Estimating Shipping Costs For An E-commerce Website
A highly competitive retail environment requires your company to offer the lowest shipping rates to your customers. It shouldn’t lead customers through the entire purchase journey only to abandon their basket at the end because of high shipping costs. There is a significant impact of shipping costs on purchase habits.
Making sure that you calculate shipping costs according to your customer’s needs is crucial. Understanding how shipping affects product pricing and the aspects used to calculate shipping costs will help you achieve this.
Shipping is an essential element of any e-commerce transaction. Here, we’ll walk you through the best ways to calculate competitive shipping rates fitting your business type. Let’s get started.
Defining Shipping Cost
Shipping costs are the direct costs of transporting an item from an inventory/store shelf to a customer’s doorstep. These expenses may include, yet are not limited to:
- Costs associated with packaging, boxes, tapes or stickers, and labels.
- An item’s pick-up, packing, and shipping costs.
- Courier fees for picking up and delivering items.
- The cost of import/export fees when shipping internationally.
Factors Affecting Shipping Costs
Different factors, such as package dimensions, cargo type, weight, location, and others, affect shipping prices. A carrier will offer the shipment a price after calculating these factors.
Here are the factors that can influence the shipping costs of an online store.
1. Package dimensions
Dimensional weight or DIM weight is a pricing technique all major carriers use to calculate basic shipping rates. Dimensional weight uses the size of a package when calculating shipping costs.
To determine the DIM weight, you can multiply the package box’s length, breadth, and height by a conventional DIM divisor. Shipping companies such as FedEx, USPS, and UPS tend to calculate shipping charges based on the greater package’s actual weight or DIM weight. Of the two, whichever is greater is the billable weight, and, you can charge the company based on that.
2. Package weight
The packaged weight is the product’s raw weight along with the weight of the box/package. Therefore, no DIM divisor or basic calculation is required. In the event that this number exceeds the DIM weight, we can use it to calculate the extra shipping costs. The higher the shipping cost, the larger and heavier the package.
3. Shipping destination
Different carriers use shipping zones to calculate different shipping rates. The shipping zones are the distances between the origin and the package’s final destination. These tend to range from Zone 1 to Zone 8 in the United States.
The location of the package determines shipping zones. This means that two distinctive points of origin shipping to the same destination could actually be shipping to different zones. As a general rule, the higher the shipping zone, the more expensive it is to ship a package.
4. Value of contents shipped
If a company is shipping high-value items, they need to consider having their shipments insured. Shipping insurance duly compensates senders/businesses whose packages are stolen, lost, or damaged in transit. However, this service results in a significant increase in shipping costs.
5. Estimated delivery time
Customers anticipate rapid shipping everywhere they shop online. However, if a business only ships from one place, rapid, premium shipping becomes more costly as zone numbers increase. For example, you can accomplish a 2-day shipment to a customer in Zone 1 with ground shipping; a 2-day sending to Zone 8 will necessitate the more expensive accelerated air shipping.
6. Unexpected problems
Unexpected complications may arise from time to time, no matter how well-planned the shipping strategy is. These can include everything from transit delays to missing or damaged merchandise to split shipments. Although no one can predict something with absolute certainty, it’s always a good idea to allow for contingencies in the shipping budget.
Determining Shipping Costs Strategically
In this competitive market, providing clients with competitive shipping prices is critical. E-commerce platforms must tackle this challenge deliberately to ensure they provide their consumers with the greatest available costs.
Some comprehensive strategies to determine shipping costs include:
- Establish a pricing strategy
It’s not always accurate to base customer charges on the amount a business pays for shipping. The choice between increasing overall sales and revenue or increasing profit per order is frequently a perception-based game.
- To boost sales and attract more customers, don’t charge for shipping (and ensure all website visitors are aware of this).
- On most orders, charge a flat amount to at least partially cover your delivery expenses.
- Charge each order, trying to pass on the shipping expense to the buyer.
In order to determine these nuances based on the price strategy, a company chooses scenario modeling. Noteworthy facts include:
- Many firms experiment with shipping cost pricing and launch email marketing campaigns like “Free shipping when you spend $100”, even if their typical customer spends $80 on each order.
- This clarifies the impact of a free shipping campaign on your order volume.
- This is a simple approach to starting small without committing to continuously offering free delivery on the entire site.
- Pick a carrier & speed
It goes without saying that different carriers will impose varying shipping fees. The more accelerated the service (for instance, when paying for overnight shipment), the more expensive it will be.
The final determinant of shipping prices is where the company is sending from, where it is being shipped, and how quickly they need the order to be delivered. Use ground shipment and ship from strategic locations close to most of their consumers to keep shipping costs down for the business and their clients.
- Calculate transport and speed costs
On their websites, shipping companies feature shipping cost estimators. When in doubt, users can enter specific order information to understand the costs in detail and compare prices amongst providers. Additionally, the businesses and the user can always use shipping integrations on the website to calculate this for customers automatically, including shipping tools and software, to outsourced fulfillment providers.
- Adding additional charges
While the above applies to standard orders, it is better to add charges to account for any other expenses businesses might have, such as:
- Extra pay for separate line items, including dunnage, boxes, and mailers.
- Additional fees for sending large or heavy items
- Additional insurance, If the package’s contents are more valuable than the carrier’s primary coverage.
- Any fees for order processing, including labor and order fulfillment.
- The return policy and rate to comprehend how providing free returns may cause a business to lose more money, including a second shipping label to send the product back.
- Reshipment rate for lost packages, wrong orders, and other mistakes.
Creating Better Shipping Costs With Better Product Pricing
What is product pricing?
A variety of factors influence product price strategies, including delivery costs. The cost of running the business must first be calculated. From here, one may figure out what to charge for such products to turn a profit and pay for operational costs. If a company doesn’t already have one, it should maintain a loss and profit spreadsheet that includes all the revenue, operating costs, and related expenses. The document should contain information on property and equipment leases, salary, stock, and utilities.
How to create better shipping rates with product pricing?
Product pricing is a minor factor in the overall picture of consumer behavior. If a company can conduct market research to find out a little about them, their way of life, level of income, and shopping habits. Using this information, companies can develop promotions and advertising that are more likely to convince customers to select them above a rival.
Younger consumers may expect free shipping anytime they make an online purchase. On the other hand, senior customers could be happy to pay postage. Take Amazon, for instance; they are the favored online retailer since they offer one-day delivery on a vast range of products. Such information is directly related to delivery and product price strategies.
The cost of the goods affects delivery because it determines the mode of transportation. Using the prior free delivery example, the sale price needs to be $125 to break even if the product costs $100 and shipping costs $25. In reality, the market rate will be substantially higher because running expenses are not a factor. In general, companies who want to stay competitive and on par with competitors that do so will need to factor delivery costs into the price of their products. We can use the cost of the item plus the markup to determine the product’s margin. There will be no profit or loss related to shipping in this situation since the company would bill the customer their actual shipping charges.
Reducing Shipping Costs
Among the best strategies to enhance the entire bottom line is just to lower the transportation costs. While online retail behemoths like Amazon, E-bay, etc. can offer free delivery, smaller firms typically can’t and must find ways to provide less expensive shipping to increase their margins.
The following are some effective techniques to lower shipping costs:
- Reducing transportation distance by placing products close to the clients
- Automating the entire process
- Decreasing the size, weight, and weight of packages
- Obtaining discounted materials
- Obtaining a shipping discount on shipping costs
Role Of 3PL In Reducing Shipping Costs
Partnering with a third-party logistics (3PL) supplier can make all the difference for expanding firms trying to cut shipping expenses.
E-commerce companies can benefit from delivery discounts that aren’t accessible to those who handle in-house fulfillment by contracting shipping to a 3PL. A 3PL can assist online retailers in growing their businesses and meeting consumer expectations without going over budget.
Benefits of 3PL partnering include:
Many e-commerce companies don’t ship enough to qualify for carrier-direct volume discounts. The combined volume qualifies for savings from major carriers because 3PLs handle shipments for a large number of companies. They can then pass these reduced delivery costs directly on to their customers.
Two-day shipping and distributed inventory
Customers who live close by may appreciate receiving their purchases from a single e-commerce fulfillment center. However, those who live farther away will still be required to wait much longer or pay more for accelerated air shipping.
Each order’s range must travel reduces when inventory is divided among several fulfillment facilities. 3PL allows a business to keep the goods at a close range to enhance the fulfillment network. This lowers overall costs while enabling companies to provide two days of ground shipment to more clients.
A business can regain time by outsourcing time-consuming shipping tasks to concentrate on things that will expand and develop their business. Businesses lose the chance to expand their clientele, create new goods, market the company, and much more when they spend time packing their belongings and heading to the postal service to stand in line.