How to Calculate Shipping Costs as a Small Business

If you run a small retail business online, on average, what percentage of your budget are you spending on shipping? 

Do you offer free shipping to your customers or plan to offer it in the future? If yes, you need to ensure shipping doesn’t take away a major chunk of your profit.

In a highly competitive eCommerce industry like Canada, shipping costs for small businesses are a major pain area since they can be pretty expensive. From raw material shortages to shipping delays, shipping can add up to all kinds of costs. 

Considering your budget and resources, you need to be strategic about charging customers for products and shipping. For this, you need to know how to calculate shipping costs for small businesses.  

According to the 2024 edition of the State of Ecommerce Fulfillment Data Report, the shipping strategies of businesses are below:

• 27% of brands offer free shipping year-over-year. 
• 31% of brands don’t offer free shipping at all.
• 30% of brands have no plan to offer free shipping this year. 
• 18% of brands need customers to spend $80 or more to get free shipping. 
• 15% of brands need customers to spend $100 or more to get free shipping. 
• 18% of businesses charge a real-time rate for domestic shipping. 

For calculating your small business shipping costs, you need to consider various factors, including free shipping offers to match up shipping costs, and what the carrier charges you.

Other key factors are the weight and the dimension of the product, the destination, shipping zone, and other elements.

Importance of Understanding Shipping Costs as a business

When running a retail business, you need to realize the importance of shipping costs and small business shipping rates because it will play a big role in the sustainability of your business. 

Shipping costs directly affect your profit margin. Unless you know exactly how much you should charge your customers for shipping, you can’t calculate your actual profits.

In this dynamic retail market customers have many brand choices, and how much they have to pay for shipping plays a key role. Based on shipping charges, customers often decide whether to stay with a brand or go to another one.

Also, shipping costs are the main reason why customers abandon their shopping carts. There are different strategies to lower the cart abandonment rate, and efficiently managing shipping costs is one of them. 

A majority of customers don’t want to pay anything extra as shipping fees. With several eCommerce giants like Amazon, GAP, L.L.Bean, and others offering free shipping, customers expect the same from smaller brands too. 

If you have set a minimum order threshold for customers to qualify for free shipping, you need to figure out the final amount accurately, and a shipping calculator can help with that. 

Factors Affecting Shipping Costs

When it comes to shipping cost for small business, there are several factors that affect the calculation of these costs, such as the item type, size, weight, dimensions of the package, and shipping destination.

A carrier can provide you with the final shipping costs after calculating these variables.

The key factors that affect shipping costs:

Costs	Description
Carrier Charge	Carrier charges for postage or labeling move a parcel to its destination.
Packaging Cost	The overall packaging costs to keep the shipped item(s) safe, including boxes, poly mailers, tape, and others.
Fulfillment Cost	The cost to pick and ship a package.
Other costs, including insurance, recipient signature, etc.	The additional costs considering the type of the shipped item and specific requirements to fulfill.
Various overhead costs, inventory management, warehouse lease, handling shipping/warehouse software, worker wages, equipment, printers, ink, etc.	Often you have to bear certain fixed costs for fulfilling and shipping eCommerce orders.

Other key factors for calculating the shipping costs:

1. The Dimensional (DIM) Weight 

All major shipping carriers apply the dimensional (DIM) weight method to calculate shipping costs. DIM weight is about the size of a package to figure out the shipping cost.

For calculating the dimensional weight, you need to multiply a parcel’s height, length, and width, based on the longest points of the sides. Next, the carrier considers the package’s cubic size (inches) to figure out the DIM weight (pounds).

The DIM weight calculation process is below:

• When calculating the DIM weight, a carrier considers the parcel dimensions with the longest point on the sides. For measuring a parcel, they also check if there are any misalignments in it. These issues may increase your shipping cost. 

• A carrier also takes the nearest whole number when calculating the DIM weight.

Calculating the DIM Weight (Source: LinkedIn.com)

• The next is the cubic size of the parcel by multiplying the dimensions. 

• After that, the carrier divides the parcel’s cubic size with a DIM divisor. 

• Shipping giants like FedEx and UPS use 139 cubic inches/pound as the DIM divisor for both domestic and overseas shipping.

To increase the profit margin, carriers weigh a package considering its dimensions (length x width x height) instead of the actual weight. 

2. Package Weight 

The package weight refers to the heaviness of the shipped item. For this, you don’t have to use any DIM divisor or do calculations.  

If the package outweighs the DIM weight, the carrier will take into account it to find out the shipping costs. The larger and heavier the package the higher the shipping cost. 

3. Cost of Packaging

Due to the fast-paced growth of the online retail industry, and free shipping offers by major carriers, customer expectations have also gone up. Customers now want faster and free/low-cost shipping. 

Not only shipping, packaging has also become a key aspect. Packaging has to be robust to keep the shipped item safe, and at the same time, the cost has to be under control. For this, you need to optimize your package through space utilization. 

4. Shipping Destination/Zones

When calculating shipping costs, carriers consider the factors like shipping zones and shipping destinations. A shipping zone is a distance from the point of origin and the destination. 

For example, FedEx has 8 shipping zones (US) for FedEx Home Delivery and Ground. Likewise, UPS has 8 shipping zones as well.

The shipping cost will increase depending on the shipping zone distance.

5. The Item Value

If you often ship high-value items, it is wise to buy insurance to cover your shipments. If any unforeseen event occurs and your shipment gets damaged or goes missing, the insurance you cover the financial loss. However, purchasing insurance can substantially increase your shipping cost.

6. Tracking Shipment

Depending on the items you sell and ship, tracking is a crucial feature. 

Most major carriers offer the tracking feature as part of their integrated system. As a retailer, the tracking feature gives you an opportunity to take immediate action if one or multiple shipments get damaged or go missing. Accordingly, you can send alerts to customers regarding the potential shipping delay.  

7. Estimated Time of Delivery

In this era of online retailing, customers expect to receive their orders as fast as possible whenever they buy an item online. The introduction of 1-day and 2-day shipping by Amazon has increased the expectation. 

8. Unforeseen Events

Unforeseen events may happen at any time during a shipping process, such as a hailstorm, roadblock, earthquake, strike, etc. 

These unexpected events may cause transportation delays, or even result in lost, damaged, or missing shipment. Make sure you have a contingency plan for such events. 

Example of Shipping Cost 

The following table shows a breakdown of shipping costs with a 50 percent profit margin:

Per item costs	$35.00
Shipping Cost	$5.50
Packaging Cost	$0.80
Processing Fee – Credit card	$2.50
Total Cost	$43.80
Profit margin	50%
Sales Price:	$65.70

Common Shipping Methods and Rates

Some common shipping methods and rates in Canada are below: 

• Ground Shipping: The most affordable shipping option across Canada is Ground shipping. However, it may take longer than other shipping methods. 

• Expedited & Priority Shipping: Two popular shipping options are expedited and priority shipping. For example, Canada Post’s expedited shipping takes 1 to 4 days. Priority shipping delivers the package the next business day. 

• Xpresspost: A fast and low-cost option for shipping documents and packages within Canada is Xpresspost shipping. Generally, the delivery timeline is 1 to 2 business days. 

• Flat Rate Shipping: A flat rate is a shipping option where shipping fees are consistent for packages, regardless of their weight or dimensions. 

• Overnight Shipping: A shipping service that delivers parcels the next day after they are shipped. 

• Courier Services: A convenient option for small parcels, with companies like DHL and FedEx. 

• Air Freight: It is a fast yet expensive shipping option. 

• Sea Freight: A low-cost shipping option for large items. 
• Freight Forwarders: A shipping service to manage logistics, delivery time, and optimize cost.

Common Shipping Rates in Canada 

Carrier	Shipping Rates
ShippingChimp Domestic Shipping	Starts at $4.98
ShippingChimp Shipping to the US	Starts at $5.21
ShippingChimp International	Starts at $7.42
Canada Post Regular Parcel (up to 30 kg)	$9.67
Canada Post Xpresspost (up to 30 kg)	$10.61
Canada Post Priority (up to 30 kg)	$22.01 onwards
FedEx Ground & Home Delivery (5 lbs)	$12.56 onwards
FedEx 2-Day (5 lbs)	$26.76 onwards
FedEx Standard Overnight (5 lbs)	$46.33 onwards
FedEx Priority Overnight	$67.41
UPS Standard	$20.94
UPS Worldwide Expedited	$35.35
UPS Worldwide Saver	$39.60
UPS Worldwide Express	$43.80
Purolator Ground	Starts at $23.06
Purolator Ground 9 AM	Starts at $64.31
Purolator Ground 10:30 AM	Starts at $39.51
Purolator Ground Evening	Starts at $51.60
Purolator Express 9 AM (Box)	Starts at $66.67
Purolator Express 10:30 AM (Box)	Starts at $41.38
Purolator Express 12 PM (Box)	Starts at $27.93
Purolator Express (Box)	Starts at $25.3
Purolator Express Evening (Box)	Starts at $54.03

How to Use a Shipping Cost Calculator

The details you enter in a shipping calculator will show the result. A shipping calculator has specific fields, and it will get you the shipping costs. 

On some shipping calculators, you may have to enter details, including the weight, size, origin, and destination of the shipment, postal code, etc. In relatively simpler calculators enter weight, origin, and destination postal code is enough. 

Overall, a shipping cost calculator is a dynamic and useful tool where new freight rates and new service providers get updated and removed as and when necessary. 

A shipping calculator works based on various factors during the calculation and shows the most accurate results.

You can calculate accurate shipping costs using this shipping calculator. 

Hidden Shipping Costs to Consider

There are several potential hidden costs in shipping in Canada, including: 

• Customs Duties and Tariffs: There are tariffs on certain parcels, and the charges depend on the type and value of the item. 

• Port Charges: These charges include port storage, handling, port appointment reservation, and port congestion. 

• Dimensional Weight: If the projected dimensional weight varies from the actual weight, the merchant may have to pay a fee. 

• Shipping to Remote Locations: If you ship packages to remote locations, there will potentially be extra charges. 

• Chassis Rental: The drayage carrier charges this fee for every day if the empty container is not returned. 

• Block Stow Charges: When a container is buried under other containers and not possible to access at the port, block stow charges apply.

Conclusion

The average shipping cost for small businesses in Canada varies depending on the items you ship and the delivery destinations. For example, if you ship a package from British Columbia to Ontario, the cost will be double the cost of shipping from Quebec to Ontario due to distance. 

Larger and bulkier packages with more surface area will potentially cost more to ship than smaller and lightweight packages. For example, shipping a shirt to a customer will likely be cheaper than shipping a computer monitor. 

The need for domestic or international shipping will also impact your shipping cost. Different countries impose different duty fees. It means your final shipping cost will change due to distance and customs.

You can find a shipping calculator on the websites of most major carriers. You can try using any one of them to find the average shipping cost for each item before shipping. 

Next, add and deduct potential additional costs and discounts to find a rough estimate. This way you won’t overcharge your customers and can keep a good profit margin for yourself. It will be a win-win. 

FAQs

Q: What factors determine shipping costs for small businesses? 

Ans: Factors such as parcel weight, size, packaging material, distance, handling, mode of transportation, cost of fuel, delivery speed, and insurance determine shipping costs for small businesses.

Q: What is the best shipping calculator for small businesses? 

Ans: The best shipping calculator for small businesses is the ShippingChimp calculator.

Q: How do I calculate shipping costs for international orders? 

Ans: To calculate international shipping costs, the factors you need to consider are the parcel weight, dimensions, origin, and destination country.

Q: How do shipping zones impact shipping costs? 

Ans: Shipping zones impact shipping costs as the more distance a parcel travels, the higher the zone and the more expensive the shipping will be.

Q: How do package size and weight affect shipping costs?

Ans: Parcel weight and size significantly affect shipping costs because larger and heavier parcels usually need more space and handling on delivery vehicles. It results in higher shipping charges from carriers.