5 Easy Ways to Calculate Shipping Costs for Accurate Sales Estimations

E-commerce store owners often face an uphill battle when calculating shipping costs and keeping them low. Most shoppers nowadays expect fast, affordable deliveries, all the while being free, especially if they are making a large purchase from your store.

However, as a store owner, you must ensure that you provide your patrons with the best possible shipping options and accurately calculate shipping costs to stay competitive in an increasingly cutthroat industry.

In this guide, we’ll explain why estimating logistics and shipping costs is important, 5 ways to calculate costs, tools you can use, factors influencing shipping costs, and much more.

Let’s get started…

Why Is It Important to Calculate Shipping Costs?

An eCommerce business owner needs to know exactly how much shipping costs will be on every sale for a multitude of reasons.

• For starters, not knowing shipping costs will directly impact profitability. If you don’t know how much you are paying for shipping, excluding the cost of the product, you won’t be able to get a firm handle on your profits.
• Secondly, to show customers accurate shipping cost estimates, you must first calculate the costs you incur. Depending upon the package size and the type of goods being shipped, the costs are likely to vary. If you show a misleading shipping cost at checkout compared to what you initially quoted, it could wreak havoc on your company’s goodwill.
• Another important reason is so that you can calculate the threshold at which a customer qualifies for free shipping. If you don’t know your margins and shipping costs, you won’t be able to come up with an accurate figure.

Shipping cost hassles are regarded as the number one reason for shopping cart abandonment. There are many ways to reduce abandonment, and managing shipping costs is one of them.

The bottom line is this: shipping costs matter, and you need to stay on top of them. If you know just how much leeway you can give to a customer, you can set your margins correctly, which will allow you to make profits even when offering free shipping.

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5 Ways to Calculate Shipping Costs

Calculating shipping costs is pretty straightforward. You can do the calculations manually or use tools like online shipping cost calculators.

Most shipping companies, like FedEx, have shipping calculators on their websites. However, it is better to do manual calculations and compare them to the results of online tools just to ensure you don’t miss any hidden costs.

1. Basic Shipping Formula Based Calculation

Shipping Cost to Sales Ratio = Shipping Cost ÷ Total Sales

This straightforward method tells you how much of your sales revenue goes to shipping. For example, if you earned $12,000 in sales this month and spent $1,200 on shipping, you calculate your ratio like this: $1,200 ÷ $12,000 = 0.10, or 10%. So, you’re spending ten cents on shipping for every dollar you make in sales.

2. Order Based Calculation

Shipping Cost to Sales Ratio = Average Shipping Cost per Order ÷ Average Revenue per Order

This method compares shipping costs to the revenue from each order. For example, if you had 150 orders in a month, your total shipping cost was $1,800, and your total sales were $27,000, you can find:

• Average shipping cost per order: For example, $1,800 ÷ 150 = $12
• Average revenue per order: For example, $27,000 ÷ 150 = $180

So, your shipping cost to sales ratio would be $12 ÷ $180 = 0.067, or 6.7%. This means shipping costs account for about 6.7% of each order’s revenue.

3. Weight Based Calculation

Shipping Cost to Sales Ratio = Total Shipping Cost for Weighted Products ÷ Total Sales

This method works well if your products have different weights. For instance, if your shipping costs for various weights total $400 and your overall sales are $8,000, you’d calculate:

• Shipping cost to sales ratio: For example, $400 ÷ $8,000 = 0.05, or 5%

Say you sold 80 units of a 2-pound item at $2 shipping per unit and 30 units of a 10-pound item at $10 shipping per unit. Your total shipping cost would be (80 * $2) + (30 * $10) = $400. With sales of $8,000, your shipping cost-to-sales ratio would be $400 ÷ $8,000 = 0.05, or 5%.

4. Carrier Based Calculation

This method focuses on costs from different shipping carriers. For example, if you spent $600 with Carrier A for local shipments and $400 with Carrier B for international ones, and your total sales were $9,000, you’d figure out:

• For Carrier A: For example, $600 ÷ $9,000 = 0.067, or 6.7%
• For Carrier B: For example, $400 ÷ $9,000 = 0.044, or 4.4%

This helps you see which carrier is most cost-effective for your different shipping needs.

5. Dimensional Based Calculation

Shipping Cost to Sales Ratio = Total Shipping Cost Based on Dimensional Weight ÷ Total Sales

Dimensional weight, or “dim weight,” is used by shipping carriers to determine costs based on package size, not just weight. To calculate dim weight, measure your package’s dimensions, calculate its volume, and divide by a standard dim divisor, often provided by carriers.

For example, if your shipping costs are calculated based on dimensional weight and you spent $700 on shipping oversized packages for the month with a total sales figure of $8,000, the calculation would be:

• Dimensional Weight Cost Ratio: For example, $700 ÷ $8,000 = 0.0875, or 8.75%

This method helps you account for shipping costs that are affected by the size of your packages, not just their weight.

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Tools to Calculate Shipping Cost

If you don’t wanna do the manual calculations yourself, you can always opt for online tools. As I mentioned earlier, shipping companies themselves offer shipping calculators. For example, here is what the FedEx shipping calculator looks like:

Simply enter details in the tool and instantly get the shipping cost.

Similarly, UPS® also has a tool on their website, and almost every shipping company offers one.

Factors that Affect Shipping Costs

Now, there are a bunch of different factors that can affect your shipping costs, and it’s important that you understand them carefully. Once you know which factors will impact your shipping costs, you can work on bringing them down. So let’s have a look at the major factors that can impact your shipping costs.

1. Dimensions of the Package

This one’s pretty straightforward: the bigger the package, the more it’s going to cost to ship. Most shipping carriers calculate their rates using dimensional weight, which is calculated by multiplying the package’s length, height, and width.

A standard divisor is then used to divide the package’s dimensions which I mentioned earlier. Almost all companies like FedEx, UPS, and DHL will give you a quote based on the size of the package, whichever is larger: the dimensional weight or the actual weight of the package.

2. Weight of the Package

Then you have the package weight. If the package weight is higher than the dimensional weight, you will be charged this amount. No further calculations are required.

3. Destination

Where does the package need to be shipped?

Now, this might seem like a broad topic to most, but major shipping carriers don’t complicate matters. Instead, they create what are known as shipping zones. These simply measure the distance between the point of origin and the destination. For instance, shipping zones in the US range from Zone 1 to Zone 8.

What this means is that two packages shipping to the same destination from two different points of origin could be shipping to different zones. Generally speaking, a package will be more expensive to ship if the shipping zone is higher.

4. Shipping Insurance

Another important factor that increases your shipping cost is insurance. For instance, if you run an online jewelry store and ship goods of considerably high value, your goods need to be insured.

Shipping insurance reimburses the sender in case the goods are lost in transit or damaged. It’s an expensive service, to say the least, but it’s an important factor to consider when calculating shipping costs.

5. Delivery Timings

Most shipping companies offer a wide range of shipping options. Companies like Amazon have revolutionized the shipping process by offering fast shipping anywhere in the country. However, Amazon does it by having multiple fulfillment centers. Most ecommerce store owners can only ship products from a single location.

Keep in mind that if you want to ensure faster shipping, you’ll need multiple fulfillment centers. However, quicker shipping will obviously increase costs.

6. Potential Unexpected Shipping Charges

Sometimes, you may incur unexpected shipping costs like re-weigh fees, customs delay fees, or charges for lost or damaged items. Carriers may charge extra if your package’s labeled weight is lower than its actual weight or if it’s large but light, triggering dimensional weight pricing.

Shipping across borders can lead to customs delays if documents are incomplete or incorrect, which may add storage fees. Additionally, lost or damaged shipments can result in costly replacements or re-shipments.

These are some surprises you will eventually encounter as an eCommerce store. The best you can do to minimize unexpected hassles is to ensure proper packaging and consider insurance for fragile or valuable items.

How to Add a Shipping Cost Calculator to Your Site?

Adding a shipping cost estimator to your website is a great way to let your customers know exactly how much they will have to pay for a product, including shipping costs.

Potential customers can enter their address at checkout, and based on the product and whichever shipping partner you’re working with, they can receive an actual amount for which they will be charged.

For example, we offer a web hosting pricing calculator on the Cloudways website to help our customers understand the managed hosting costs they’ll be paying and the savings they’ll receive.

To add a shipping cost estimator feature to your site, you can use a plugin if you have a WordPress site or have this functionality developed from scratch. Since most eCommerce sites are built on WooCommerce, let’s consider the plugin approach.

To add a shipping calculator to your WooCommerce store, you can use the free “Product Page Shipping Calculator for WooCommerce” plugin. This plugin lets customers calculate shipping costs directly on the product page before adding items to their cart.

• To set it up, simply download and install the plugin.
• Once activated, head over to the WooCommerce » Shipping Calculator to configure the settings.

Once you’ve configured the setting to your liking, your customers can calculate the shipping cost on your website. Remember that for this plugin to work properly, you’ll have to set up the shipping zone settings in WooCommerce.

Example of Shipping Costs Breakdown

Having a shipping cost calculator on your site could ease your customer’s decision-making process. If you know that you are offering competitive prices, the shipping cost calculation tool could actually prove to be an excellent way to market your business as well. Here’s a brief look at how the shipping cost estimator will work.

Cost	Amount
Cost of Goods	$30
Shipping Charges	$5
Cost of Packaging	$2
Credit Card Processing Fees	$1
Total Cost	$38
Ideal Profit Margin	50%
Your Ideal Sales Price	$76

*All values are estimations.

You could provide a conventional calculator on your website (without stating the profit margins, of course), allowing an average person to calculate the shipping costs on their own. The biggest benefit of this is that it lets an average shopper know how much they will have to pay for shipping.

Providing a shipping calculator on your website will reduce your shopping cart abandonment rate considerably.

Keeping your shipping costs low is important. We have already talked about how it increases sales and attracts new customers. More importantly, we have also covered how to calculate shipping costs. If you want your business to thrive, you need to keep your shipping costs low.

Another thing that you need to focus on is your web store hosting speed. If your pages take an eternity to load, customers will run away. Make sure you choose reliable hosting for your online stores. You can also use our web hosting pricing calculator to determine managed hosting costs and savings.

Here are a few tips that can help eCommerce store owners save on shipping costs:

1. First of all, instead of spending your money on packaging the product, you can invest it in the production phase.
2. Secondly, now is the time to start looking for regional carriers as they provide the same service at low costs. But you have to remember that their network is limited. So, if your business is small, this would be very beneficial.
3. Lastly, use online shipping. If you want to save money on the postal service, you can opt for priority mail orders.

Reducing shipping costs can be a tricky business. I suggest reading our blog, which covers the latest tips and tricks for reducing shipping costs.

Suggested by: Jennifer Willy, Editor at Etia.com

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How Much Do Major Shipping Companies Charge for Various Shipments?

Every delivery service considers various factors when setting shipping rates and offering different shipping methods. Here’s a quick look at the pricing models and calculators for two major US carriers: USPS and FedEx.

1. USPS Shipping Rates:

USPS is often the most affordable option, especially for ground shipping. Since USPS already runs local routes daily, they deliver to your customer without extra effort.

To calculate shipping costs with USPS, you can use their price calculator.

For example, a package weighing 15 lb 12 oz sent from Skokie, IL (60076) to New York, NY (10001) via USPS Priority Mail Express 1-Day® would cost $139.85. This rate applies to standard delivery, parcel locker, or hold-for-pickup options.

To show you how shipping costs can vary for the same destination based on different shipping methods, here’s a short table:

Shipping Method	Cost
Priority Mail Express 1-Day®	$139.85
Priority Mail®	$32.35
Priority Mail Large Flat Rate	$24.75
Priority Mail Medium Flat Rate	$18.40
Priority Mail Small Flat Rate	$10.40
USPS Ground Advantage®	$25.45
Media Mail®	$15.88

2. FedEx Shipping Rates:

FedEx uses dimensional weight to calculate shipping prices and offers a variety of delivery speeds, from ground to overnight and same-day.

You can use their shipping calculator to get shipping costs, but just to give you an example, shipping the same package from Skokie to New York, as mentioned earlier, but this time using FedEx First Overnight®, would cost $276.65.

Pricing breakdown of FedEx shipping methods:

Delivery Method	Cost
FedEx First Overnight®	$276.65
FedEx Priority Overnight®	$240.77
FedEx Standard Overnight®	$226.99
FedEx 2Day® AM	$135.84
FedEx 2Day®	$113.87
FedEx Ground®	$27.79
FedEx Express Saver®	$89.24

The table above shows how shipping costs differ based on the FedEx delivery method chosen for the same package and destination.

Final Word!

And that’s a wrap. As discussed in this guide, there are quite a few strategies that you can use to calculate shipping costs and keep them competitive. This will improve your sales figures dramatically, as well as your company’s goodwill.

If you are transparent with your pricing and let your customers know everything on hand, you will be able to build a rapport with them, and that’s only going to benefit your store in the long run.