How to Calculate Shipping Costs and Make an Accurate Shipping Estimate
February 22, 2019
What do you want to learn?
73% of shoppers expect affordable, fast deliveries whenever they shop online — but is offering inexpensive (or even free) shipping options hurting your bottom line?
You want to offer the best ecommerce shipping options to your customers, but you can do only do so if you’re keeping an eye on your margins. Knowing and managing your shipping and logistics costs is critical to keeping your online business profitable.
In this article, we’ll cover:
- The factors that play into shipping rates
- How to calculate shipping costs from three major carriers
- How to reduce shipping costs using a 3PL
How to calculate shipping costs
Shipping costs vary depending on a variety of factors, from package measurements, shipment type, weight, location, and more. Once these variables are calculated, a carrier will put a price on your shipment.
Here are six variables that can affect the cost of shipping for your online store.
1. Package dimensions
All major carriers use a pricing technique called dimensional weight (also called DIM weight) to calculate shipping rates. Dimensional weight takes into account the size of a package to determine the shipping cost.
DIM weight is calculated by multiplying the length, width, and height of the package or box size, then dividing by a standard DIM divisor. Shipping carriers like USPS, FedEx, and UPS calculate shipping charges based on whichever is greater: the actual weight of the package or its DIM weight. Whichever is higher becomes the billable weight for which your business will be charged.
2. Package weight
The package weight is how heavy the item is — no DIM divisor or calculation necessary. As mentioned above, if this number is higher than the DIM weight, it’ll be used to calculate shipping costs. The heavier and larger the package, the more expensive it will be to ship.
3. Shipping destination
Carriers use shipping zones to calculate shipping rates. Shipping zones measure the distance between a package’s point of origin and its destination. In the US, these can range from Zone 1 to Zone 8.
Shipping zones are calculated based on where your package is shipped from. This means that two different points of origin shipping to the same destination may be shipping to completely different zones.
As a rule of thumb, the higher the shipping zone, the more expensive a package will be to ship.
4. Value of contents shipped
If you’re shipping very high-value products, you may want to have your shipments insured. Shipping insurance offers reimbursement to senders whose parcels are lost, stolen, and/or damaged in transit. While useful, this service can add significantly to your shipping cost.
5. Delivery times
Thanks to Amazon Prime, customers expect fast shipping everywhere they shop online. However, if you’re shipping from only one location, fast, premium shipping gets more expensive as zones get higher. For example, 2-day shipping to a customer in Zone 1 can be done through ground shipping; 2-day shipping to Zone 8 will require more expensive expedited air shipping.
6. Unexpected problems
No matter how airtight your shipping strategy is, unexpected issues may come up from time to time. These can range from delays in transit, to lost or damaged items, to split shipments. While you can never predict exactly what will happen, make sure to leave some wiggle room in your shipping budget in case of emergency.
Shipping cost calculators for 3 popular shipping carriers
Each carrier takes many of the above factors into account to offer different shipping pricing models and shipping methods. Here are the pricing models and calculators for three of the major US carriers that offer shipping services: USPS, FedEx, and UPS.
USPS shipping rates and shipping calculator
USPS is often the cheapest of the three carriers, especially for ground shipping. Because they run local routes every day, USPS already delivers to your end customer daily and doesn’t have to go out of their way to do so.
As of January 2019, USPS merged their two business pricing models (commercial plus and commercial base) into one: commercial pricing. Commercial pricing provides shipping discounts of up to 15% off retail shipping and postage prices. You need to apply for this pricing model through USPS.
To calculate USPS shipping costs, use this price calculator.
FedEx pricing and shipping calculator
FedEx uses dimensional weight to calculate shipping prices. They offer a variety of delivery speeds, from ground to overnight and same-day.
One benefit of shipping items through FedEx is the FedEx Small Business program geared toward growing companies in need of shipping solutions. In addition to a rewards program and the Packaging Help Hub, FedEx Small Business members receive discounts of up to 16% on select shipments.
To calculate FedEx shipping rates, use their Rate Finder tool.
UPS pricing and shipping calculator
UPS also calculates shipping costs based on dimensional weight. Different UPS shipping options use different pricing models, ranging from UPS Ground to UPS 3-Day Select or 2nd Day Air.
For the most accurate UPS pricing estimates, check out their shipping calculator.
Comparing average shipping costs
For a better idea of rates across carriers, here is a comparison of retail shipping costs.* For this example, we used a product approximately the size and weight of a smartphone shipping from Los Angeles to New York City.
|Shipping carrier||Shipping service||Shipping speed||Shipping cost|
|USPS||Retail Ground||7 days||$8.95|
|USPS||Priority Mail 2-Day||2 days||$9.30|
|USPS||Priority Mail Express||1 day||$41.45|
|UPS||UPS Ground||4 days||$11.71|
|UPS||3-Day Select||3 days||$25.94|
|UPS||2nd Day Air||2 days||$31.85|
|FedEx||FedEx Ground||4 days||$10.22|
|FedEx||FedEx 2-Day||2 days||$31.23|
|FedEx||Standard Overnight||1 day||$71.70|
*This table is for illustration purposes only and is not reflective of ShipBob’s pricing. Shipping costs will vary based on carrier, seasonality, dimensional weight, package weight, products shipped, and a variety of other factors. Please reach out to our team to learn more about ShipBob’s pricing.
“ShipBob’s advanced software helps us quickly understand shipping costs and how to improve shipping times by being closer to where our customers are.”
Andrea Lisbona, Founder & CEO of Touchland
Example ecommerce shipping costs
You’ve found a service to ship your product with, that’s great! Now you need to make sure your profit margins can stay high with these costs. This table below shows an example of ecommerce shipping costs with a 50% profit margin.
|Cost||Type of amount|
|Cost of goods||$20.00|
|Credit card processing||$1.00|
|Optimal profit margin||50%|
|Price to sell at:||$49.50|
“When I was shipping orders myself, what I paid per order is the same price now to pick, pack, and ship orders through ShipBob. It’s even much cheaper to ship to certain countries, which used to take ages and often got lost with localized post here.
Now, I have very transparent pricing, and I can easily run and plan my business. I also like that I’m billed right away. My old carrier billed monthly, which would drain a huge sum of Euros from my account at once. My cash flow has improved.”
Leonie Lynch, Founder & CEO of Juspy
How small businesses can reduce shipping costs with a 3PL
For growing businesses looking to reduce shipping costs, working with a third-party logistics (3PL) provider can make all the difference.
“Last July, Prymal reached $40,000 in revenue. After switching to ShipBob just four months later in November, we are reaching $160,000 a month in revenue — that’s 300% growth. We’re also saving $8,000 per month in fulfillment costs.”
Courtney Lee, founder of Prymal
Outsourcing shipping to a 3PL can help ecommerce businesses leverage shipping discounts not available to those who do in-house fulfillment. ShipBob is a 3PL that helps ecommerce merchants meet customer expectations and grow their business without breaking the bank.
“We partnered with ShipBob to scale up operations in the United States. We’ve seen a reduction of 70% on shipping costs in the US, which helps keep conversions high.”
Greg MacDonald, CEO & Founder, Bathorium
Many ecommerce businesses don’t ship enough to receive volume discounts directly from the carriers. Because 3PLs manage shipping for hundreds or even thousands of merchants, the cumulative volume qualifies for discounts from major carriers. These discounted shipping costs can then be passed directly onto their clients. ShipBob offers discounted rates and also had international locations in across the globe.
“As our customer base grows, so does our global reach. Having orders shipping internationally, ShipBob’s affordable rates solved our need for international fulfillment capabilities.”
Carl Protsch, Co-Founder of FLEO Shorts
Distributed inventory and 2-day shipping
Shipping your items from a single ecommerce fulfillment center is great for customers who live nearby, but customers on the other side of the country will still have to wait longer or pay for expedited air shipping.
“From expanding into a second ShipBob fulfillment center, we are excited to be able to offer 65% of our customers with 2-day shipping, up from 32% by only having a single West Coast facility. Soon, this will be 100%. Not only is this better for our customers but we also gain a 13% savings to our bottom line.”
Pablo Gabatto, Business Operations Manager at Ample Foods
Splitting inventory between multiple fulfillment centers lowers the distance each order has to travel. ShipBob’s network of fulfillment centers in major US cities can help keep your inventory close to your customers. This allows you to provide 2-day ground shipping to more customers while keeping costs low.
“Because of Amazon, our customers expect 2-day shipping and we couldn’t find other 3PLs that can provide that. If they do, you are going to pay a lot for it. Without ShipBob, it would cost more than $100 per order to ship that fast.”
Founder of My Calm BlanketTime savings
You know the saying: time is money. Outsourcing time-intensive shipping tasks can give you time back to focus on activities to grow and scale your business. When you’re spending time packing your items and driving to the post office to wait in line, you’re missing the opportunity to grow your customer base, develop new products, market your business, and much more.
“ShipBob can process things more quickly than we could in-house and at scale. These time savings translate into cost savings as well.”
Sarah Chalos, Co-Founder and President, I Heart Keenwah
Ready to save on shipping costs while offering fast and affordable shipping? Click the link below to learn more about ShipBob, receive custom pricing, and get a demo of our dashboard.
Shipping cost calculation FAQs
There are many common questions surrounding the topic of shipping cost calculation. Here are some of the most asked questions on rates, costs, measuring, and more:
1. How do I calculate dimensional weight?
To calculate dimensional (DIM) weight, multiply the length, width, and height of a package, using the longest point on each side. Then, divide the cubic size of the package in inches by the DIM divisor to calculate the dimensional weight in pounds.
2. Can I ship flat rate?
Yes, carriers like USPS offer flat-rate shipping as long as your item fits into one of their pre-measured boxes.
3. How do I calculate shipping costs for USPS?
You can use the USPS shipping price calculator to calculate the shipping cost of sending a package with the United States Postal Service. If you are a ShipBob customer, you’ll get automatic discounts when shipping with USPS.
4. How do I get shipping discounts?
Shipping with a third-party logistics service provider such as ShipBob can allow you to get significant discounts off of major carrier services.
5. Which is the cheapest carrier to ship with?
While they aren’t always the cheapest, the USPS is consistently one of the best-value shipping carriers.