How do you figure out shipping costs? Which carriers offer the best rates? Is it worth choosing flat-rate shipping or free shipping? How do shipping carriers and websites calculate shipping costs, anyway?
You’ve got questions, and we’ve got answers. In this blog from 121eCommerce, we’ll be taking a look at a few top FAQs that new eCommerce entrepreneurs often have about shipping their items to customers. Without further ado, let’s get into it!
So, how do you figure out shipping costs? That’s a great question. Properly calculating shipping costs is essential for profitability in eCommerce. Charge too little, and you’ll end up eating those extra shipping fees. But if you calculate shipping costs incorrectly and they’re too high, you could lose out on customers.
There are a few different things that go into calculating shipping costs. One of the first things is delivery time. As a rule, faster shipping is more expensive – and vice-versa. If you’re looking to save money on shipping, the cheapest shipping method is usually going to be the slowest. Because of this, it’s a good idea to offer customers the option of slower (yet cheaper) shipping, as well as faster (but pricier) express shipping options.
The next thing to consider is the shipping carrier you choose, and the overall weight or DIM (Dimensional Weight) of your package. All major carriers (UPS, USPS, FedEx, etc.) will offer slightly different rates. However, they all use the weight or DIM of your package to calculate how much it will cost to ship.
Weight is straightforward. The more an item weighs, the more it costs to ship. Simple, right? Well, that’s where DIM comes in. DIM is a measurement consisting of Length x Width x Height. If the DIM exceeds the weight of the item, it will be used to calculate the cost of sending it.
Basically, DIM takes the volume of the item into account. If your item is very lightweight but is in a huge, bulky box, it takes up just as much space in a truck as a heavier item would – so it will cost just as much to ship as that heavy item would.
Finally, you may want to think about adding an extra fee to cover the cost of fulfillment. If you’re a solo entrepreneur, this could cover costs like packing tape, boxes, and other packing materials, as well as gas to drive to and from package dropoff points. As you scale up, this may include things like the cost of 3PL (third party fulfillment) services, inventory management systems, and other such costs.
Put all of these things together, and you’ll easily be able to calculate shipping costs for your eCommerce store.
If you’ve ever shopped online, you’ve probably seen websites that have a live, real-time shipping calculator on their product page or checkout page. Below are a couple of examples from J. Crew and Amazon:
So, how do websites estimate shipping? The answer is simple – APIs (Application Program Interfaces). Basically, this is a type of software interface that allows two applications to “talk” to one another.
USPS, for example, has an API. Integrating this into your website allows you to access real-time shipping rates for various USPS delivery methods, such as First Class packages. These can be displayed on an eCommerce website in real-time – with rates customized based on factors like the ZIP code of the customer, their preferred shipping time, and the weight and/or DIM of their order.
Most modern eCommerce stores have support for these APIs. Adobe Commerce (Magento), for example, has out-of-the-box compatibility with USPS, UPS, DHL, and FedEx. It takes some technical skill, but Adobe Commerce (Magento) can quickly be set up to calculate real-time shipping rates for your customers using the appropriate APIs.
However, some eCommerce entrepreneurs prefer to turn to third-party companies like Shippo. Using third-party software simplifies the process of estimating shipping on websites, and platforms like Shippo are compatible with most modern eCommerce platforms.
If you’re not opting for flat-rate or free shipping, we highly recommend setting up your eCommerce website to use carrier APIs to estimate shipping. This provides your customers with full transparency about shipping costs, and lets them choose the method that’s right for their budget.
It makes things simple for you, too – customers pay precisely the cost of shipping, and you don’t have to do the calculations yourself.
You may be wondering how to save money on shipping, particularly if you’re providing free shipping or flat-rate shipping. What is the cheapest shipping method? Well, the answer is “it depends.”
The cheapest shipping method varies depending on what you’re sending, where it’s going, how much it weighs, and all of the other factors we’ve discussed above. That’s why we recommend checking with multiple carriers before sending your packages.
As a rule, though, the USPS offers the lowest shipping rates for most types of packages. Here’s an overview of what you can expect to pay.
Flat-rate shipping is used by lots of eCommerce entrepreneurs. In this method of shipping, you only charge a certain rate for every order – such as $5. This shipping fee remains the same whether a customer orders $10 of merchandise or $1000 of merchandise.
This does have some benefits. First, it helps reduce the cost of shipping. Even if your customers aren’t paying the full cost of shipping, they’re still covering part of the cost. They still perceive this as a discount, too – which can encourage them to make a purchase. They also may add more items to their cart, since their shipping costs will remain the same no matter how much they buy.
However, some customers may still not want to pay shipping fees at all, and may prefer free shipping. In addition, flat-rate shipping can discourage smaller orders. A customer who would only be spending $10 may be less likely to complete their purchase if they have to pay $5 for shipping.
Generally speaking, we recommend using flat-rate shipping if your customers tend to place higher-value orders. It’s also a good option for stores that sell items that are mostly similar in shape, size, and weight. If you mostly sell similar items, this makes it easier to calculate the proper shipping rate, and helps keep costs under control.
As you may already know, “free” shipping isn’t really “free” for eCommerce stores at all. In this method of shipping, customers don’t pay a cent for the cost of shipping. You have to cover the entire cost of sending their order.
This may not sound like it’s worth it. But, in many cases, it is. Free shipping is one of the best ways to get customers to pull the trigger and buy your items. 90% of customers say that free shipping is the “top incentive” that will make them place an order online. In addition, a 2021 survey found that 49% of customers said that “extra costs” such as shipping, taxes, and fees were their top reasons for abandoning their purchase.
So, even though free shipping will cost you a bit of money compared to flat-rate or standard shipping, these benefits are worth it. And there are other ways to minimize the cost of offering free shipping, too.
Most eCommerce entrepreneurs simply raise their prices slightly to “hide” the cost of shipping. For example, if an item’s price is $25 and it would cost $30 to ship, you could raise the cost of the item to $30, and offer free shipping. This sounds strange, but it’s effective. Because there are no “surprise” fees at checkout, customers are more likely to buy the item – even if it may be a little more expensive.
Another option – and one that’s used by the majority of stores – is to offer an order minimum for free shipping. For example, you could charge $5 flat-rate shipping for orders under $50, but offer free shipping for orders above $50.
Doing this helps keep shipping costs under control. It also encourages customers to buy more products from your store. It makes sense, if you think about it. If they’re spending $40 and paying $5 for shipping, why wouldn’t they just add another item to their cart to reach that $50 threshold, and get their items shipped for free?
Shipping is a big part of any eCommerce business. Now that you know a little bit more about how shipping costs are calculated and how websites calculate shipping, you’ll be able to use this information to build a more competitive eCommerce store.
Need more help with your eCommerce store? Interested in tips to help you maximize conversions and build a better business? Take a look at the 121eCommerce blog now. You’re sure to find some guides, advice, and strategies that will help you build a successful eCommerce business.