Deciding how to calculate shipping costs for your online store

Here are some of the most common solutions to calculate shipping costs that online shop owners choose, and the pros and cons of each:

Flat rates

Some websites attract customers (and avoid the extra labor of weighing and measuring every item in their store) by advertising flat rate shipping, or identical shipping for every order.

Usually, this rate is chosen as a “median” in the hopes that although some orders might cost more to ship than the flat rate that the individual customer paid, other orders will cost less to ship than the flat rate, causing you to more or less break even — if you can find that sweet spot. You might also choose to offer different flat rates to different countries, as international shipping is very expensive.

It is perhaps the easiest to handle, in that you will not have to determine the dimensions or weight of each one of your products before listing it on the site, but it is also the most inexact. It can encourage some customers to purchase more items so that they feel they are getting the “full benefit” of the flat rate shipping fee.

Free shipping

This option may also be attractive if you are dealing in products that are extremely high end, and you expect to easily cover the cost of shipping and still make a healthy profit from your product’s base price. Shipping costs are often a deterrent for customers in any segment of the market, and reducing or eliminating them can be a clever way to differentiate yourself from your competition.

This option is often combined with one of the other shipping models – You’re probably familiar with Amazon’s “Free shipping on orders over $25” policy already. Would you be comfortable offering a price tier in which shipping is included for free as a perk to your customers? All the same cautions apply as in the flat rate option.

You might also find that setting a price at which shipping becomes free encourages people to add a few more items to their cart to meet that minimum, which might result in higher overall profits.

Calculating price by weight

Now we’re starting to get more precise in the way that we recoup shipping costs — but we’re also seeing the downside, in that you will need to determine the exact weight for each of your products.

Then, you will need to pick a rate per pound that you charge for shipping. Check with your carrier of choice to get an idea of what a realistic rate might be.

This is only a moderately precise method of calculating shipping, as distance is also a factor for most carriers. However, you can start to get a reasonable approximation for orders shipped inside the US this way.

Calculating price by weight and country

Shipping internationally can change the cost of sending a package drastically. Although weight still counts, the price per pound might be double, triple, or even more depending on what country you are sending to.

If you are planning to send to countries outside the US, you may wish to choose different rates for each of your chosen countries. Again, consult with your carrier of choice to get an idea of what a realistic rate might be for each country on your list.

Obtaining exact shipping cost from a carrier such as USPS

This method can be extremely precise – however, it will usually cost you more, as many carriers will charge you for the privilege to link your website with theirs in order to exchange the relevant information about the order, and you may need additional software to facilitate that link.

In some cases, you will also discover that you not only have to determine the weight of each of your products, but also the width, height and depth of each one as well. This is because some carriers charge by shape of package, and offer special rates for specific boxes. To take advantage of those rates, you will need to allow the software to determine if the items will fit into any of the special rate packaging offered by that carrier.

This method is by far the most precise, but also the most labor intensive.

Don’t forget handling

Sending a package through the mail is not the only cost associated with getting a product from your shelf into the hands of your customer! Someone is going to have to pull that product from the shelf, wrap it in cushioning, place it in a box with the receipt or gift card, seal the box, affix the shipping label, and take it to the post office. Plus, you’ll have to purchase those materials like boxes, bubble wrap, labels and ink. Make sure you factor the labor and material costs of shipping into your business model, whether it’s by adding a small markup to the base shipping cost, or by including those costs in the markup on the product itself.

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