How to Calculate Shipping Costs

by Sifted Team

Jun 10, 2022

6 min read

Importance of Calculating Shipping Costs

As an online seller, you need to calculate the shipping cost as it serves as the shipping quote of the product they will purchase. You need to offer the best shipping rates to your customers if you want to compete in the heavily crowded retail environment.

Accurate shipping cost calculation is necessary for successful domestic and international shipping. A miscalculation or failing to account for certain factors such as inefficient packaging can lead to transactions where profits are erased.

In this article, we will review the most common factors affecting shipping costs and share actionable tips for calculating the best shipping rates for your business.

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How to Calculate Shipping Costs

Many of the factors affecting the total cost of shipping are simple and straightforward, such as package dimensions, actual weight, and delivery times. In this section, we’ll discuss these points and more, so you can calculate shipping rates that work for you and your customers.

Package dimensions

Major shipping carriers like FedEx, UPS, and USPS calculate the shipping rates for a package using the dimensional weight (DIM weight) method, rather than its actual weight. This pricing model enables them to charge shipping rates based on the amount of space a package occupies, since there is limited space available on the truck.

Here’s the formula for calculating the DIM weight of a package:

Dimensional weight = Length x Width x Height / DIM divisor

The DIM divisor is the number set by shipping companies representing the volume of a package allowed per unit of weight. FedEx has a standard DIM Divisor of 139. UPS’ standard DIM Divisor for retail rates is 166. These are negotiable with each carrier.

Note that once the DIM weight is calculated, the larger value among the two (DIM weight and actual weight) will be used to calculate the shipping rates.

Carriers will also charge an additional fee if a package exceeds certain weight and dimension limits.

Package weight

Actual weight is another factor that determines the shipping charges of your shipment and the shipping service you use. For example, UPS flat rate shipping allows up to 50 pounds as long as your item does not exceed 1,728 cubic inches in volume.

Shipping destination

Shipping companies calculate delivery charges based on how far a package has to travel. They assign certain numbers to geographical regions (from Zone 1 to Zone 8 for domestic shipments in the U.S.) called shipping zones. The lower the number of shipping zones a package has to travel, the less the cost of shipping and vice versa.

Shipping zones are not fixed numbers and are dynamically calculated depending on the point of origin. That means that even if two packages are sent from different locations to the same destination, their shipping zones might be different.

Value of contents shipped

Carriers charge additional fees for items that require special handling or packaging. For example, USPS makes you go to the post office in-person to get its Special Handling-Fragile service. If you frequently deal with fragile goods, you’ll need to factor in the costs of delivery such as fuel costs, vehicle maintenance, and labor costs, etc.

There are also fees for dangerous goods like lithium batteries and inflammable liquids.

Delivery times

Fulfillment By Amazon sellers on their eCommerce website have plenty of shipping options from Amazon standard delivery (4-5 business days) to FedEx same day delivery. Of course, you’ll be charged higher delivery fees for faster shipments.

Similarly, the shipping method your customer selects also determines how fast the package reaches its destination.

Unexpected problems

Proactive re-evaluation of shipping processes and investing in a logistics management technology can help you create a robust shipping strategy. However, unforeseen events like lockdowns and delivery drivers calling in sick can slow down delivery service operations.

This can prove difficult because many customers expect a discount or refund on shipping costs for delivery delays. As a result, you have to factor in any customer refunds in the total cost of shipping.

USPS Shipping Calculator

With USPS, the combined length and girth of a package must not exceed 108 inches. USPS Retail Ground shipments may measure up to 130 inches in combined length and girth. Regardless of the size of the package, it must not weigh more than 70 lbs.