How to calculate the shipping cost and Why is it important?

Probably the important aspect during online shopping that grabs a customer’s attention is “free shipping”. However, shipping is not free of cost for retailers. We need to manage several aspects and shipping management is one of the most crucial ones for any business. It includes keeping an eye on the shipping costs based on certain factors and parameters. This, in turn, makes it possible to sell products to the customers in the most affordable way possible. Today, in this blog, we will learn about all the parameters necessary for calculating your shipping cost and the steps that determine your shipping cost apart from the basic parameters.

Why calculate shipping costs?

In the retail business, there are lots of hidden costs associated with the items that we don’t generally take into account. Estimated shipping costs is one of them. While individually, shipping costs may feel negligible but wholesome, it’s a hefty amount to pay.

By calculating it, we can deduce the absolute profit margin between the sales price and the purchase price of the product. If we don’t take estimated shipping costs and product handling charges into account, maybe on paper we are profiting, but in reality, we are facing our doom.

One of the quickest calculating ways used today is to use a shipping calculator. It automatically generates the total amount of sending the parcel to the determined destination with the help of set parameters. So let’s take a look at the parameters that are necessary for calculating the shipping cost.

Shipping Cost Deciding Parameters

Shipping Cost Deciding Parameters

The estimated shipping cost can be calculated based on the physical parameters as well as business parameters. In this section, we are going to understand the physical parameters of the product that is also the deciding parameter that contributes to the shipping costs. These parameters are:

  • Size/Dimensions
  • Weight
  • Destination Details
  • Different Carriers
  • Packaging/Packaging Material

 

Size/dimension:
The physical dimension of your product matters. You pay for the amount of space you occupy during shipping. On top of it, if the item is brittle in nature, the cost of handling the product also gets reflected in the final shipping cost too.

Weight:
The second important physical parameter is the weight of the product to be shipped. Based on its weight, a heavy item is likely going to cost you some more bucks to get it shipped.

Destination Address:
The product end destination matters for calculating the estimated shipping cost. Places that are not readily accessible by the shipping carrier are deemed to cost more. This is because the destined delivery address doesn’t fall in the set route/path of your carrier’s usual route. 

Distinct Carriers:
There is an oligopoly in the shipping business. As such, there are many different options in choosing the appropriate carrier who charges reasonably. You can try carriers like UPS, USPS, FedEx, etc. which ships in US/Canada.

Type of Packing Material:
Packing of delicate material needs foam and bubble wrap along with the normal cardboard box packages. Those things don’t come cheap. The choice of packing material has a decent impact on the shipping cost of the product.

Steps to calculate Shipping Cost

Your delivery time

The delivery method that you choose for your customers also impacts your final shipping cost. Some customers are willing to wait patiently for their product to arrive. Others might need the product earlier.

Depending on the scenario, you can either offer a standard or a two-way delivery.

Estimating your Costs

We already know how much shipping costs can impact our sales profit. It is, therefore, important to have a rough estimate of the shipping costs beforehand. This estimated cost also helps us in choosing the right shipping partner and comparing rates for best values.

Infusion of shipping cost into product cost

Customers don’t appreciate it when you charge them extra for the shipping cost. However, if you are selling a high-value product, you might as well infuse the shipping fee in the product cost. A person who is willing to pay a handsome amount for the product will not mind or notice the slightest of the price difference.

However, this is not the case with low value products. You can’t infuse the cost of $1 product with $1 more and sell it at $2. No one is going to purchase that product.

Think about it: If you always get your favorite bottle of hair oil for $5 and you see it’s offered for $10, you are more likely to look elsewhere before even noticing that shipping is free.

Indirect handling costs

A common misconception that retailers have is that shipping costs only comprise the cost of shipment of products from your warehouse to the customer location. However, it’s more than just that!

Indirect handling costs

Your product handling cost must also be a part of your shipping cost. In addition to labor staff, indirect costs include infrastructure, forklifts, conveyors, warehouse management, taxes, utilities, office supplies, insurance, licensing.

The way you calculate the indirect handling cost is by using the mean value. For example, your total monthly operational fees come to $5,000, and you ship 1,000 orders per month, your per-order handling cost comes to $5.

But to save you all this trouble you can use a shipping calculator instead to save your time, efforts, and money. The shipping calculator will also allow you to compare the prices of the same parcel offered by different shipping carriers.

Conclusion

Shipping your product is a critical part of your overall eCommerce business. Calculating it precisely gives you more room for better shipping strategies to maximize your actual profit. I hope you find this article useful as to how to better calculate your shipping cost and maximize your profit. If you have any questions regarding shipping costs, please feel free to write down in the comments section down below.

Krishna
WRITTEN BY

Krishna

Krishna Jani is a content specialist with 10+ years of experience in the field. Presently working as a professional writer for Orderhive, no.1 inventory management software that powers several businesses all across the world. She is an avid birder and nature lover who loves to explore national parks and wildlife sanctuaries during her leisure time.

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