How Much Should I Charge for Shipping? Calculate in 3 Steps
by Jaidyn Farar
It’s exciting to run a thriving ecommerce business, but deciding how much to charge can be tricky—especially when it comes to shipping and handling.
When you set the right shipping costs, you create a perfect balance: customers get a good deal (and are happy!), but you don’t break the bank. So, how much should you charge?
Finding the answer requires a little math, but don’t worry! This article will break the calculation process down into three simple steps. But first … a little background info on shipping and handling in general.
What costs do shipping and handling include?
Shipping and handling costs can be broken into three main categories: packaging materials, time and labor (handling), and shipping (carrier fees).
Shipping and handling costs = (packaging costs) + (labor costs) + (shipping costs)
In this section we’ll provide a brief overview of each category, and in the next one we’ll dive into the specifics of calculating your own shipping costs.
First, you need to consider the cost of the packaging materials you use. Though the cost of packaging may seem small, it quickly adds up over time. And you probably use more materials than you’d think. Some common ones include:
- Cardboard boxes or poly mailers
- Packing tape
- Filler materials like bubble wrap, packing peanuts, or shredded paper
- Insulation and cooling packs (if you’re shipping food or pharmaceutical products)
- Shipping labels
- Printer ink
Handling: time and labor costs
Packing boxes can take lots of time, especially when you have high order volumes. It requires finding the right products, putting them in boxes, sealing them, printing and attaching labels, and driving them to the carrier. And repeat!
If you have employees, you pay them to handle fulfillment. But even if you’re the only one working at your business, you still need to consider the cost of your labor. They say time is money, and it’s true; your time has value.
Shipping: carrier fees
Carriers are the final link in the supply chain, transporting products from you to your customers (and, if they return something, back again). You’ll need to pay for every package they deliver—and their rates can get pretty steep. Fortunately, with a little know-how and , you can minimize shipping costs.
How to calculate shipping costs
Now that you know the three elements that make up your fulfillment costs, let’s review how to put them all together. The three steps below will help you accurately determine what you should charge for shipping.
Step 1: Figure out the costs of shipping materials
When you send out a single package, how much do you pay for the materials? Figuring it out will take a little bit of math. Keep in mind that if you use different sizes, amounts, or types of shipping materials for different products, you’ll need to calculate the fulfillment cost for each product separately.
To find the cost of materials when shipping a single package, calculate the total price of materials, including any taxes and additional fees, and divide by the number of packages you can ship with those materials.
Materials cost = (total price of materials) / (number of packages you can ship)
For example, let’s say you order 100 boxes for $0.23 each. You have the boxes shipped to your office, and once shipping fees and taxes are added, your purchase price equals $38.50. Divide that by 100, and you determine that you paid about $0.39 for each box.
The principle applies to other types of materials too. Let’s look at another example. You buy 20 cubic feet of packing peanuts for a total of $79.00. To fill one package, you need .3 cubic feet, meaning that you can ship about 67 boxes with the packing peanuts. When you divide $79.00 by 67, you get $1.18. That’s how much it costs to fill just one box with packing peanuts.
Simply repeat the process with the other materials you use to package products. Whether it’s a pack of shipping labels or a roll of packing tape, calculate the total cost of the material, then divide by the number of packages you can ship with it.
Factors that affect the cost of shipping materials
Not all materials are created equal. If you opt for higher-quality or custom packaging, you’ll most likely be paying more for it. And to continue making a profit, your business will pass those costs on to customers. You’ll need to decide if the benefits are worth the cost.
Step 2: Determine labor costs
Next, let’s calculate the labor costs involved with order fulfillment. In the phrase “shipping and handling,” this is the handling part. We’ll examine two scenarios: one where you fulfill orders yourself, and one where you use employees.
Fulfilling orders yourself
As an ecommerce business owner, the money you make varies depending on how many products you sell per month. So to calculate the cost of your own labor, start by determining your target hourly rate. (Hint: you might look at your past monthly income to figure it out.) Then multiply your target rate by the number of hours you spend packing and shipping orders.
Fulfillment cost = (target hourly rate) x (time spent fulfilling orders)
Finally, to find the cost of fulfilling a single order, divide the total fulfillment cost by the number of packages you processed during the time frame.
Cost to prepare and ship one package = (fulfillment cost) / (number of orders fulfilled)
The equation is the same with employees, but it’s more straightforward because they have a fixed hourly rate. Keep in mind that you should also include the cost of employee benefits and extra perks.
Fulfillment cost per employee = (hourly rate) x (time spent fulfilling orders)
Cost to prepare and ship one package = (fulfillment cost per employee) / (number of orders fulfilled per employee)
Step 3: Research shipping carrier costs
Every carrier offers multiple service levels, each with different delivery times and costs. We’ve gathered three resources to help you understand how much it will cost to ship your products.
Shipping cost calculators
Click the links below to find shipping cost calculators for three major carriers: UPS, USPS, and FedEx.
Factors that affect the shipping cost
for a deep dive on all the factors that affect shipping costs. You’ll also find a comparison of shipping costs for different carriers and service levels; we list the prices of sending a two-pound package across the country using USP, USPS, and FedEx.
These factors all play a part in determining shipping costs:
- Dimensions. Dimensional weight is calculated by multiplying a package’s length, width, and height, then dividing by a carrier’s specific divisor.
- Weight. If a package weighs more than its calculated dimensional weight, the carrier will use the actual weight. Heavier packages cost more to ship.
- Destination. Shipping long distances costs more, especially when it comes to international shipments.
- Value. If you include shipping insurance, the value of the items you’re shipping can drive up costs.
- Delivery time. Faster shipping times cost more, but this can be partially offset by shipping from distribution centers located close to customers.
- Surcharges. Surcharges are extra fees for things like fuel, residential delivery, oversize packages, and more.
- Duties and taxes. Shipments across international borders require a tax or tariff.
Five-step guide for comparing carriers—and choosing the right one
- Evaluate your needs
- Know your customer base
- Evaluate rates
- Evaluate performance
- Always negotiate
Determine an average rate to streamline shipping costs
Calculating shipping costs for every individual product could become tedious. Many businesses use the simpler option of determining an average shipping cost, then applying that rate to everything they sell. This flat-rate approach will minimize complexity for both you and your buyers.
To calculate your average rate, start by figuring out the total cost of shipping all your packages for one month. You can use the tips above to calculate the cost of supplies and labor, and you should have a record of what you’ve spent on carriers. Next, divide by the number of packages you shipped during that month.
Average shipping cost = (cost of fulfillment for one month) / (number of packages shipped in one month)
Just round up to the nearest dollar, and you have the shipping price for every product in the store!
How to give your customers free shipping
Of course, you have another option: don’t charge for shipping at all. When done right, free shipping can be a powerful differentiator that keeps customers coming back to your store. Consider these ideas for using free shipping to your advantage.
- Include shipping cost in the product price. Start by calculating your average fulfillment cost per package based on the instructions above. Next, add that number to every product’s price. Is this really free shipping? Not exactly. But it feels like free shipping, and consumers will love the simplicity of having the cost included in the upfront price.
- Implement a free shipping threshold. If a customer spends enough money, take care of shipping costs for them. Simply choose a minimum amount a customer needs to spend to get free shipping; the , but you can pick a number that works for your business.
- Start a rewards program. Customer loyalty is a feedback loop: the more you reward loyal customers, the more loyal they become. To incentivize customers to join your rewards program, offer free shipping. Another option is to give members points that they can spend on free shipping.
- Give free shipping for products you need to sell quickly. It’s annoyingly common: some products fly off the virtual shelf while others sit there gathering virtual dust. To clear out inventory, offer free shipping for products you’d like to sell ASAP.
Save big on shipping with EasyPost, and pass those savings on to your customers
Congrats! You now know how to determine shipping costs when selling online.
Of the three factors mentioned in this article—materials, labor, and carrier shipping rates—the carrier rates might seem like the most difficult to influence. But actually, your business can significantly reduce carrier costs by using a shipping API like EasyPost.
With , you’ll be able to on retail rates for major carriers like UPS, USPS, and FedEx. In addition to built-in discounts, the system automatically sorts through rates, finding the best solutions to balance delivery time and cost. The API also integrates with local and regional carriers, offering countless opportunities to save on last-mile delivery.
The best part? If your business ships fewer than 10,000 packages per year, EasyPost is totally free to use.