Cost of shipping: How to determine shipping costs when selling online

Fulfilment costs are an integral part of running an online business. They will also be one of your biggest expenses. Balancing 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.

What are shipping costs?

Fulfilment 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:

• Packaging equipment to get it there safely
• Paying yourself, staff or third party logistics to pick and pack the order
• Courier fees for pick up and delivery (based on weight, location, dimensions)
• Customs fees and taxes
• Postage for simple returns (if that’s something you offer)

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.

Why is calculating shipping costs an important step?

98% of shoppers say that the delivery experience impacts their loyalty to a brand.

That means that if shipping is:

• Too expensive
• Too slow
• Unclear

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.

How to determine a shipping costs and handling strategy

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.

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.

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!

What's the best way to charge for eCommerce shipping?

Flat rate shipping

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.

Two-day shipping

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!

Free shipping

Amazon largely paved the way for free shipping expectations. Recent research found that 56% of Americans expect free shipping these days!

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.

Potential hidden costs in your ecommerce shipping charges

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.

Shipping insurance

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.

Duties and taxes

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.

Surcharges

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.

Weight & Dimensions

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 vs International

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.

Customs and taxes

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.

Undelivered or Return to sender

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.

Declared value

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!

Fuel surcharges

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.

Calculate shipping and handling costs in 3 steps

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!

Determine your delivery time

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.

Get estimated costs

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.

Determine if any shipping costs will be factored into the product cost

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.

Take home message

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.