In an ideal world, every e-commerce business would love to offer free shipping to all customers. Removing shipping costs is a nice way to give back and help you stand out from the competition. That being said, this is not always possible, especially if you’re shipping your goods internationally or shipping larger items.
For this reason, most businesses have to charge some shipping or delivery fee but knowing what you need to charge to cover your costs can be tricky. If you understand how to calculate your shipping costs, you can maximize your profits on each sale whilst ensuring that rates aren’t so high that customers are likely to abandon their basket without completing the purchase.
But how exactly do you know how much to charge and what is the best way to work this out? In this guide, we’re going to take a look at the costs associated with shipping, how you can predict yours correctly, and how to keep your customers happy.
Here’s our guide on how to work out shipping costs before starting your online business.
Understand how the dimensions of your products can affect the cost of shipping
The items you’re shipping and their subsequent size will be one of the biggest influencing factors on your shipping cost. Most courier services will use these dimensions to work out the volumetric weight to decide how you should be charged. As a general rule, in the UK, a formula very much like this will be used (but this depends on the companies preferences):
(Length x width x depth) ÷ 6,000*= weight of your products
*Different companies use different ratios
Many couriers will have a calculator on their website so you can begin to get an idea of the different costs. Of course, not all your products will be the same size, so it’s worth taking an average or looking at your biggest item and working out your shipping cost that way.
Consider packaging in your cost of shipping
Weight and dimensions are not the only aspects that will impact the cost of your shipping. How you package your goods will also contribute. After all, if you send fragile goods that require some protection, this could amount to more (and heavier amounts) of packaging. Because of this, it’s important to decide how best to package your goods for delivery. You might also need to choose your courier accordingly.
As well as the additional weight and space of packaging, you also need to consider the cost of your overall shipping fee. You can buy packaging for relatively cheap, but you need to make sure it’s good quality; otherwise, the products could arrive damaged. As such, always be sure to factor in any additional costs for packaging when working out your shipping fees.
Add in the cost of your employees/handlers
It’s not just postage and packaging that goes into sending your parcels; you also need to account for the time spent preparing these by your employees (or yourself) depending on how big your business is. To work this out, you need to determine how long it takes them to prepare a parcel or how many they could do in an hour. You can then work out the average cost per parcel.
For example, if you pay your employee £10 an hour and in that time they could prepare 20 parcels, then each parcel would cost around £0.50 for your employee to package and send. You must therefore consider this additional cost when setting your shipping fees.
Choose the right courier service
Once you’ve considered and understood all the individual components that contribute towards your shipping costs, it’s time to do your research and make sure you’re choosing the right courier. Like Hermes, some will have a set price for weight and dimensions, while others might use different methods to work out how to charge. As we mentioned earlier, some will include a calculator on their website to help you avoid any nasty surprises.
It’s worth keeping in mind that when choosing a courier service, although the price might be a huge factor, this should not be the only thing you consider. Look at reviews for their services and see what other businesses have been saying. It would be best if you also looked at the average time it takes to deliver packages as your customers aren’t want to wait more than a few days.
Just be sure to keep all the individual costs you’ve worked out so far in mind and find a courier that fits into a reasonable price bracket. After all, you don’t want to be charging a fortune for postage as this can really put customers off buying from your online store.
Decide whether you need to add parcel insurance
Another cost you might not have considered is parcel insurance. Of course, you don’t have to buy this, but if you’re shipping valuable products, you don’t want to be left without compensation if something should happen to them during shipping.
You’ll be able to find out what insurance plans your chosen courier offers and then work out an average cost per parcel (if you know roughly how much you’ll be selling). This insurance isn’t usually too pricey and might work out at something like 20p a parcel, but it’s always a good idea to have a backup plan in place just in case.
So how can you work out the overall cost of shipping?
There have been several smaller expenses to consider when working out your shipping cost, so we thought we’d do a quick recap. To work out the shipping cost when setting up an online business, it’s first a good idea to do some research into the best courier. Then your formula should look something like this:
Cost of dimensions/weight + cost of packaging + cost of employees/handlers + parcel insurance (optional) = cost of shipping.
If you aren’t sure about how many parcels you’ll be selling or they really range in size and weight, then it’s a good idea to take an average based on a range of your most popular products.