How to calculate your e-commerce shipping costs?

It’s no secret that e-commerce logistics have a cost. This includes inventory management, reverse logistics and, in this case, order delivery. While satisfying consumer expectations by reducing delivery times and offering multiple delivery methods is vital to the success of your business, so too is breaking even.

In this article, we’ll explain how you can easily and efficiently calculate your shipping costs to make your business as attractive as it is profitable

Calculating shipping costs: factors to consider

Before, during and after the shipment of your parcels, these components are worth considering:

1/ Delivery methods :

Offering consumers a choice is an excellent way of getting them to validate their basket in fine. On your side, not all delivery methods have the same impact on your budget. Express delivery is more expensive than standard delivery, just as Point Relais delivery is cheaper than home delivery.

2/ Package weight and dimensions :

The larger your sale items, the more expensive they are in terms of delivery and packaging costs. Adapt your pricing accordingly.

3/ Packaging costs:

Whether your parcel is large or small, quality packaging is important to reduce the risk of unpleasant surprises upon receipt by the buyer. And, by extension, fewer product returns.

4/ Geographical area to be delivered :

Sending parcels within France, to French overseas territories, to Europe and beyond does not have the same cost. To reduce the budgetary impact of your shipments, don’t hesitate to adjust your delivery charges according to the geographical zones to be delivered. Customs charges can also be added to the equation. Think about it!

5/ Insurance costs :

No one is immune from theft or loss of a parcel. To avoid disappointment, it’s essential to insure your merchandise according to its value.

6/ Potential returns :

Non-conforming or damaged product, purchase error… According to the Hamon law, from the date of receipt of the order, the buyer benefits from a 14-day retraction period. If the return form is not directly included in your parcel, you are obliged to reimburse the shipping costs incurred by the customer.

7/ Fuel surcharges :

Whether you make your own deliveries or use the services of a carrier, rising fuel prices can have an impact on your expenses. Be vigilant, and react accordingly to minimize your losses as much as possible

Define your shipping costs

What is the average cost of a shipment for your company? Answering this question will help you define your shipping costs.

The simplest formula to apply is as follows:

Average cost of a shipment = cost of transport packaging insurance rate of return cost of order preparation.

Of course, this cost varies (sometimes significantly) according to the geographical area to be serviced. Segmenting your shipping costs according to the areas to be delivered is a good strategy for calculating your shipping costs clearly and precisely.

Free shipping, advantages and disadvantages

To attract more consumers or increase the average shopping basket, the temptation for entrepreneurs to offer free shipping is often great. There are several advantages to offering free shipping to your customers:

• More purchases and a larger average basket: customers tend to spend what they’ve saved on shipping costs;
• Fewer abandoned baskets;
• Improved customer loyalty.

Provided, of course, that this strategy enables you toincrease your profitability, and not the other way around. In fact, a free shipping strategy exposes you to certain disadvantages:

• Additional costs and therefore a reduced margin on your sales;
• Free shipping encourages product returns, which can lead to more complex logistics operations and additional costs;
• Your customers get used to free shipping. Your customers have become accustomed to free shipping, so a return to paid shipping may not go down well with them.

Based on this principle, the most effective approach is to calculate a threshold at which you can offer consumers free shipping:

Shipping cost = average basket – average product cost – shipping cost.

So, for example, if your average basket is 30 euros, the average cost of a product is 10 euros and the cost of shipping is 5 euros, the minimum order amount to benefit from free shipping is :

30 10 – 5 = 35 euros

To generate even more interest among consumers, you can also use this calculation during specific periods, defined by yourself or by the shopping season calendar, which includes Sales, Black Friday and Christmas, among others

How can you optimize your e-commerce shipping costs to maximize your profitability?

There are 3 key points to get you started:

• Offer customers attractive delivery options;
• Negotiate attractive rates with carriers;
• Regularly update delivery rates.

There is an alternative that will save you both time and money: outsource your e-commerce logistics. Whether you decide to outsource your order management to a logistics provider, or to outsource your entire e-logistics operation, our Rakuten Fulfillment Network solution will give you all the information you need to get started.

Making your business shine is one of our priorities, which is why we offer to take charge of your e-commerce strategy. All with clear, no-hidden-cost pricing for your shipping costs, merchandise storage or, among other things, the multiplication of your acquisition channels.

Find out more about our turnkey method:

Transparency of delivery costs: an important parameter

Whatever shipping cost model you choose for your store, it’s important that it’s legible and that your customers can understand it effortlessly. This means:

• Opting for a relatively simple shipping system: limit yourself to a maximum of two or three categories, and reduce the conditions for each category (minimum purchase, distance, etc.);
• Clearly indicating shipping costs to your customers early on in the purchasing process: this will limit the number of customers who abandon their shopping baskets at the last stage.

Being transparent about your shipping costs saves you a lot of inconvenience and limits your customers’ frustration, which ultimately helps to increase their loyalty and your sales.