A shipping estimate is a concept that comprises the price of estimated shipping cost, estimated shipping time, and estimated shipping date. The time and date are dependent upon how much is spent on shipping costs. The more expensive the shipping, the less time it will take to reach the destination.
It is essential to know exactly what shipping costs are. Shipping costs are the direct costs associated with moving a package from the warehouse to the doorstep of a customer, including the following:
- The cost of boxes and packaging
- The cost of paying a worker to pick and pack
- The cost of the courier to collect and deliver it
- The cost of imports and exports
How to Calculate Shipping Costs?
Calculating the shipping charges is not an easy process. Instead, it is complex and involves various features to consider while calculating the shipping costs. All major carrier companies use a pricing structure to estimate shipping costs known as the dimensional weight or DIM weight. This is an excellent determinant for calculating shipping rates. This system takes into account the size of the package, to determine the shipping charges.
The process of calculating the shipping costs by following the DIM weight system can be explained as follows:
We can calculate it by multiplying the length, weight, and height of the box or the package in which we have packed the item to ship. All the major shipping carriers have a standard DIM divisor. Then the value derived after the multiplication has to be divided by the common DIM divisor. Then the shipping carriers compare which is greater, the package’s actual weight or the DIM weight. Whichever value comes higher is considered to be the weight of the package and the estimated shipping costs are calculated on the greater value.
Why Do You Need Accurate Estimations?
Several reasons exist for needing accurate shipping estimates. The goods you sell should conform to a particular size that may fit into a box, and the customer must know the same size. This will help the customer know exactly how much they must pay for shipping. In this way, you can pass on the charges for the package to the customer and enjoy your profits.
This is not the least. It also shows the degree of transparency online shopping provides customers. You will be able to focus more on growing your store rather than diverting your attention to abandoning the online shopping cart. But the concern lies here as you cannot provide accurate shipping estimates unless you calculate the shipping costs yourself.
Furthermore, providing accurate shipping estimates to the customers is a great way to boost your company’s sales. When you carefully identify the parameters that hold you back, you will know exactly what you need to improve in your e-commerce packaging. There is no point in incurring exorbitant shipping costs by shipping small items in large boxes. As a business owner, you must follow the best shipping practices for your company’s health.
You must get your estimates right to succeed as a new business owner. As a result, you’ll be able to maintain competitive pricing and keep up with the cost.
Certain important factors that affect the shipping costs are
There are a bunch of factors that may affect your shipping costs, and package weight is one of the prime factors. Package weight is determined by confirming the package’s actual weight and calculating the package’s DIM weight. Whichever is higher will be considered as the weight of the package when calculating shipping costs.
The destination for shipping is a broad topic, and primary shipping carriers do not mess this up. Various ‘shipping zones’ help streamlines this process. Although shipping zones are not fixed, a map that shows the various shipping zones will be different for each point of origin.
A shipping zone is a delivery territory segment within a specific distance range from the origin. All the shipping zones have different zip codes. Shipping zones allow the delivery company to charge the right amount for the delivery of each package.
For instance, you ship two packages to the same destination from different origins. In that case, you can consider the same destination as a different zone. Generally, the higher the zone is, the more expensive the package becomes.
Value of contents shipped
It is also crucial to keep in mind the contents or items of the package to be shipped. If the contents of the package are of high value, then you may want your package to be insured. This will automatically result in high costs for the package.
On the other hand, if the items in the package are not of very high value, you may not like to insure them. Hence, the shipping cost will be relatively less. In this way, shipping costs also depend on the contents of the package.
Most companies have worked on their shipping time estimate and offer a faster delivery time worldwide. Large e-commerce companies do this by having multiple order fulfillment centers throughout the country and even outside the country. But the small online stores take more estimated shipping time as they have to ship the packages from a single location.
It is also important to consider that quicker shipping will increase the shipping cost. In that case, you may have to decide what kind of service you would like to offer customers. If you want tp provide quicker shipping to your customers, you have to bear a part of the excessive shipping costs.
This parameter is straightforward to understand. The larger or bigger the package will be, the more will be the shipping charges and vice versa. Most shipping companies use the dimensional weight pricing method for calculating shipping costs. How to estimate shipping costs using this price in structure has already been explained while talking about shipping estimates.
Almost all the big shipping companies considered the actual package dimensions while calculating the accurate shipping costs. In a nutshell, the shipping costs depend on the package or box size.
Another important factor that may increase your shipping cost is insurance. If you are trying to deliver a package of higher value, then you may want to insure the package. In this case, the shipping insurance will ultimately increase the shipping charges.
If high-value goods are lost in transit or damaged, and they are insured, then the shipping insurance will reimburse the money to the sender of the package. This is indeed an expensive service that raises the shipping costs, but it is important in case the contents of the package are costly or are of high value.
Surcharges are the additional charges for services. Shipping carriers generally assess surcharges for the services they provide to the sender and the receiver concerning the package. As shipping companies are mostly the middleman in delivering the package from sender to receiver, they provide a service, and surcharges are the fee for that particular service.
Here, the base freight price does not include surcharges. You need to add them later on and consider them when calculating the shipping costs.
Duties and taxes
In the broader sense, duties and taxes are the cause you levy on uncertain goods, services, or other transactions. When a customer orders a package and the package is due for delivery, you must include the duties and taxes while calculating the shipping costs for the particular package.
There are two types of taxes you must know about, namely:
- Delivered Duty Unpaid (DDU) Shipments: This means the sale price of the goods must include all the shipment costs. The sale handles everything related to transportation and handling costs. Here, the seller does not pay the duty and import taxes.
- Delivered Duty Paid (DDP) Shipments: In this case, the salary will pay all the costs regarding the DDU shipments and also the duty and import taxes. Shipping companies may have additional charges for duties and taxes when your package arrives at the destination country.
We do not consider the duties and taxes when calculating the price of the packages’ contents. That is why we do not consider various duties and taxes while calculating the shipping costs for the package.
Make sure to leave some breathing room in your shipping budget for unforeseen circumstances in case any emergency creeps in. No matter how solid your shipping strategy is, there is always room for unexpected circumstances. Various unexpected issues may arise from time to time, such as your package being lost in transit, damaged, or delayed.
You can never really predict everything that is going to happen. The same is the case for shipping packages as well. Shipping carriers should always keep some money for such situations.
Therefore, these are all the variables that affect the cost of shipping. The shipping companies will price your shipment once they determine and calculate all these variables..
How Much Should You Charge For Shipping?
The package price is related to the shipping price because it determines the shipping method. For instance, if the price of a product is $10 and the shipping cost is $2, then the breakup of the sale price can be said to be $10 + $2 is equal to $12. We can say that the total sale value of the package can be $12.
In this case, we do not consider the running cost of the shipping carrier. If we consider the same with a more practical and realistic approach, the package’s sale price will be much higher.
If you want to be the go-to choice as a shipping company among all your competitors, then you may keep a low-profit range for yourself and keep the sale price of the packages low. However, that doesn’t mean you will compromise your shipping and running charges.
We can draw the margin as the product cost plus the markups. There will be no scope for very high profits or losses here.
How to Determine Shipping Costs Strategically?
It is a competitive world, and you must offer your customers affordable shipping rates to sustain yourself in the market. You need to determine your shipping costs strategically to ensure you provide your customers with the best shipping rates.
You must keep the following points in mind when deciding on any strategy for shipping costs:
- Decide on a pricing strategy that is beneficial for your company and offers affordable shipping rates.
- Charge a flat rate to attract more customers and cover some of your shipping costs.
- You may occasionally run free shipping campaigns so more customers come on board.
- Select a suitable shipping carrier that does speedy delivery.
- Calculate the cost based on the selected carrier and the speed of the delivery of the package.
- You can add the additional charges for packaging as the shipping costs.
Therefore, these are all the major parameters you should consider when calculating shipping costs.
You can understand the calculation of estimated shipping costs strategically with the instance of a shipping cost estimator. A shipping cost estimator has been explained below as an example.
Shipping cost estimator – an example
Creating a shipping cost estimator on your website can be very advantageous. It lets the average potential client know how much they have to pay for shipping. If you have already found a shipping partner, you can just use the shipping cost estimator on your website after adding your profit margins. The potential customer can now easily calculate the considerable cost.
Here’s a brief example of how the shipping cost estimator is supposed to work.
|Cost of the product||$10|
|Cost of packaging||$5|
|Credit and processing fees||$1|
*Note that all prices are estimated.
You can provide a conventional calculator on your website so that an average person can also calculate the shipping costs. The major advantage the shipping cost estimator provides is that a layman can also calculate the exact amount of money to pay as shipping charges if they want to ship a package. The shopping cart abandonment rate will fall naturally if you provide a shipping cost calculator on your website where potential customers can calculate the shipping costs they must pay.