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Running an eCommerce business comes with lots of costs, like manufacturing and production, marketing, and packaging as well as shipping costs. Shipping costs can sometimes come as a shock to new businesses as there are lots of factors that go into correctly calculating shipping costs.
We’ve been doing some research on the best way to calculate shipping costs and we’ve gathered all of the information in this article. To find out more about how to calculate postage costs, how to decide your shipping charges, and how costs vary from shipping carrier to carrier, keep reading now.
How To Calculate Shipping Cost
When it comes to calculating shipping costs, there are quite a few factors that go into it. While some businesses use shipping software with an in-built shipping cost calculator, you may have chosen to do it yourself.
If you’re calculating shipping fees manually, you’re going to need to take into account the dimensions and weight of the package, the value of the product you are shipping, the shipping speed, i.e. are you using a speedy service like ExpressPost, and the destination of the parcel. You may also need to add in any unexpected fees and delays, like customs.
To find out more about each of these contributing factors, keep reading now.
Almost all shipping carriers use this method of charging for shipping. It is essentially charging based on the physical size of the parcel. This means you’re going to need to measure the height, width, and depth of your parcel boxes to work out where they fit.
Different items that you sell are likely to fit into different sized boxes. You could try stocking different sizes of packaging so that you can reduce shipping costs on smaller items that fit into physically smaller packaging.
Weight Of The Package
Some carriers may choose to charge by the weight of the parcel, while others may decide based on which is larger, the physical size or the weight.
Shipping packages that are lighter will always incur smaller shipping costs, and heavier packages will always cost more. To reduce shipping costs, you could try using lighter weight packaging, or charging customers more if they purchase more than one item.
If your parcel is only being shipped a few miles, it is likely to be cheaper than one that is travelling around the world. This is due to the extra transportation and manpower involved in the longer shipping process.
International shipping prices will usually be listed by couriers, meaning you can get a good idea of how much it is going to cost you to ship to each of the countries that you plan to. As a rule, the further your parcel has to go, the more it is going to cost.
If the product you are shipping is extremely valuable, it may be worth taking out shipping insurance. This can cover you for any damage, loss, or theft that occurs during the shipping process, but it also adds a hefty charge on top of your shipping costs.
Consider the pros and cons of insuring your parcel and explore other options, like signed-for delivery, before deciding what is best for you.
Giving your customers options of shipping speeds is a really good way of offering shipping discounts. Though many people expect quick delivery times these days, offering customers a discounted rate of shipping for slower delivery can help to keep customers happy.
The faster the delivery service you choose, the more it is going to cost you. If you want to use one kind of delivery for all of your products, weigh up the pros and cons of quick delivery over shipping costs.
Unexpected Delays, Fees, Etc.
You can have the most optimised shipping strategy on the planet and still have unexpected delays and fees that cost you more. No matter the kind of delivery services you use, something can always go wrong so keeping aside money in your shipping budget for delays in transit, damages, or unexpected customs costs can help you to stay on top of your shipping costs.
How To Set Shipping Rates
Now that you know how to calculate your shipping costs, it’s time to explore how you decide on your shipping rates.
Taking into account all of the factors we have listed above, it can be confusing trying to decide how to price shipping for customers. Complicated delivery costs can put customers off and so deciding on an easy way to price your shipping is in your best interests.
Flat Rate Shipping
Flat rate shipping is one of the best shipping options that you can choose for your eCommerce store. With a flat rate, customers know exactly how much they’re going to be charged no matter what they buy and you know that at least some of the shipping cost will be covered by the customer.
However, flat-rate services do cause problems when it comes to different package weights, different destinations, and the different speeds of delivery.
An easy way to solve this could be to set a flat rate of shipping per destination or per delivery speed and absorb any costs related to the package weight.
While this could work for some bigger businesses, smaller businesses may not be able to absorb costs and still keep good profit margins. You should consider this when making a decision on shipping costs.
Case-By-Case Shipping Costs
If flat rate shipping wouldn’t work for you, you could offer shipping on a case by case basis. Unlike flat-rate shipping, this would mean that the customer pays all of the shipping cost and you don’t have to absorb any of it.
Though this may lead to more complicated pricing, it may be necessary for smaller businesses.
Offer Free Shipping
Lastly, you could offer free shipping across your entire online store to draw in more customers and increase sales. Many customers can be put off by having to pay for postage and so a free shipping rate can help customers to keep coming back to your online store.
Free shipping means that you would need to be able to absorb all of the costs of shipping, or would need to factor free shipping into the price of your products.
Choose A Carrier
When deciding on a shipping price for your store, you will need to know how much your carrier is going to charge you.
When choosing a carrier consider whether they can deliver to all of the places that you wish to, how reliable they are and how much trust the public has in them, and whether their services are worth the rates that they charge.
It is best to use a ground carrier, as transportation costs when moving parcels overseas increase the charges, and so shipping from multiple locations is the best way to keep costs down. If you do not have the capacity to do this, why not consider outsourcing your logistics to a 3PL?
Select A Shipping Speed
It’s all about speedy delivery now and, as we’ve already discussed, many customers want their products as quickly as possible. When choosing a delivery speed remember to find a balance between speedy shipping and lower shipping costs.
Packaging, Extra Weight, Etc.
When it comes to your shipping methods, it is important to remember the packaging you use. While the actual weight of your product might be low, additional weight from the packaging could push it into a more expensive category. Consider how you’re going to package things to keep costs down.
When deciding on the packaging you use, think of the customer experience too. How can you make your packaging fit with your brand’s aesthetic?
Average Shipping Rates
In Australia, there are a few couriers that are used nationwide and are generally trusted by the public. Popular courier services include Australia Post, Star Track, Couriers Please, DHL, and Fastway Couriers.
Using a dedicated courier service may be a good option if you want to ensure your product’s safety as couriers can operate door-to-door services. However, couriers are more expensive than using the national postal services. Australia Post is a cheaper option when it comes to shipping costs.
It is important to note that many of these popular courier services also offer 3PL solutions to help reduce the cost of shipping to your eCommerce store.
Below, we have compared the average cost of shipping for a small parcel with Australia Post with the same parcel shipped with a courier service (in this case, DHL).
Example: Australia Post Vs DHL Prices
With Australia Post, you can send a small parcel that weighs less than 5 kg for as little as $9.30. For parcels weighing over 5 kg, the delivery charge goes up depending on the distance. You could also send the same parcel via ExpressPost for $12.30.
(Be aware that this price will increase depending on where you are sending it to, which is why having multiple fulfilment facilities can work in your favour.)
The same parcel with DHL would start at around $70 and would increase depending upon the weight of the parcel and the speed of delivery chosen.
Calculating shipping costs can be difficult if you don’t know where to start. Remember to consider all of your options in terms of carrier, packaging, and speed of delivery to ensure the most customer satisfaction and the best profit margins for your business.