How To Calculate Shipping Costs for Your Online Store

Calculating shipping costs is a crucial part of building your online store. You need to understand your package weight, size, destination, and delivery speed to determine the right rate.

In this competitive market, offering low or free delivery fees is a great way to draw in sales, but it can lead to a loss in profit if you’re not realistic about what your business can offer. In this guide, I’ll help you find the right balance to ensure you can make a profit while satisfying your customers.

How To Calculate Shipping Rates for Your Business

Variables, such as package value and destination, can affect how you calculate your shipping costs:

• Package weight and size – the larger and heavier your package, the more expensive it will be to ship
• Package value – high-value and fragile items require more premium protective packaging and shipping insurance
• Delivery speed – premium services, like overnight shipping, will bump up your fees
• Shipping distance – you’ll need to pay for transportation if you’re selling internationally, plus you might be charged import and export fees
• Labor involved – you need to pay all involved in the manufacture of your products, including valuing your own time
• Material cost – how much did you pay for the materials needed to produce your product?

By taking into account how much it costs to manufacture and deliver a product, you can pinpoint a shipping fee that helps you make a profit.

Your shipping rate also depends on the shipping method your business uses, such as bespoke shipping or free shipping.

You can do the calculations manually, such as by dividing the shipping cost by your total sales to see how much you’re spending on shipping each sale. For example, if you make $10,000 in sales every month and spend $2,000 on shipping, you would divide the shipping total by the total sales figure. In this example, you’re spending $0.20 on shipping for every $1 you earn in sales.

However, it’s best to use online shipping cost calculators to check the figures. Shipping carriers, such as FedEx and UPS, offer online shipping calculators to help you set your rates.

How Much Should You Charge Customers for Shipping?

Before you can apply your shipping costs, you need to adopt a preferred shipping type that suits your business and customers, from bespoke shipping to free shipping. No matter how you ship your products, you need to be transparent and provide accurate cost estimates to ensure positive customer interactions.

1. Calculated/Bespoke Shipping

Calculated or bespoke shipping is where the shipping costs are determined by the package’s weight, size, and destination. There’s no fixed rate.

Unfortunately, it’s challenging for customers to determine the total cost exactly until they reach the checkout page. This can lead to cart abandonment. That said, it’s a good way to set the price and profit that you want for each product.

2. Flat Fee Shipping

Flat fee shipping is where you charge one fee for all shipments, no matter how large an order the customer places. For example, if you charge $5 for shipping, a $10 order will have the same shipping fee as a $1,000 order.

With it being an upfront cost, it’s a simple system for customers to understand and easy for business owners to implement. But, customers might feel disappointed that they’re not “rewarded” for spending more money with your business.

However, flat fee shipping is a great option if you sell one type of product or products with similar dimensions, since you can incorporate the cost of shipping into the product price and use flat-rate boxes or envelopes from carriers.

3. Free Shipping

Free shipping does what it says on the tin – you charge customers $0 for shipping. To do this, you absorb the shipping costs into your product pricing, or elsewhere in the business.

Alternatively, if you’re not comfortable hiking your prices up (since this can drive customers away), you can offer a minimum purchase amount. With this, customers need to spend a certain amount of money, such as $50, to qualify for free shipping. This is a great way to encourage larger sales, while also satisfying customers with the idea they’re saving on shipping.

4. Local Delivery

If your customers are based locally, it’s worth offering local delivery. For small businesses, you can deliver items yourself within a certain ZIP code, or employ nearby carriers. For this, calculate the delivery costs, such as gas for your car or carrier fees, and incorporate them into your product pricing.

Since the customer is local, it’s best to offer either free or cheap shipping to entice them to choose this option at checkout.

Which Shipping Provider Should You Choose?

Delivery services, such as FedEx and USPS, offer unique and varying rates, depending on the shipping method and package. To explore pricing, I used a number of calculators to deliver a small package with a weight of 5lbs from Boston to Chicago. Based on this test, pricing can range from $7 to $192.

You can see the different shipping methods and costs in the tables, using my example package above. Pricing and shipping options are correct as of January 7, 2025.

How Much Does FedEx Cost?

How Much Does USPS Cost?

How Much Does UPS Cost?

How To Reduce Your Shipping Costs

For budget-conscious businesses, the cost of shipping goods can be daunting, especially if your customers are overseas. Here are a few ways to save money, from reducing packaging costs to searching for discounts:

• Find low-cost packaging materials without compromising quality or protection
• Prepare for the worst, including transport delays, unexpected fees, strikes, or even natural disasters by factoring these possibilities into your budget and ensuring you have good communication channels with customers
• Pay for shipping insurance – the cost of insurance will be minimal in comparison to any potential loss from damaged goods
• Sell domestically since you won’t need to budget for international fees, such as import tariffs (though lots of shipping services can help you navigate the US tariffs as a business with expert guidance and automatic tax calculation)
• Look for carrier discounts – delivery services sometimes offer unique deals when opening up a new account
• Use flat rate boxes to ship products for a set price – but this only works if your products fit the required dimensions (otherwise you could accidentally overpay)
• Save money with website builders – for example, Shopify offers carrier discounts and Squarespace provides low-rate shipping labels

How To Calculate Shipping Costs: Next Steps

When calculating shipping rates for your online store, you must consider the cost and time involved in producing and shipping your products, how much you want to charge customers, and possible carriers.

The best shipping strategy you can pick is one your customers can easily understand and expect each time they shop with you. You don’t want to put customers off with a high shipping fee, but you also don’t want to lose money as a business, so striking a balance that works for your brand is key. Weigh up your options, assess the pros and cons, and figure out what works for your budget.

Written By

Emma Ryan

Emma is Deputy Editor of MVF’s B2B brands, specializing in website builders, ecommerce, marketing, and vibe coding. Emma combines her wealth of knowledge and years of hands-on testing with a passion for helping small businesses and website owners navigate the highs and lows of being online. Her work has been featured in Newsweek, Digiday, TechRound, and Industry Today.

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