How to calculate shipping costs for online stores

When you’re starting an online store that sells any type of tangible product, it’s important to calculate anticipated shipping costs and factor them into your store’s overhead expenses. Once you have an idea how much you’ll be paying for shipping, you can determine how much of these costs to pass on to customers to maintain your profit margin — while still preserving customer relationships.

In this article, we’ll talk about the two main shipping methods you may want to try. We’ll also discuss how to calculate shipping costs for online stores once you’ve decided on a shipping method.

What works best for shipping products for online stores

“Dropshipping and flat-rate shipping are two main methods for calculating shipping costs,” says Anand K.C., head of marketing for CLOOM Tech.

Dropshipping is the practice of partnering with a product supplier who not only manufactures or sources a product you sell, but also stores, packages, and ships it for you, taking over the entire fulfillment process. This is a helpful option for store owners who don’t have a lot of space to store inventory or who want to scale up quickly and offer a variety of products. However, it usually costs more than other shipping methods (more on that below).

If you go with flat-rate shipping, on the other hand, your business handles the storage, packing, and shipping of its products, charging customers a single, flat shipping rate for each order. This can saddle you with a bit of risk — after all, you’re committing to the same shipping price regardless of each package’s true shipping cost — but it’s great for stores that only sell items of similar size and weight.

How to calculate shipping costs for dropshipping

If you choose to dropship your products, do some research to figure out which supplier you want to use. Some suppliers charge a flat rate, others charge based on the weight of each product, and still others offer a variety of pricing plans that bill you monthly, annually, or as a single, lump-sum payment.

Many popular dropship suppliers, like AliDropship and Spocket, provide price lists or price calculators on their websites — but the buyer must sometimes combine these with separate disclosures of additional charges, such as handling and packing fees, in order to get a complete picture of the costs. To get the most accurate estimate, it’s best to contact the supplier directly.

Whichever supplier you choose, expect to pay anywhere from $20 up to $900 a month, depending on variables like average weight, volume, delivery range, pricing plan, etc. You would, of course, pay considerably more for a one-time, unlimited plan payment, but, depending on the scale and needs of your business, it could be a good choice.

Anand also warns, “There are a few reasons why dropshipping costs are typically higher. The first is that you don’t control your supplier’s inventory,” so you’ll have to shoulder the cost of lost sales if the supplier runs out of a popular product.

A second reason is that dropship suppliers have to cover their own shipping and handling costs, over and above the product’s cost, so they’ll usually charge you a bit more for a product than a wholesaler would.

“Lastly,” says Anand, “many dropship suppliers require you to buy in bulk quantities. This means that you have to order more items than you might need at one time, which can drive up the cost even further.”

How to calculate shipping costs for flat-rate shipping

To calculate the best cost for flat-rate shipping, use the official calculator for your chosen delivery service — such as the USPS shipping calculator or the FedEx shipping calculator. This will give you the most accurate estimate for each of your products. Calculate the weight, size, and average distance traveled for each of your most popular items, then decide on a rate to charge your customers that will cover your average costs.

You may even decide to charge a rate that will cover the shipping of your heaviest or largest item. That way, you can account for any heavy, long-distance, or otherwise expensive shipping requests.

What to evaluate for your shipping needs

When calculating shipping, you can always work with a third-party logistics provider, or 3PL, which is a cost-effective solution for small businesses. With this method, you subcontract a third-party provider to calculate and process shipping for you. Two popular 3PLs for small businesses are ShipBob and Whitebox.

“If you’re not working with a 3PL, then taking the DIY approach is usually the best way to go,” says Anand. If you’d rather take the DIY approach as opposed to a 3PL, use the tips above to calculate your expected shipping costs. Just be sure to do it before you go live with your online store. That way, you won’t encounter any surprise shipping expenses once you’re up and running.

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