How to Calculate Shipping Costs and Make an Accurate Shipping Estimate

We’ve all been there -- trying to figure out how much it will cost to ship a package with no idea what to expect. Will it cost $5 or $50? Which carrier is the cheapest and best to use? Does it make sense to use air or ground service? These are all common questions that new online business owners have when they’re starting to ship out their products. Instead of remaining confused, read on to learn everything you need to know about accurately calculating shipping and handling costs while saving money along the way! 

Start With the Right Weight, Dimensions, and Destination

In order to begin calculating your shipping costs accurately, you need to have inbound and outbound logistics and, also, be prepared! It’s impossible to even begin to calculate your shipping costs without the size of the package, the weight of the package, the origin of the package, and the destination of the package. 

To get the size of the package, you will need to measure three sides of the box -- the length, width, and height. All major carriers utilize the dimensional weight concept to calculate shipping rates. Also known as DIM, you can arrive at this number by multiplying the length, width, and height of the box. From there, you divide by a standard DIM divisor. 

For example, the DIM divisor for FedEx is 139. So if you have a package that is 8 inches by 5 inches by 3 inches, the DIM would be 120. From there, you would divide 120 by the divisor of 139, which equals 0.863. 

Once you weigh the package, you can determine which rate you will use, as all major carriers calculate shipping charges based on whichever number is greater. For example, say your package weighs 16 ounces or 1 pound, you would pay for shipping based on that weight instead of the DIM of 0.863. 

All of this sounds pretty confusing, which is why it’s definitely easier to use a handy shipping calculator provided by the carriers. That way, you can eliminate room for error without having to do any math! It’s really a win-win. 

However, before you utilize a shipping calculator, you will need the origin and destination of the package. That’s because carriers charge for shipping based on shipping zones that tend to get more expensive the farther your package is going. 

As a general rule of thumb, you’re going to want to send lighter and smaller packages shorter distances in order to save money on shipping. 

Odds are you’ve heard of various different carriers, so how are you supposed to choose between them? Which one is the best in terms of reliability, affordability, and service? Here are the three main carriers in the United States and what you need to know about what they offer:

• United States Postal Service (USPS): USPS an independent agency of the executive branch of the United States federal government that provides postal service throughout the country and its territories. USPS is known for being quite affordable but not as reliable as some of the other carriers. 
  
  
• United Parcel Service (UPS): UPS is largely known for offering domestic ground services that can quickly reach every corner of the country. As the world’s largest package delivery company, it is able to offer fast and reliable delivery services. 
  
  
• FedEx: FedEx is largely known for offering international and air services. It is also known for being extremely reliable in terms of timely deliveries. 

Choose Your Service

Once you have chosen your carrier, you need to choose your service. Each carrier offers a variety of different shipping services that range in terms of delivery timeframes and, of course, cost. As expected, overnight delivery will cost you a pretty penny, whereas standard ground delivery will be more affordable. 

The good news is that there are usually plenty of options to choose from so that your package can get to its destination when you need it to! There are even “guaranteed” delivery options available that essentially guarantee that your package will arrive on a specified date or your money back. 

If you need to get really specific, there are some services that allow you to choose the time of your delivery -- for example, early morning, mid-morning, or afternoon. This option comes in handy if the delivery requires a signature -- that way, you can coordinate with the recipient to choose a delivery time that works for them. 

Finally, another consideration involves tracking -- as some services include tracking while others do not. If you want your customers to be able to track their order throughout its journey, it’s generally a good idea to choose an option with tracking capabilities. Once the order ships, just make sure to notify the customer of this change in status and provide them with the tracking information, so they know when to expect their order. 

Comparing the Actual Costs of Different Carriers and Services

All of this information is great, but it doesn’t actually tell you which carriers and services are the most affordable. That’s why we are going to use a real-life example to show the differences. 

We will be shipping an 8x8x8 inch shipping box that weighs 1.5 pounds, going from Washington, DC, to Boston, MA. 

• USPS Priority Mail Express 1-Day: $36.90
• USPS Priority Mail 2-Day: $10.10
• FedEx Standard Overnight: $78.49
• FedEx 2-Day: $27.38
• UPS Next Day Air: $100.27
• UPS 2nd Day Air: $25.84

As you can see, the services offered by USPS are substantially cheaper than those offered by FedEx and UPS. You should also note that the next-day services are substantially more expensive compared to slower shipping options. Overall, we recommend going with whichever shipping option makes sense for your timeline and your budget. 

Ways to Cut Down on Costs

If you’re freaked out by the costs calculated above -- don’t be! There are so many different ways that you can cut down on shipping costs and save money for your business. Here are some different tips and tricks you can use to cut down on shipping costs and keep more money in your pockets as a result: 

• Negotiate costs with carriers and explore discounts. Believe it or not, but shipping costs can be negotiated! The costs quoted above are just the standard rates, but there are ways that you can save money either through a volume discount or through a small business discount. In any case, it’s definitely worth contacting the carriers to see what types of discounts you’re eligible for and see if their prices are negotiable. 
  
  
• Save on packaging costs by ordering boxes in bulk. Many packaging providers will offer you volume discounts that can really save you a lot of money along the way. In fact. Saving money on packaging can allow you to spend a bit more on shipping so that your items arrive to the customer more quickly. For example, Box Genie offers substantial volume discounts that make a lot of sense if you have a high volume of orders. Plus, the great thing about boxes is that they never go bad (provided they’re stored correctly), so you don’t have to really worry about them going to waste. 
  
  
• Another way that you can cut down on shipping costs is to decrease the shipping distance. The most obvious way to do this is to expand the number of warehouses that stock your items. From there, you can simply ship your orders from the closest warehouse and cut down on costs instead of having to ship them from a single warehouse on the other side of the country.
  
  
• If you’re struggling to meet customer demands in terms of fast and free shipping (remember the prices above), consider slightly increasing the prices of your products to account for the “free” shipping that you’re offering. As a result, it will look like you’re offering “free” shipping and acts as an enticement for customers who tend to balk at paying for shipping these days. Meanwhile, you won’t have to cover those costs out of your own pocket and end up eating into your profit margin. 

Conclusion

As you can see, a lot goes into accurately calculating your shipping costs, and you need to get each component correct if you want to get a realistic shipping estimate! Just one wrong number can throw the entire amount off and leave you scrambling. The good news is that there are tools out there to help you with this calculation and also tips that you can use to cut down on shipping costs, so the process isn’t so stressful. 

Sources:

1. 10 Ways to Trim Shipping Costs | Entrepreneur
2. Strategic Warehouse Placement Can Help Companies Lower Shipping Costs | LinkedIn
3. Free shipping has become an expectation for most shoppers | Bizwomen