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, 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 package 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 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 shipping to lost or damaged items. While you can never predict exactly what will happen, make sure to leave some wiggle room in your shipping budget in case of emergency.
Pricing models and calculators for 3 popular shipping carriers
Each carrier takes many of the above factors into account to offer different shipping pricing models. Here are the pricing models and calculators for three of the major US carriers: USPS, FedEx, and UPS.
USPS pricing 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.
Calculating shipping costs for online stores
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.
Evaluating 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 of goods||$20.00|
|Credit card processing||$1.00|
|Optimal profit margin||50%|
|Price to sell at:||$49.50|
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.
Outsourcing shipping to a 3PL can help ecommerce businesses leverage shipping discounts not available to those who fulfill orders in-house. 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.
“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.
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.
“ShipBob’s 2-Day Express Program has been phenomenal for us. 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 Blanket
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 explore our dashboard.