Did you know that 61 percent of online shoppers want faster delivery when they shop online? While every ecommerce merchant would love to offer inexpensive shipping, even free shipping options, at what costs can you offer those types of shipping options?
Every ecommerce business owner wants to provide the best ecommerce shipping options to customers, that’s a well known fact. However, won’t these shipping costs cut into your profit margins? This is why it’s essential to know and manage your shipping and logistics costs, owners know they must keep their online business profitable. So, what do you do?
In this article, we’ll cover:
- All the different factors that play a role in your shipping rates
- How to calculate shipping costs from three major carriers
- Fulfillment’s role in shipping and warehousing
- How to reduce shipping costs using a 3PL
How To Calculate Shipping Costs
Shipping costs vary depending on a variety of factors, from package measurements, shipment type, weight, location, and more. Once these variables are calculated, a carrier will put a price on your shipment and your item is sent to the customer.
In ecommerce fulfillment, shipping is always a core pillar in the process. Companies that work with fulfillment centers partner with them to help reduce shipping costs, another other things of course. Today, we’re diving deep into shipping costs.
There’s 6 factors that can affect your cost of shipping for your ecommerce store.
(1) Package Dimensions
Here at Thill, we love talking dimensional weight. All of the top carriers use a pricing strategy that is known by dimensional weight (DIM Weight). DIM weight is used to calculate shipping rates. Dimensional weight takes into account the size of a package to determine how much that package will costs to ship.
DIM weight is calculated by multiplying the length, width, and height of the package, then dividing by a standard DIM divisor. Shipping carriers like USPS, FedEx, and UPS calculate shipping charges based on whichever is greater: the actual weight of the package or its DIM weight. Whichever is higher becomes the billable weight for which your business will be charged.
(2) Package Weight
The weight of a package is how heavy the package is, you don’t need a DIM divisor or a calculator of any type. Just as we said earlier, if the number is higher than the DIM weight, that will be the number used to calculate shipping costs. The larger and heavier the package is, it’s going to cost more money to ship.
(3) Shipping Destination
The major carriers use shipping zones to calculate shipping rates. Shipping zones measure the distance between a package’s point of origin and its final destination.
Here in the United States, shipping zones can range from Zone 1 to Zone 8.
Shipping zones are calculated based on the location where the package is shipped. In this case, you can have 2 different points of origin shipping to the same destination, but the shipping zones are completely different.
As a general base rule, the higher the shipping zone, the more money a package is going to cost to ship out.
(4). Value Of Contents Being Shipped
If you’re shipping expensive high-end products, you’ll likely want to make sure your shipment is insured. Shipping insurance generally offers reimbursement to senders whose parcels are lost, stolen, and/or damaged in transit. While it’s needed and useful, the service can greatly add to your shipping cost.
On the other side, if you’re buying a high-valued product, you likely want to make sure it’s insured. If you’re a merchant that sells high-end products, insurance is going to be a factor in your shipping at all times. If you don’t offer insurance on the products you sell, customers may not purchase from you.
(5) Delivery Times
While we’ve covered shipping zones and how they influence shipping costs, delivery times are another factor you have to consider as it pertains to shipping costs.
Shipping has always been a big influence to customers buying from a particular brand or not. Amazon Prime changed the game of shipping forever, now customers expect fast shipping everywhere they shop online. While that can be great for a business owner that offers super fast shipping, it could hinder your growth if you can’t meet customer’s expectations.
If you’re shipping from only one location, fast, premium shipping gets more expensive as shipping zones get higher. For example, 2-day shipping to a customer in Zone 1 could be done through ground shipping; 2-day shipping to Zone 8 would likely require more expensive expedited air shipping.
If you don’t have multiple warehouses to distribute product, you may want to consider partnering with a 3PL that has strategic warehouses across the country.
(6) When Unexpected Problems Show Up
You can have the best shipping strategy in the world, second to none, but unexpected issues will raise their ugly head. It’s going to happen. This could be delayed transit times, split shipments, or lost or damaged items. While you’ll never be able to predict what will happen, you can plan for it ahead. You always want to leave some room in your shipping budget in case an emergency should arise.
Shipping Cost Calculators For Shipping Carriers
Each carrier takes many of the above factors into account to offer different shipping pricing models. Here are the pricing models and calculators for three of the major US carriers: USPS, FedEx, and UPS.
USPS Pricing And Shipping Calculator
Out of the 3 most common carriers, it’s USPS that is often the cheapest service, mainly thanks to their affordable ground shipping. Since they’re running routes daily, USPS already delivers to your end customer daily and they don’t have to go out of their way to do so.
In January 2019, USPS merged their two business pricing models (commercial plus and commercial base) into one: that being called Commercial Pricing. Commercial pricing provides shipping discounts, some up to 15% off retail shipping and postage prices. If you’re interested, you’ll need to apply for this pricing model through USPS.
To calculate USPS shipping costs, use this price calculator.
FedEx Pricing And Shipping Calculator
Just as other carriers, FedEx uses dimensional weight to calculate shipping prices. This shipping carrier offers a number of different delivery speeds, from ground to overnight, even same-day shipping.
While a lot of you may not realize this, FedEx has a program called FedEx Small Business, it’s designed to help growing companies that need a solution for shipping. Included is a solid rewards program and the Packaging Help Hub for advice and tips, but FedEx Small Business members also receive discounts on select shipments, some that could be as high as 16%.
To calculate FedEx shipping rates, use this FedEx Rate Finder tool.
UPS Pricing And Shipping Calculator
UPS also calculates shipping costs based on dimensional weight. Different UPS shipping options use different pricing models, ranging from UPS Ground to UPS 3-Day Select or 2nd Day Air.
Depending on the shipping option, small businesses can access shipping discounts through the UPS Connect, including 20% off air and international shipments and 10% off ground.
For the most accurate UPS pricing estimates, be sure to use the UPS shipping calculator.
Comparing Shipping Costs
For a better idea of rates across carriers, here is a comparison of retail shipping costs.* For this example, we used a product approximately the size and weight of a smartphone shipping from Los Angeles to New York City.
*This table is for illustration purposes only and is not reflective of Thill’s pricing. Shipping costs will vary based on carrier, seasonality, dimensional weight, package weight, products shipped, and a variety of other factors. Please reach out to our team to learn more about Thill’s pricing.
Ecommerce Shipping Costs Examples
As it pertains to ecommerce shipping costs examples, we wanted to give you a basic example you can use for yourself (like a mockup).
Let’s say you’ve found a service that is going to ship your product. What do you need to be thinking about?
Well, truth be told, it’s all about your profit margins. You want to keep them as high as possible, right? Below, we’re going to us an example of ecommerce shipping costs with a 50% profit margin.
- Cost Of Goods Sold – $30.00
- Shipping Fee – $3.00
- Packaging Costs – $0.75
- Credit Card Processing – $1.00
- Total Costs – $34.75
- Original Profit Margin – 50%
- Price To Sell At – $69.50
Be sure to copy and paste that, you can use it by plugging in your own numbers and calculating everything together to get the profit margin you need.
How Small Businesses Can Reduce Shipping Costs With A 3PL
For growing businesses that are looking to reduce shipping costs, partnering with a third-party logistics (3PL) provider can make a huge difference in your shipping costs.
Outsourcing shipping to a 3PL can help ecommerce businesses leverage shipping discounts not available to those who fulfill orders in-house. Thill Inc. is a 3PL that helps ecommerce merchants meet customer expectations and grow their business without breaking the bank.
The Power Of Fulfillment
Shipping your items from a solo ecommerce fulfillment center is great for customers that live close, but customers on the other side of the country will still have to wait longer or pay for expedited air shipping.
Splitting inventory between multiple fulfillment centers lowers the distance each order has to travel. Thill’s network of fulfillment centers in major US cities can help keep your inventory close to your customers.
Discounted Rates Add Up
Many ecommerce businesses don’t ship enough to receive volume discounts directly from the carriers. Because 3PLs manage shipping for hundreds or even thousands of merchants, the cumulative volume qualifies for discounts from major carriers. These discounted shipping costs can then be passed directly to clients. Thill Inc. offers discounted rates.
Splitting inventory between multiple fulfillment centers lowers the distance each order has to travel. Thill’s network of fulfillment centers in major US cities can help keep your inventory close to your customers.
It Can Save You Time
That old saying most of you have heard at some point in your life, it’s true, “time is money and money is time.” Shipping tasks can take up a lot of time blocks in your calendar. By outsourcing shipping, it can give you time back to focus on the activities that matter most in your company, like growing and scaling your business.
If you’re the one spending time packaging items, driving to the post office and waiting in line, or if you’re paying someone to do it, you’re missing on those rare opportunities to focus on growing your customer base, market your business, develop new products, launch new products, and more.
Your time is priceless and what you mean to your company is invaluable. The last thing that should have your attention is shipping.
Common FAQs Regarding Shipping Cost Calculation
We get a lot of different questions, our clients are asking questions, our readers are asking questions. And yes, a lot of those common questions are focused around shipping cost calculation.
Here’s 8 of the most common questions we’re asked about the costs of shipping.
1. How do I calculate shipping costs?
The most common way to calculate shipping costs is by taking measurements of the products before you sell them. You’ll need to measure the weight and dimensions of the package. The shipping charge is automatically calculated based on the package measurements and the customer’s location.
2. How do I calculate dimensional weight?
To calculate dimensional (DIM) weight, multiply the length, width, and height of a package, using the longest point on each side. Then, divide the cubic size of the package in inches by the DIM divisor to calculate the dimensional weight in pounds.
3. What is the cheapest way to ship?
If you’re shipping an item under 2 pounds, USPS will likely be the cheapest way to ship. If you’re shipping an item over 2 pounds, UPS Ground or FedEx Ground is usually cheaper than USPS Priority Mail.
4. Can I ship flat rate?
Yes you can, carriers such as USPS offers flat-rate shipping, just make sure your item fits their pre-measured boxes.
5. How do I calculate shipping costs for USPS?
You can use the USPS shipping price calculator to calculate the shipping cost of sending a package with the United States Postal Service. If you are a ShipBob customer, you’ll get automatic discounts when shipping with USPS.
6. How do I get shipping discounts?
Shipping with a third-party logistics provider such as Thill Inc. can help you get significant discounts off of major carrier services. If you want to learn how big those discounts can be, be sure to reach out here.
7. Which is the cheapest carrier to ship with?
While all of the carriers have their pros and cons, it would likely be USPS that is the consistent best-value shipping carrier. As we explained above, dimensions and location matters, as well as the weight of your package.
8. How much does USPS charge per pound to ship?
While all of the carriers have their pros and cons, it would likely be USPS that is the consistent best-value shipping carrier. As we explained above, dimensions and location matters, as well as the weight of your package.
| First Class Mail Letter (1 oz.) – Retail/Post Office Rate | $0.55 |
| First Class Mail Letter (1 oz.) – Metered Mail/Stamps.com Rate | $0.50 |
| First Class Mail Letter – each additional ounce | $0.15 |
| Postcard | $0.35 |
| First Class Mail Flat (1 oz.) | $1.00 |
| First Class Mail Flat – each additional ounce | $0.20 |
| First Class Mail International Letter | $1.20 |
| Priority Mail Express (0.5 lb., zones 1&2) | $22.75 and up |
| Priority Mail (1 lb., zones 1&2) | $6.95 and up |
| First Class Package Service (1-6 oz.) | $2.74 and up |
| Parcel Select Ground (1 lb., zones 1&2) | $6.92 and up |
| Retail Ground (1 lb., zones 1&2) – Retail/Post Office Rate Formerly Parcel Post and Standard Post |
$7.50 and up |
*Rates as of January 26th, 2020 – We’re not responsible for changes, please call the USPS to ensure an accurate estimate.
