Ecommerce store owners often face an uphill battle when they have to calculate shipping costs and keep them low. Most shoppers now expect fast and affordable deliveries. Many even believe that shipping should be free, especially if they are making a large purchase from your store. But, as a store owner, you need to create a balance. Will these options affect your profitability?
In order to stay competitive in an increasingly cutthroat industry, you will want to make sure that you provide the best possible shipping options to your patrons and accurately calculate shipping costs. But that’s only possible if you evaluate your margins carefully. If you are able to manage your logistics and shipping costs properly, you won’t have many difficulties.
Unfortunately, this is much easier said than done. Here’s an example: let’s suppose you are selling a product for $10. The profit that you make off of that product is $3. But, that product is shipped in a big box, and the shipping cost is around $4. You run a promotion, and end up offering free shipping. Your profit is wiped out, and you end up losing $1 on every sale. That’s not very business-savvy, is it?
The Importance of Calculating Shipping Costs
An ecommerce business owner needs to know exactly how much they are going to incur as shipping costs on every sale, for a multitude of reasons. For starters, it’s going to have a direct impact on your profitability. If you don’t know how much you are paying for shipping to a customer, you won’t be able to get a firm handle on your profits.
The second, and more important reason, is so that you can provide your customers with an accurate estimate. Depending upon the size of the package and the type of goods being shipped, the costs are likely to vary. You need to make sure that accurate information is provided to a customer on the checkout page. If customers find out that they were quoted another amount and charged another, it could wreak havoc on your company’s goodwill.
There’s no denying that having a strong ecommerce shipping policy could streamline operations and make matters much simpler for your business. Customers seriously care about the cost of shipping, and they don’t want to pay a cent more than they have to. In fact, shipping costs are widely regarded as the number one pet peeve amongst potential customers.
The third 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.
Additionally, transparency is key if you want to make a sale and increase brand loyalty. Your customers need to know all of the costs that they will be incurring so they don’t ditch your store and buy from another. 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. Here are a few statistics to give you a better idea:
- 45% of shoppers abandoned their cart when they realized that their order value failed to qualify for free shipping
- 52% of shoppers added more items to their cart because they wanted to qualify for free shipping
- 56% of shoppers were willing to pay for shipping when they thought their order was too good of a bargain to drop based solely on shipping costs
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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Why You Need Accurate Estimations
There are quite a few reasons why you need accurate estimations for shipping. If the goods that you are selling do not conform to a particular size, the customer should know just how much they are going to have to pay. This cost can then be passed onto the customer, allowing you to maintain your profits.
Not only that, but we have already covered the benefits of providing a degree of transparency to your customer when they shop online. It is going to bring down your rate of shopping cart abandonment, and allow you to focus more on growing your store. But, you can’t provide accurate estimations unless you calculate shipping costs yourself.
Apart from that, providing accurate estimations to your customers is a great way to boost sales. When you know just how much shipping is going to set you back, you will have the metrics that you need to work on your ecommerce packaging. You won’t have to ship small things in large boxes and incur exorbitant shipping costs in the process! It’s one of the best shipping practices that you can follow as a business owner.
If you are about to launch your ecommerce store, you need to make sure that you get your estimates right. This will aid you greatly in costing. If you want, you can also use a bunch of other tools to get a better idea about your profit margins. More importantly, it will allow you to maintain competitive pricing.
Cloudways Has an Excellent Range of Tools Like the ROI Calculator and the Stripe Fee Calculator
You can use these tools to optimize your shipping costs and get accurate estimates.
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 eventually 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 use a pricing method known as dimensional weight to calculate the rates they offer. This is calculated by multiplying the length, height, and the width of the package.
A standard divisor is then used for dividing the figure above. Almost all companies like FedEx, UPS, and DHL will give you a quote based on 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 weight of the package is higher than the dimensional weight, you will be charged this amount. No further calculations are required.
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 adds to your shipping cost is insurance. For instance, if you are running an online jewelry store and shipping goods of considerably high value, your goods need to be insured. The shipping insurance will reimburse the sender in case the goods are lost in transit or if they are damaged. It’s an expensive service, to say the least. This is an important factor to consider when you calculate shipping costs.
5. Delivery Timings
Most shipping companies offer a wide range of shipping options. Companies like Amazon have revolutionized the shipping process, by now offering fast shipping anywhere in the country. But Amazon does it by having multiple fulfillment centers. Most ecommerce store owners can only ship products from a single location.
So, you need to decide what kind of shipping you are going to offer to your clients. Quicker shipping is obviously going to increase costs as well.
Adding a Shipping Cost Estimator
You can reap a world of advantages by creating a shipping cost estimator on your website. They’re a good way of letting the average potential client know just how much they will have to pay. You can add in all the variables and the fixed costs incurred during the shipping.
All a person has to do is to add those details in, and they will get an actual amount that they will be charged. If you have found a shipping partner to work with, you can simply use the shipping cost estimator that they have provided on your website, after adding your own profit margins. This will allow a potential customer to calculate shipping costs with considerable ease.
Shipping Cost Estimator – An Example
Having a shipping cost calculator on your site could ease the decision making process for your customer. 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 of Goods||$30|
|Cost of Packaging||$2|
|Credit Card Processing Fees||$1|
|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 it offers is that it lets an average shopper know just how much they will have to pay for shipping. You will notice your shopping cart abandonment rate falling considerably with the provision of a shipping calculator on your website.
How Small Businesses Reduce Shipping Costs
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!
Here are a few tips and important pieces of advice from ecommerce store owners on how they do it.
1. Jennifer Willy, Editor at Etia.com
“As most of the economy is going down the drain due to the ill-effects of novel coronavirus (COVID-19), companies are coming up with new ways to reduce their production and shipping costs. Below are some ways to decrease the shipping costs in these hard times. First of all, you will save quite a lot of money by using the packaging provided by the carrier itself.
Instead of spending your money on packaging the product, you can invest it in the production phase. 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. Lastly, make use of online shipping. If you want to save money from the Postal Service, you can opt for priority mail orders.”
Reducing shipping costs can prove to be a tricky business. Consider reading our blog that explores the latest techniques to reduce shipping costs.
2. Adeel Shabir, Content Marketing Executive at Smith Thompson
- SELECT THE CHEAPEST – Going for the cheapest is recommended because it offers you a competitive advantage over your competitors. This also means that you have to look at the quality of the shipping. YES! It’s cheap, but you have to take off the quality first.
- AUTOMATE THE PROCESS – Shipping and logistics processes, at first will require your attention big time, but you have to look forward to automating the process so that you can focus more on the business operations.
- USE PACKAGING PROVIDED BY YOUR COURIER – This is the far best option when you are required to ship products. It will look great if you have your own branded shipping packages but it will cost you. A great way is to use the shipping company’s packages that will allow you to save costs.
3. Dennis Bell, Founder and CEO of Byblos Coffee
“In my ecommerce store, dealing with shipping costs is a crucial factor. It isn’t cheap, and it isn’t even fast sometimes.
The best tip in reducing shipping costs is by using the packaging provided by the carrier and investing in prepaid shipping. Using FedEx’s packaging helps me save money on the additional fee for using my customized packaging. It also helps me in minimizing my expenses with my item’s packaging, as I can use the carrier’s instead.
Buying shipping labels in advance is more cost-effective. I saved almost 20% of the costs. I can put it in the package when necessary rather than paying up for it before sending it out. Doing this has helped my business as I’m sending the same packaging and weight consistently, and this works best for me. It’s the most practical thing I’ve done for my business.
Shipping fees are unavoidable when it comes to running an eCommerce business. Using the above strategy can help you reduce shipping costs and grow your business successfully.”
As shown above, 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.
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