How To Calculate Shipping Costs
A significant business concern will always be the cost of shipping goods to where they need to go with any fulfillment center. The shipping charges usually fall to the customer ordering the products, but this isn’t always the case.
Say customers cash in on a deal that gives them free shipping on any order, or they receive free shipping on a bulk order of some kind. In these cases, the costs are covered by someone else like the fulfillment center itself.
A shipping cost calculator is vital to running a successful fulfillment center. Customers need to know how much they will pay for shipping and it’s your responsibility to provide it for them.
The core information required for a shipping estimate is the distance between the fulfillment center where the product is stored and the destination it has to reach. Other expenses may also be taken into account.
How to Calculate Individual Shipping Costs
Luckily for fulfillment center managers and owners, several postal companies such as UPS provide calculation services to help determine the cost of shipping without the heavy mathematical lifting it would require otherwise. UPS offers reliable quotes for products shipped through their air and ground services through their website.
To get a quote from UPS, a fulfillment center must have an account with them and fill out basic information, such as the dimensional weight, type of packaging, and destination. From this point, UPS’s algorithm gives out their estimate.
UPS also offers a far more general estimate for overseas shipping based on the origin and destination countries. This is helpful information for a fulfillment center, but it does not paint the full picture.
Factors that Affect Shipping Cost
So how do you know how much a package costs to ship? Here are some factors that determine the shipping cost amount.
Most shipping companies structure their prices based on the dimensions of the package being sent. The larger the package, the more expensive it will be. Dimensional weight, also called DIM, is the primary factor needed to calculate shipping costs accurately. The calculation itself takes into account both the actual size of the box and the weight.
A small heavy box will cost less to ship than a large light-weight box because the larger box takes up more space when shipping. Items that can be shipped in envelopes will cost less than other means based on the same principle, but weight is still a key factor.
The DIM calculation itself is a simple multiplication equation. Multiply the length, width, and height of the package to get the internal area, then divide by the DIM divisor.
Separate from the dimensional weight, the package’s total weight also needs to be calculated for an effective shipping estimate. There is no calculation necessary in finding this figure. Put the package on a scale and record the result; it is the most straightforward part of the calculation process by far.
Shipping companies charge based on the higher number between the package weight and DIM. If a package is excessively heavy, it will cost more to ship.
An additional cost is added if the product weighs more than one person can lift due to the increased labor costs either from multiple individuals or machine use.
Cost of Handling
Any business needs to make sure their employees are paid; fulfillment centers are no exception. Once a fulfillment center knows the cost of shipping a product, the estimate they give to their recipient has to have a high enough margin to cover the expenses of handling their package and make a profit. With the base cost of shipping calculated already, this is a simple addition, but a necessary one.
Value of Shipment Contents
Certain valuable contents, such as jewelry or other luxury goods, require additional security while transporting. In addition to the cost of that security, the shipped products must also be insured for both the fulfillment center’s benefit and the customer’s. Nothing is worse than being sued for losing a large number of expensive goods.
The same principles apply to shipping any controlled substance. Local laws and regulations may vary based on the source and destination of the product. Still, the cost of both insurance and security will undoubtedly be much higher than a standard package. In most cases, fulfillment centers that handle these products will be aware of the specific regulations they are subject to.
The customer may always be right, but at times the customer’s whims can be expensive to maintain. Thanks to certain distributors, most online shoppers expect their products to arrive in a matter of days. At times, this can be easily achieved via ground shipping.
However, if a customer on the west coast of the United States requests two-day shipping from a fulfillment center in New York, air travel and other expensive shipping methods are used.
Giving Shipping Estimates to Customers
73% of customers expect fast and cheap shipping rates whenever they shop online. Customers are also more likely to shop online when shipping is cheap or free.
Unfortunately, shipping is never free for the fulfillment center that their products ship from. The difference between customer expectations and profit is nothing new, but it does beg the question: does free shipping hurt a company’s bottom line?
In most cases, customers are willing to pay slightly more for faster shipping, but they will always gravitate toward items or deals which offer free shipping. These items aren’t free to ship, but the increase in orders for products with free shipping can often make back the deficit of free shipping.
Reduced shipping costs attract people looking for bargains; while the money is no longer made back from the shipping itself, the sales do bring in profit.
Luckily, most online shoppers are still aware that they generally do have to pay for shipping. In fact, having access to an accurate shipping estimate from a fulfillment center may encourage people in the surrounding area to buy more goods from their nearest warehouse rather than paying the increased costs to ship from elsewhere.