How to Calculate Shipping Costs and Make an Accurate Shipping Estimate

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.

So, what do you want to learn?

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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 destination

Carriers use the shipping to and from destinations to calculate rates. With the distance between a package’s point of origin and its destination ultimately determining a large portion of the shipping cost.

As a rule of thumb, the longer the delivery distance, the more expensive a package will be to ship. Additional costs are also levied for parcels which cross country or region borders.

2. Package weight

The package weight is how heavy the item is — the heavier and larger the package, the more expensive it will be to ship.

3. Package dimensions

Some carriers using 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. This is particularly common in countries such as the US.

DIM weight is calculated by multiplying the length, width, and height of the package or box size, then dividing by a standard DIM divisor. US 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.

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 globally from only one location, fast, premium shipping gets more expensive as the distance gets further. For example, the majority of UK shoppers can be reached in just 2 days using a ‘standard’ delivery service, but reaching shoppers in mainland Europe in the same timeframe will require a more premium (and expensive) shipping service.

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 delivery service 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 UK carriers that offer shipping services: Royal Mail, DPD, and Evri.

Royal Mail shipping rates and shipping calculator

Royal Mail is one of the most cost competitive carriers in the UK, especially for ‘standard’ shipping options. Because they run local routes every day, Royal Mail already delivers to your end customer daily and doesn’t have to go out of their way to do so.

To calculate Royal Mail shipping costs, check out  their price calculator. Here are some examples:

  • A small parcel (45cm x 35cm x16cm) up to 2kg in weight would cost £3.95 for a 24 hour service, and £2.85 for a 48 hour service.
  • A medium parcel (61cm x 46cm x 46cm) up to 2kg in weight would cost £5.95 for a 24 hour service, and £4.35 for a 48 hour service.
  • A medium parcel (61cm x 46cm x 46cm) up to 10kg in weight would cost £6.95 for a 24 hour service, and £5.95 for a 48 hour service.

DPD pricing and shipping calculator

DPD is known as a premium delivery service in the UK. Offering a variety of timeslot, express, and tracked delivery services. DHL also has a wide international network to ship parcels to Europe and beyond.

DPD offers a combination of their ‘local’ business for small sellers and business accounts for larger ecommerce brands.

To calculate DPD shipping rates, see their current rates. Here are some examples:

  • A parcel up to 1 metre in length and less than 5kg in weight would cost £25.73 for a next-day service, and £20.07 for a 2-day delivery service.
  • A parcel up to 1 metre in length and less than 5kg in weight would cost £31.93 for a next-day pre 12:00 delivery service.

Evri pricing and shipping calculator

Evri is a highly cost-competitive carrier for the UK market. Offering a combination of next-day and ‘standard’ delivery service. Using a combination of local carriers nationally to reach shoppers across the UK.

Evri also has a European wide delivery network to reach international shoppers with the same low cost delivery options.

For the most accurate Evri pricing estimates, check out their shipping calculator. Here are some examples:

  • A parcel up to 2kg in weight would cost £5.33 for Evri’s standard service.
  • A parcel up to 10kg in weight would cost £7.36 for Evri’s standard service.

How much should you charge for shipping?

Shipping can be expensive, so ecommerce brands need to be strategic in how they go about charging customers for this line item. Just like calculating shipping costs can be complicated, so can determining how much you’ll charge customers (or justifying how little you’ll charge them).  

There are several options, ranging from free shipping, to charging what the carrier charges you (known as real-time rates), to setting rules based on certain criteria (e.g., depending on the weight and dimensions of the product, the shipping destination, and other attributes). 

ShipBob surveyed hundreds of ecommerce brands and found in our 2022 State of Ecommerce Fulfilment Data Report that:

  • 25% always offer site-wide free shipping for domestic orders.
  • 24% don’t offer free shipping at all.
  • 28% charge a flat-rate fee. 
  • 13% charge real-time rates. 

Since shipping to other countries can be especially expensive, domestic shipping often comes with more incentives than cross-border orders. It’s no surprise that consumers crave free shipping, and this conversion lever can have a major effect on cart abandonment. 

That’s why many brands implement the following strategies to help offset the absence of a shipping fee:

  • Increase the product price (to pad your margins beyond breaking even).
  • Increase AOV by offering bundles or a minimum spend threshold (that’s at least 10-20% above your AOV).

Ultimately, whether you can afford to offer free shipping will depend on:

  • The price of your products (the more expensive they are, the easier this is to do).
  • Your average order value (if customers spend very little per transaction, the shipping cost may be more expensive than your products).
  • Your margins (how much have you padded into your product price to remain profitable). 
  • Your average shipping costs (if you do the order volume to justify carrier or 3PL discounts, or whether you distribute inventory to ship closer to more customers). 

How to determine shipping costs strategically

Offering your customers great shipping rates is very important in this competitive market. To ensure you’re giving your customers the best possible prices, you need to approach this problem strategically. 

Decide on a pricing strategy

The amount you pay for shipping doesn’t necessarily reflect what you charge customers. It’s often a perception game, where the tradeoff is between more overall sales and revenue, or more profit per order. 

To recap, you can:

  • Charge nothing for shipping (and making sure all website visitors know it) to increase sales and acquire more customers. 
  • Charge a flat rate to cover at least some of your shipping costs on most orders.
  • Charge on a case-by-case basis, aiming to pass the shipping cost along to the customer.

Be sure to do scenario planning to calculate these nuances based on which pricing strategy you decide. It’s worth noting that:

  • Many brands test shipping cost pricing, and try running campaigns to their email database, like “Free shipping when you spend £60” when they typically see people spend £40 per order, for example. 
  • This helps shed light on the effect a free shipping promotion has on your order volume (e.g., did you get double the orders than usual?). 
  • This is an easy way to start small without having to commit to site-wide free shipping always. 

Select a carrier & speed

Of course, some carriers will charge different shipping costs from others, and the faster the service level (e.g., when paying for expedited shipping such as an overnight service), the more expensive it will be. 

Shipping costs will ultimately come down to the locations you’re shipping from and to, and how fast the order needs to get there. To keep shipping costs low for you and your customers, it’s a best practice to use ‘standard’ shipping as the default for the majority of orders. With premium and quicker options available as upgrades.

For those shipping internationally or across large countries such as the US, the focus should be on shipping from optimal locations that are closer to the majority of more customers. 

Many brands achieve this by outsourcing fulfilment to a 3PL like ShipBob with multiple locations across the world, and splitting their inventory across the locations that make the most sense for their customer base (which can surprisingly save brands money in many cases — see a 25% reduction in shipping costs and a 13% cost-savings to a company’s bottom line). 

Calculate costs for selected carrier & speed

Most shipping carriers have shipping cost calculators on their websites. So when in doubt, you can plug in specific information about an order to understand their exact costs and even compare across providers. You can also use shipping integrations on your online store to calculate this automatically for you (from shipping software, to outsourced fulfilment providers). 

Additional charges to add

While the above covers standard orders, to be extra accurate you may consider adding charges to cover additional costs you may incur, such as:

  • Packaging if you pay for this as a separate line item (boxes, mailers, and dunnage) 
  • Surcharges for shipping heavy or larger items (which carriers charge when packages are extra heavy and large for their employees to ship and handle)
  • When signature is required (another fee from carriers when this is needed)
  • Additional insurance if the contents of the package is more valuable than the standard amount a carrier covers 

To take it a level further, you can also think through not just the shipping cost but some overhead you may want to allocate to find your true cost per order or revenue per unit, such as:

  • Any handling charges, like labour and order fulfilment.
  • Your return rate and policy to understand how offering free returns can end up costing you more money (including a second shipping label to send the product back).

Your reshipment rate for damages in transit, mis-picks, and other order errors since those end up costing you more.

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.

CostType of amount
Cost of goods£20.00
Shipping fee£3.00
Packaging cost£0.75
Credit card processing£1.00
Total cost£24.75
Optimal profit margin50%
Price to sell at:£49.50

Let’s walk through some real examples from carriers’ websites to calculate shipping costs for different scenarios. 

UK standard shipping cost example

Using Royal Mail as an example: we see that shipping a 2kg small parcel on a 24 hour delivery service will cost £3.95. This service is very economical as it ships both quickly and cost effectively. However, as a trade-off , less tracking information is readily available compared to higher-level services such as those offered by DPD. 

*Note: These shipping costs were pulled from Royal Mail’s website in November 2022 and are not reflective of what ShipBob charges to fulfil and ship orders in the UK. To get pricing from ShipBob, please fill out this form.

International shipping cost example

Cross-border shipping costs vary widely according to not only shipping origins and destinations, but also levels of service. Using  DPD Parcel Service as an example, we see that shipping a 5kg package to Germany from the UK will cost £33.46. For a more economic version carriers such as Evri offer lower rates but without the same levels of tracking or ability for customers to change delivery details in-flight. With Evri offering a rate of £11.64 shipping to Germany from the UK

While cross-border shipping prices are much higher than domestic rates. Shipping within the same country or region means those rates are much closer to UK domestic rates.

*Note: These shipping costs were pulled from the DPD and Evri websites in November 2022 and are not reflective of what ShipBob charges to fulfil and ship cross-border orders. To get pricing from ShipBob, please fill out this form.

High-value item shipping cost example

While most carriers include a certain level of insurance as part of their standard pricing, high value shipments typically require a supplement to be paid. For example, looking at DPD UK rates: DPD typically apply a 1% fee of the parcel value, up to the value of £5,000, with a minimum charge of £7.00 per parcel.

To get pricing from ShipBob, please fill out this form.

Comparing average shipping costs

For a better idea of rates across shippers, 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 carrierShipping serviceShipping speedShipping cost
Royal MailTracked 48 Small Parcel2 days£2.85
Royal MailTracked 24 Small Parcel1 day£3.95
Royal Mail2nd Class Signed Small Parcel2-3 days£3.95
Royal Mail1st Class Signed Small Parcel1-2 days£5.05
EvriStandard2-3 days£4.34
EvriNext Day1 day£5.33
DPDStandard2 days£20.07
DPDNext Day1 day£25.73
DPDNext Day pre-12:001 day£31.93

*This table is for illustration purposes only and is not reflective of ShipBob’s pricing. Shipping costs will vary based on carrier, seasonality, 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

How to reduce shipping costs

One of the best ways to improve your overall bottom line is to reduce your shipping costs. While retail giants like Amazon can offer free shipping, smaller businesses usually can’t do that and have to figure out ways to provide cheaper shipping costs to improve their margins. Some of the best ways to reduce shipping costs include:

  • Reducing the weight and dimensions of packages
  • Finding discounted supplies
  • Getting discounted shipping rates
  • Decreasing the cross-border shipping distance by distributing inventory near your customers

We further discuss these four and another seven ways to reduce shipping costs in this post here.

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 do in-house fulfilment. ShipBob is a 3PL that helps ecommerce merchants meet customer expectations and grow their business without breaking the bank.

Discounted rates

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 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 fulfilment capabilities.”

Carl Protsch, Co-Founder of FLEO Shorts

Distributed inventory for Cross-Border shipments

Shipping your items from a single ecommerce fulfilment centre 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

“We can see the customer’s journey when they’re using our store. Before we had in-country fulfilment outside the UK, we could see how many people would abandon their carts after they saw the shipping costs. Cart abandonment has dramatically decreased, and our conversion rate has improved. Since joining ShipBob, international fulfilment has been incredibly easy, where beforehand it was frustrating.”

Will Kerr, Apparel Lead at Quadrant 

Time 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.

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. How do I calculate shipping costs?

Many carriers feature shipping price calculators on their websites. You can use these to calculate the costs of shipping your packages according to your exact requirements. If you are a ShipBob customer, you’ll get automatic discounts when shipping with the most popular carriers.

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, as well as help optimise your supply chain, which can also save you money.

5. Which is the cheapest carrier to ship with?

There is no one-size fits all carrier for the lowest shipping prices. Rates are specific to your exact requirements. One of our ShipBob representatives will be able to match you with the best rates for your needs.