How to Calculate Shipping Costs For Your Business
by Marilyn Bunderson
Customers look for fast and free delivery when they order online. A recent study by McKinsey and Company found that more than 90% of consumers consider 2- and 3-day delivery to be a baseline expectation. And in a survey conducted by Digital Commerce 360, 76% of shoppers listed free shipping as the attribute or condition most likely to lead shoppers to a website. The right price took second place at 73%.
As an online retailer or ecommerce brand, you need to be able to accurately calculate shipping costs to fully understand the impact of shipping on your profit margins. Knowing how much it costs to ship your parcels is a critical component in pricing your products right.
Whether you’re in search of the cheapest shipping for a small business or simply want to provide more delivery options for your customers, we’ve got you. This article will explore all the costs associated with shipping a package and help you choose the right carrier for your needs.
How do I calculate shipping costs?
You’ll need to take several different factors into account as you calculate shipping costs. Weight, dimensions, value, and other variables affect the calculation, so it’s important to understand how each comes into play.
Dimensions
The dimensional weight, or DIM weight, is a measure of the density of your package. It’s calculated by multiplying the length x width x height and then dividing by a carrier’s specific divisor. For oddly shaped packages, use the longest point on each side.
Carriers like USPS, FedEx, UPS, and DHL calculate rates based on the higher number between the actual weight and the dimensional weight of the package. Using the dimensional weight takes the size of the package into account, therefore guarding against issues like transporting a lightweight package that takes up a disproportionate amount of space.
If you have a package that is 10x10x10, for example, use the sum of 1,000. For DHL, the divisor is 166 if you measured in inches and 6,000 if you used centimeters. Using inches, the dimensional weight of the package is 6 pounds. If the actual weight of the package is 5 pounds, the dimensional weight of 6 pounds would be the chargeable weight.
Carrier Divisors | |
|---|---|
Carrier | Formula |
USPS | (L x W x H)/166 |
FedEx | (L x W x H)/139 |
UPS | (L x W x H)/166* |
DHL | (L x W x H)/166** |
*UPS uses a divisor of 139 for Daily Rates and 166 for Retail Rates.
**DHL uses a divisor of 166 for inches and 6,000 for centimeters.
Tip: Make sure to use the right size package for your items. You’ll pay more for an unnecessarily big box.
Weight
If the package weight is more than the calculated dimensional weight, the actual weight of the package is used. Heavy packages use more resources to ship, so you’ll pay more in shipping costs to ship heavy items.
Tip: In some cases, it may be worth it to break up heavy shipments into several smaller packages if that’s a possibility. A heavier package may be more likely to be dropped, especially when it’s too large to handle. In addition, overweight charges add up fast.
Destination
Shipping zones are geographic areas carriers use to calculate delivery times and prices. The greater the distance, the more it will cost to ship the item, so shipping within your zone will cost less.
The United States is generally broken down into eight zones (USPS uses nine zones). Zone one is the origin of the shipment, and zone 8 (or 9 in the case of USPS) is the farthest possible distance for a domestic shipment. Some flat rate services are available, and those are not affected by zones. Flat rates allow you to ship anywhere in the U.S. for the same price regardless of the destination.
Tip: When possible, distribute your products to warehouses throughout the country so you don’t have to ship long distances to get to your end destination. This will be cheaper, and you’ll get your packages there faster.
Value
The value of an item can impact the charges if you want to include shipping insurance. If you choose to insure a package, you will receive reimbursement for lost, stolen, or damaged packages. The cost of insurance is generally a percentage of the value of the item being shipped.
Tip: USPS offers free shipping insurance for packages valued up to $100 for Commercial Plus customers. And when you have high-value packages, it’s generally worth it to provide insurance.
Delivery times
A Statista.com survey of consumers who shop online at least once a month found that 41% expect delivery within 24 hours. Expectations for 1-2 day delivery are on the rise as well, and fast delivery will need to figure into your shipping cost calculations.
Providing 2-day delivery to customers in the same zone you’re sending the item from can best be done through ground shipping. However, if you need to deliver to a customer in zone 8 or 9, you’ll need to use more expedited options. Distance matters, so using a fulfillment center close to the destination will save you money and get packages to customers more quickly.
Tip: Offer your customers free ground shipping and give them the option to pay for faster delivery.
Surcharges
Surcharges are extra fees added to the shipment that may show up as a service or handling fee. Surcharges could include the following:
- Fuel
- Oversize package
- Weekend delivery
- Residential delivery
- Signature required
- Address correction
- And more
Tip: Make sure you understand exactly what you are being charged and why. Often, you can take steps to minimize surcharges or even renegotiate contracts to eliminate them altogether.
Duties and taxes
Goods transported across international borders must pay a tariff or tax. These Customs Duties, which are put in place to protect a country’s economy, can be paid by either the seller or the buyer. You can and should calculate these tariffs and taxes before you ship to gain full insight into your shipping costs.
Packaging supplies
Not to be overlooked, packaging supplies can be a big part of your overall shipping costs. USPS does provide some free materials for some levels of shipping, but you’ll likely need to include additional packing materials to keep your items safe.
Tip: To save money on supplies and packaging, consider making bulk purchases of supplies like boxes, packing peanuts, air pillows, tape, etc. In addition, make sure your packages or boxes are the right size for your product. Leaving extra space in your boxes means you’ve spent more on a larger box than is necessary. Your shipping costs will be higher thanks to the larger box, and you’ll need to use more packing materials to keep your items safe.
Unexpected events
Delays, lost packages, damaged packages, and other issues will happen from time to time. Make sure you leave a little room in your budget for these unplanned events.
Comparing shipping costs by carrier
Every carrier has their own take on how to calculate shipping costs. It’s essential to understand how it works for each to make a well informed decision. Calculating the cost of shipping overnight can be especially important so you can provide timely deliveries without breaking the bank.
USPS
The United States Postal Service (USPS) is government operated and provides some of the most cost-effective delivery services available. They offer a wide variety of options, including First-Class Mail, Priority Mail, Express Mail, USPS Retail Ground and more. To calculate your postage, you can enter your information into a price calculator on their website.
Weight, size, shape, and distance will affect the cost of shipping. With Priority Mail you can ship a package up to 108 inches in length plus girth and up to 70 pounds. USPS Retail Ground, on the other hand limits you to 130 inches for the length and girth but with the same weight limit. If you go over that size or weight limit, you’ll need to pay an overweight charge.
Shipping speed – how quickly you need your package delivered – also impacts the cost of shipping. The table below shows the cost for a two pound package from San Francisco, California, to Boston, Massachusetts, from the least to most expensive options.
Service | Speed | Cost |
|---|---|---|
Priority Mail Flat Rate Envelope | 3 days | $9.90 |
Priority Mail Small Flat Rate Box | 3 days | $10.40 |
USPS Retail Ground | 7 days | $14.55 |
Priority Mail Medium Flat Rate Box | 3 days | $17.05 |
Priority Mail | 3 days | $17.10 |
Priority Mail Large Flat Rate Box | 3 days | $22.45 |
Priority Mail Express 1-Day | 1 day | $57.00 |
If you can fit that two-pound item in a flat rate envelope, you’ll save $0.50 over the small flat rate box. As you can see, the size of the package affects the price.
UPS
UPS rates are based on where the package is shipped from, the destination, which service you choose, how much the package weighs, and more. You can estimate your UPS shipping charges on their site.
If you’re using UPS, you will have a 150 pound weight limit and a dimensional limit of 165 inches in total length and girth combined. Special pricing will be applied to packages with a large dimensional weight, and an Over Maximum Limits charge will be added if you go over. Fees do include surcharges such as fuel, import, and export surcharges.
Service | Speed | Cost |
|---|---|---|
Ground | 1 to 5 days | $15.57 |
3 Day Select | 3 days, end of day | $42.28 |
2nd Day Air | 2 days, end of day | $51.02 |
Next Day Air Saver | 1 day, end of day | $102.68 |
Next Day Air | 1 day, 10:30 a.m to 12:00 p.m. | $113.10 |
Next Day Air Early AM | 1 day, 8 a.m. to most major cities | $148.20 |
FedEx
With FedEx, the service you choose is the biggest player when it comes to price. However, size and weight also play a role. FedEx also uses the dimensional weight or the actual weight, whichever is the larger number, and you can use their handy price calculator to find out exactly how much you’ll be charged.
FedEx lists a variety of weight and dimension limits depending on the service you choose. The largest size limit is for FedEx Express, which has a weight limit of 150 pounds for a package 119 inches long or 165 inches in length plus girth (length + 2 x height + 2 x width). If you go over these limits, you will be hit with an oversize charge of $105 per package for U.S. Express Package Services and FedEx Ground. FedEx includes fees and surcharges such as delivering to remote areas, shipping dangerous goods or high-value items, and more. A list of surcharges can be found here.
The table below shows the FedEx Retail Rates for sending a two pound package from San Francisco, California, to Boston, Massachusetts, from the least to most expensive options.
Service | Speed | Cost |
|---|---|---|
FedEx Home Delivery | 7 days, end of day | $15.10 |
FedEx Express Saver | 3 days, 8 p.m. | $47.95 |
FedEx 2Day | 2 days, 8 p.m. | $55.70 |
FedEx 2Day | 2 days, 12 p.m. | $64.72 |
FedEx Standard Overnight | Next day, 8 p.m. | $114.16 |
FedEx Priority Overnight | Next day, 12 p.m. | $124.70 |
FedEx First Overnight | Next day, 8 a.m. | $160.97 |
DHL eCommerce
DHL eCommerce Solutions is a delivery service for high-volume shippers who need parcels delivered domestically or internationally. Shipping charges are calculated using dimensional weight, and you can get an online quote with their shipping calculator.
For businesses, DHL eCommerce offers several service levels for domestic and international shipping. You can ship up to 70 pounds with their domestic services, with a maximum length plus girth of 84 inches. International shipping limits are 66 pounds to Canada and 44 pounds to the rest of the world, with a maximum length plus girth of 118 inches.
With DHL eCommerce you can display real-time duties, taxes, and government fees at checkout for your shoppers. They use an indexed fuel surcharge based on current fuel charges and updated monthly as well as other fees such as shipping dangerous goods, remote area delivery, and more. They also have an overweight charge of $99 per piece and an oversize charge of $70 per piece.
How to charge for shipping
Shipping costs can add up, but it doesn’t have to hurt your bottom line. When you know what you have to pay, you can cover that cost in a variety of ways.
- Free shipping – Offer your customers free shipping and wrap the cost of shipping into the price of your product or service.
- Threshold shipping – Offer free shipping or discounted shipping after customers reach a specified order amount, like $35.
- Flat rate shipping – If your products typically fit well into one of the USPS flat rate shipping boxes, you can pass that flat rate on to your customers.
- Shipment-level transit time – Help your customers save time, improve on-time delivery percentiles, and receive extremely reliable delivery estimates using our EasyPost Smartrate API.
Whether you cover the cost of shipping by wrapping it into the price of your products or pass the cost on to your customers, you’ll want to get the best rates possible.
Optimize shipping costs with EasyPost
EasyPost will save you money on your shipping costs. Our API is free for those who ship fewer than 10,000 packages a month, and the more you ship, the more you save. We deliver the most reliable logistics technology platform for businesses of all sizes, with 99.9% uptime even during peak season shipping.
Take a look at how our solution will save you money:
- Discounted shipping. Access our exclusive shipping rates with USPS, FedEx, UPS, DHL, and more.
- Create Label tool. Enter your package details into our Create Label tool to easily print labels in minutes.
- Shipping API. Compare rates and purchase labels across USPS, FedEx, UPS, DHL, and 100+ more carriers.
- SmartRate API. Save money and improve on-time delivery metrics with data-backed optimization with every shipment.
- Tracking API. Create trackers and receive real-time shipment updates through custom branded tracking pages and webhook notifications.
- Address Verification API. Confirm the accuracy of domestic and international addresses to improve deliverability.
- Shipping insurance. Protect your packages against damage, loss, or theft across all carriers, service levels, and countries.
- Carbon Offset API. Calculate carbon emissions from parcel delivery for every shipment, and purchase offsets to neutralize your carbon footprint.
- Partner White Label API. White label EasyPost so your customers can sign up and print labels all within your platform.