Written by David Renwick
Shipping costs are an integral part of running an eCommerce business. They will also be one of your biggest expenses.
Balancing shipping costs with your customer expectations is one of your first hurdles in eCommerce. For around 70% of consumers, convenience and free shipping are the biggest online shopping incentives.
In this article you’ll learn what shipping costs are, why it is important to calculate accurate shipping costs, hidden costs to look out for, and three steps you can take to calculate shipping and handling in your eCommerce business.
Shipping costs cover every step between someone placing an order and getting it to their door.
Your shipping costs cover more than the price of postage. You also need to budget:
This is why it is so important for eCommerce businesses to 1) estimate accurate shipping costs and 2) balance affordable shipping for customers versus making a profit.
98% of shoppers say that the delivery experience impacts their loyalty to a brand.
That means that if shipping is:
Then nearly 100% of online shoppers will shift their loyalty. It's also natural that retailers will see "How much does shipping cost" come through as a fairly common query.
Calculating the cost of shipping in a way that is simple for the customer means you will convert and reconvert a lot more customers over time.
It also means that you will not lose money by undercharging on postage. Everybody wins when you calculate postage costs accurately.
To start off your shipping calculations, you’ll need a plan. Without one, you run the risk of disappointing customers and losing a lot of money over time. Ask yourself the questions below to come up with your eCommerce shipping and handling strategy.
When you start your eCommerce business, you are probably fulfilling orders yourself. You need to ask yourself how much you are actually capable of shipping in a single day or week. Otherwise you could end up disappointing customers!
For example, if you are packing orders at night, you likely won't be able to offer same day shipping. You will need to ask how much you can realistically ship by yourself, especially if you are organising shipping manually.
Where you are and how much you are shipping will determine a lot of your shipping costs. For example, if you are only shipping domestically, you can probably do flat rate shipping without losing too much money over time. If you are shipping overseas, you will need to start looking at international courier partners.
This complicates your shipping quite a bit because each courier will have their own rates and rules. Automation will be your best friend if you are shipping to multiple countries.
You also need to consider what it is you are shipping. Products like perishables and delicates may increase shipping costs through packaging materials, customs documents, taxes, and shipping insurance. If you have varied product orders, this will also change the weight and dimensions of parcels instead of having default packages.
Finally, the technology or software you use to plan your shipping costs will make a big difference. Doing everything manually is OK if you only ship a couple of parcels a week, but you should make a plan with the intention of growing.
Starshipit automates all of your shipping costs and helps you send more parcels with less errors. In other words, you’ll have the most satisfied customers on the market!
Speed is another factor – especially for your customers. In fact, one recent study found that 65% of people would pay higher freight costs in order to get their orders faster! Consider speed ( and the associated express postage costs) as part of your overall shipping strategy.
Flat rate shipping is when you charge the same amount for every single order. This works if most of your orders have the same weight and dimension, and you mostly ship to the same geographical locations (e.g. domestic).
You might still adjust the flat rate for rural parcel post or international orders.
Basically, a flat rate covers the average cost of all the steps outlined above involved in shipping and handling.
This method is a simple way to get started, however you may lose money over time.
Calculating accurate shipping costs at checkout with a shipping app like Starshipit means that customers can choose the best option for them.
With more people ordering online than ever before, there is a certain expectation of express shipping. 27% of customers expect parcels to arrive before 48 hours if you promise “fast” delivery, and 40% would expect it by 48 hours.
You will need a shipping integration that calculates shipping at checkout for this option. A flat rate would not account for the extra costs of fast delivery.
If you are going to offer same day or next day delivery, make sure your courier partners can actually deliver on the promise!
While it is easy for customers, and increases the number of funnel conversions, you still need to cover the cost of shipping prices yourself
If you are still starting out but want to offer free shipping you could set up a payment threshold. 24% of consumers would spend more to get free shipping. This could be a way to offer it while increasing the average purchase amount for each customer.
When you estimate your shipping costs, there are a few hidden costs that could drive up the price. When you are calculating any shipping charges or shipping fees, you will need to balance your customer experience with your overall profit and expenses. Do this now to avoid surprises when reviewing the financial statements.
A recent study showed that 5-15% of all orders get lost or damaged in transit. Giving customers the choice of shipping insurance cover and signed delivery can save you money on replacing items or organising returns.
In general, customers are responsible for paying shipping taxes on international orders. This is usually included in the cost of shipping, however you may wish to subsidise the price of this for better customer shipping prices. For example, if you ship to Europe, you can pay VAT taxes on behalf of customers on orders up to $150. Make sure you know what your obligations are before you start shipping internationally.
You may want to consider any surcharges when you price your shipping. Couriers charge more for things like rural delivery, undelivered parcels, customer signatures, fuel surcharges and international taxes. You should especially consider these when you charge a flat rate on all orders.
You will of course need to consider how much your couriers charge for different weights and dimensions. Most carriers will have default prices and package sizes, so you will need to figure out if your orders fit inside the regular sizes or not.
For Shopify shipping prices, you can update your “default” package size to reflect the average cost of shipping. The weight is usually more important than the dimensions for shipping prices.
Domestic and international parcels will have very different pricing. The easiest way to estimate this without losing money is to automatically calculate shipping at checkout.
With Starshipit for example, you can offer your customers a range of shipping options at checkout such as table rates, instead of charging blanket shipping rates that might be perceived as steep by your customers.
The price is determined by your courier partners (e.g. DHL for international, Aramex for domestic) and is connected with API technology. That way you know shipping will always be accurate for both you and your customer.
Due to things like foreign taxes, undelivered parcels and fuel surcharges, international shipping charges will usually be more complicated for your ecommerce store. Here are a few things to consider when calculating international shipping charges.
In general, customers are responsible for paying shipping taxes. This is usually included in the cost of shipping, however you may wish to subsidise the price of this for better customer shipping prices. For example, if you ship to Europe, you can pay VAT taxes on behalf of customers on orders up to $150. Make sure you know what your obligations are before you start shipping internationally.
If an order doesn’t reach its destination, you still need to pay for customs charges. You either have to pay to have it shipped back or declare it abandoned. Both of these options will cost a lot more than the original shipping and likely result in very unhappy customers!
Using a shipping integration like Starshipit will reduce issues like this as it automatically fixes addresses and prints legible labels for you.
In some countries, orders over a certain amount will trigger extra tax charges. You might run into this problem if you start doing wholesale orders for example. Before shipping, it is a good idea to know the rules for the country you are shipping to. Neither you nor your customer want to be slapped with a surprise bill to get it across the border!
The international fuel market can be extremely volatile. This can change your intentional shipping fees basically overnight! Unless you are shipping huge quantities, a flat rate for international shipping will probably lose you a lot of money over time. Table fees at checkout will reduce this, and in some cases you can negotiate better delivery prices with your international carriers.
Ready to start shipping? Here are 3 steps to calculate how much it will actually cost to ship a package. Remember that ultimately the price will be determined by your individual carriers so it’s important to research the best ones for your locations!
How fast do you want customers to get their orders? Does your eCommerce store sell essential everyday items that people need quickly? Login in to your courier partner accounts and see how much they charge for same day, overnight and two day delivery. You can play around with offering customers the choice at the checkout and how much they are willing to pay to get it there quickly.
You might think that it is cheaper to have all shipping with one aggregated courier service. In general, it is actually cheaper to use different services for different locations and distances.
Add up the secondary costs of shipping (e.g. packing materials, paying your workers, return shipping) and estimate what your average flat rate is. If you don’t have a shipping calculation at checkout, you can at least give customers an estimate before they hit purchase.
If you are worried about having too many accounts to login to, consider getting shipping software like Starshipit where you can do everything in one dashboard once your API keys are integrated.
You might not have enough orders to offer free shipping. However, people expect free shipping these days. If you want to subsidize costs for customers, you could add some of the cost into the product itself or have a “free shipping spend threshold”.
As you grow, you may absorb some of the costs of handling (e.g. warehouse management, software upgrades) into the cost of the product itself rather than the shipping costs.
Want simple shipping calculations for your eCommerce store? Starshipit is the answer. With Starshipit, customers can get accurate shipping prices as they checkout so there are no hidden costs or surprises for either of you.
Our plug-and-play system lets you use your existing couriers and do everything in one dashboard. Easy! You can focus on manufacturing a product, and we'll focus on the shipping.
Ready for the simplest eCommerce shipping solution ever? Book a call with our Success Team to help you ship the smart way, so you can grow faster.