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What Factors are Considered When Calculating Shipping Cost?

July 11, 2018 Courier

calculating shipping costs
calculating shipping costs

One of the biggest concerns for people ordering a product online is how much the shipping is. If it’s one of the biggest concerns for a customer, it should also be a major concern for the retailer. Charge too much and you risk losing the sale and possibly the customer as well. Charge too little, however, and you’re the one who loses out on profit landing you in the red. So what exactly goes into calculating shipping costs so you can find the right balance between affordable for your customers and for your business? Read on to find out.

Key Elements to Calculating Shipping Costs

Determining shipping costs should be well thought out and handled with great care. There are two kinds of shipping methods: calculated shipping and flat-rate shipping.

It’s important to know what goes into both of these methods, as well as the advantages and disadvantages.

Calculated Shipping

This is exactly how it sounds. You actually have to sit down and calculate the cost of shipping for your items. In order to do this, you’ll need to consider 3 key elements.

Packaging

You’ll need to determine what type of packaging you will be using. Will you be using an envelope or box, and what sizes will work best for your product?

Each type of packaging comes with its own price. That price not only depends upon the size of the box or envelope but also how much the package weighs. A really big and heavy package will cost much more to ship than a smaller, lighter package.

In short, the same things you contend with when shipping a personal package using UPS or the postal service, are the same things you contend with when shipping your products from your business warehouse to your customers.

Handling

Once you’ve determined what kind of package, you’ll need to figure out how your package will be handled. Will you be packing the boxes yourself, or will you be hiring someone else to do the packing?

If someone else is going to be packing your boxes for you, you’ll need to think about how much you pay them per hour and how many hours they work. Vice versa, if you’re packing your own shipments, then you’ll need to determine if this could cause shipments to customers to be delayed.

While it may seem more cost effective initially to pack your own shipments, delayed shipments to customers could cost you in the long run. It may be worth it, depending on the size of your operation, hiring someone to box your shipments.

Mailing Services/Postage

Possibly the most important factor in shipping costs, who will you be using to mail your shipments?

Choosing the right shipping company for your business comes down to the shipper’s ability to meet the needs of your business and customers, as well as having the right price.

This is not the place to cut corners or settle on the cheapest company possible. Make sure the company you choose is reliable and dependable, and won’t bust shipment time frames or damage packages in route.

Flat-Rate Shipping

Flat-rate shipping is where you charge one flat rate for shipping products regardless of the size/weight of the package or how much you pay someone to package your boxes for you.

To determine a flat-rate shipping cost, you’ll need to average out the overall costs of all shipments for your business. While you will lose money on half of your shipments, you will gain money on the other half so it evens out.

However, you’ll need to continuously pay attention to the costs of shipping your product and adjust the shipping rate accordingly; failing to do so will result in a monetary loss on all shipments and negatively impact your profit and bottom line.

Is Free Shipping Worth It?

Assuming the cost of shipping your products without making the customer pay anything towards shipping will hurt your profits and is never worth it. However, that’s not to say that offering free shipping events aren’t beneficial. And there is a way to offer free shipping without bankrupting your company.

Free shipping discount events can help drive up sales for a brief period of time and generate more traffic. In these cases, you’ll make up for the loss of money in shipping with a dramatic increase in sales, especially if you offer free shipping on certain select products.

Some companies offer free shipping all the time and are able to do so by adding the cost of shipping into the price of the products they are selling. The shipping isn’t really free since the price of shipping is covered with the purchase of the item.

But customers believe they are receiving free shipping. This will also drive traffic to your business and increase those conversion rates.

The Bottom Link of Shipping Costs

Ultimately you want to make a profit, and that includes your shipping costs.

Shipping costs can be a way to make some profit. By calculating the cost of shipping and raising the price of shipping higher than what you will be paying you could make some money.

This is the same tactic applied to selling your products. You always charge more than what it cost you to make or store.

No matter what shipping option you choose, it’s important that you find a good balance between making the customer happy and keeping your profit margins high. Too high shipping costs will cause customers to abandon their shopping with you, and too low shipping costs will eat into your profits.

It’s important to spend a fair amount of time calculating shipping costs, making sure to keep in mind the amount you are charging customers is equal to or greater than the amount your business pays to the ship the product.

If you have questions about shipping costs or wish to talk to someone about shipping your products to your customers reliably and timely, contact us today!