Forgotten Aspects Of Packages – The Actual Costs Of Shipping To Your Customer
Contributed by Will Schneider
When it comes to shipping items to your consumer, most entrepreneurs have a very narrow outlook of the whole process.
What happens when your package is all wrapped up and ready to go? Do you know how much your postage costs? What are the different amounts that add up to your total shipping costs?
With the Logistics Industry exceeding the $1.6 trillion mark, shipping now includes multiple transportation modes to link manufacturers with consumers.
Let us take a look at the various factors that contribute to your shipping costs and the different shipping options available for manufacturers and sellers.
What Constitutes Your Shipping Cost?
Understanding what elements make up your shipping cost is important for devising a shipping strategy that works for both your business and your consumer.
From the size of your package to how valuable it is, there are numerous factors that add to the overall costs. Let’s breakdown the various components:
This includes the cost of boxes, envelopes, cartons, etc. that are used to safely pack your product for transit. Not just the exterior covering, but the cost of internal void fill (such as foam, bubble wrap, polymer or butcher paper) is also included when calculating packaging costs.
These are highly dependent on the nature of your business and the products you deal in – for instance, the size and fragility of your product have a major impact on the packaging used and thus, the cost.
Many people confuse shipping and handling as one since many carriers and service providers offer a standard cost without distinguishing between the two.
Simply put, shipping refers to the cost of delivering the package from one point to another – including transportation and postage. Handling, on the other hand, refers to the labor costs involved in collecting the inventory, packing the items, loading the shipment in a vehicle and any other human-input related activity that is carried out in the warehouse or business premises.
For instance, if you require customized wrapping, it will increase the labor input and therefore, raise your handling costs without affecting your shipment prices.
While conventional shipping took package size and weight into account, modern-day carriers have devised a new formula to decide upon the weight of the package – Dimensional Weight or Dim Weight.
What Is Dimensional Weight?
According to UPS, “Dimensional weight reflects package density, which is the amount of space a package occupies in relation to its actual weight.”
Dimensional weight is not a new concept and has been used in the air cargo industry for years. Essentially, the purpose behind setting up this standard was to ensure that shipping companies continue making a profit on lightweight packages. As such, dimensional weight accounts for space a package takes up to determine the rate.
This is where it gets a bit complex – DIM weight is not the default calculation rate unless you are shipping via air. Popular freight carriers (UPS, USPS, FedExUPS, USPS and FedEx) calculate shipping charges based on whichever is greater; the actual weight of the package or the dimensional weight.
How Can You Calculate Dimensional Weight?
Dimensional weight and how it compares to the package’s actual weight can be confusing to calculate. Let’s simplify the process, one at a time:
- Basically, DIM weight is calculated by multiplying the length, width and height of the package. For each of the three measurements, choose the longest side of the package.
- For the sake of this example, let’s assume that a package is 30 x 12 x 15 inches. Based on these measurements, the total size will be 5400 cubic inches.
- Hang on, there’s more; the cubic size of the package is then divided by the carriers’ pre-defined ‘dimensional factor’ also known as the DIM divisor. We will consider UPS as our freight carrier in this example – their DIM divisor is 166.
- Continuing with the aforementioned example, the cubic size (5400 cubic inches) is divided by the DIM divisor (166) to finally spell out the dimensional weight which comes to 32.53.
- Additionally, remember that most freight carriers insist on rounding your calculations to the nearest number. In this example, our DIM weight is 32.53 which will effectively be rounded off to 33 pounds.
Once you have calculated your package’s dimensional weight, compare it with the actual weight. In this example, if the package’s actual weight exceeds 33 pounds, then this number would be used for the billable weight.
The calculation may require some back and forth, but it is an important consideration of your shipping costs.
Before freight carriers implemented the dimensional weight system, package weight was the most important factor in determining your shipping costs.
Your package needs to be ‘shipped’ all the way from the pickup point to the destination – and depending on the location, it can be thousands of miles.
That takes a lot of fuel and labor; this is why your shipping destination is also an important part of your total cost.
As such, carriers have divided distances into ‘shipping zones’ – the entire US is divided into 8 different zones. These include the distance between the package’s origins, all the way down to its destination.
Additionally, they are measured on where you are shipping your package from. What this means is that if you ship the package to the same destination from two different places, you might be shipping off to two different shipping zones.
If you’re opting to add insurance, be wary of the price as it adds significantly to the shipping costs.
On the other hand, it does provide a guarantee of reimbursement in case of loss, theft or damage.
Freight carriers can take any time from one day to a week, depending on your location. However, as companies continue to accelerate their delivery times (with Amazon offering same-day delivery for prime customers), the pressure is on for small and medium-sized businesses to deliver faster.
Fast shipping through standard carriers is cost-intensive, with distance also coming into play. For instance, if you want to ship to Zone 8 from Zone 1 in less than two days, it might require expensive air travel which can increase your cost drastically.
From time delays to lost items and damaged goods to those stolen in transit, it is important to leave some room for unexpected issues when budgeting for shipping.
While issues are rare, one can never predict when they will happen; this is why it is important to consider them as a part of your shipping costs.
What Options Do E-Commerce Store Owners Have?
Nowadays, shipping is considered a highly influential factor in customer experience.
In fact, studies report that approximately 77% of consumers abandon the cart when faced with poor shipping options, with another 58% refusing to shop with a particular retailer after one bad shipping experience.
Let’s take a look at the popular shipping strategies available for businesses:
Free shipping is a great strategy to make your consumers happy and boost your brand awareness. With 75% of American users expecting brands to offer free shipment, it has almost grown to become a norm for modern-day retailers.
But the smart way to do this is to offer free shipping at a predefined price point which is higher than your business’ average order value. The additional items cover the shipping cost while you continue to run a profitable business.
Flat Rate Shipping
As the name suggests, flat rate shipping means having a predefined amount that is charged to the consumers regardless of their order.
If you are not offering free shipping, flat rate shipping is the next-best alternative because as soon as the consumer clicks on your site, they know the shipping fee they will bear – leaving no surprises for the checkout page.
You can even mix it up with free shipping by setting order values; for instance, orders under $100 should have a $10 shipping fee whereas orders above $100 get free shipping.
Table Based Shipping
A table-based model involves identifying price ranges and applying different fees on the basis of your order value.
For instance, a table listing out that orders worth $10- $25 will pay $5 shipping and orders worth $26-$50 will pay $8 shipping, and so on.
This offers suppliers the flexibility to cover their costs on products with a lower profit margin while providing consumers with the shipping cost upfront. Like flat rate shipping, table rates can also be merged with free shipping.
As technology continues to integrate with the shipping industry, modern cart carriers now offer website extensions that allow consumers to ascertain the actual shipping cost right at checkout.
However, their accuracy depends on the data provided, which means that you must enter the weight, sizes and shipping box dimensions for each of your products. Imagine doing that for hundreds of products?
They also present a problem when shipping multiple items as they calculate individually and not bundled shipping.
There is more to your shipping costs than just the weight of the product. As consumers continue to expect more cost and time-efficient shipping, retailers and business owners need to understand what constitutes their overall costs.
A better understanding can allow them to devise a shipping strategy that doesn’t cut into their profits while ensuring maximum consumer satisfaction.
Will Schneider is the founder of insightQuote, a match-making service for B2B services, and writes informative posts about fulfillment services at FulfillmentCompanies.net. He is passionate about helping businesses find the right solutions to improve their operations. When not working, Will enjoys coaching youth basketball.