other sudden problems can significantly alter shipping rates, so be sure to set aside some funds in case of emergency.
Conclusion
It's important to consider the needs of you and your business before coming up with a shipping strategy. As part of this strategy, decide which shipping carrier you'd like to use and how much you're willing to spend on shipping costs. Consider the options carriers provide and what will save you the most money. For example, choosing a flat rate or USPS regional rate may be cheaper, but only select carriers offer flat rates. In addition, both carriers and the USPS usually require you to use their own packaging, which may limit what you can sell. These options might work well for small items or occasional deliveries, but they may be more detrimental to your business in the end than choosing a more expensive shipping option that allows you to sell more products in packaging you choose.
Running a business can be overwhelming, and there are lots of variables when it comes to calculating shipping costs. A 3PL provider can offer expert advice and make the shipping process run more smoothly, as well as decrease shipping costs. With reduced rates and premium shipping options available, working with a 3PL company may be a good fit for your company if you're looking to save money and reduce the stresses of packaging and shipping orders on your own.