Shipping is an integral part of an eCommerce business. Once the customer buys a product. You need to send them to the customers in time. To ensure customer satisfaction, eCommerce companies rely on the shipping industry. But it is an expensive affair. Postage cost makes up for a significant chunk of eCommerce expenses.
The global postage rates showed an unprecedented rise since the pandemic. This had a direct impact on eCommerce businesses. If you are running an eCommerce business, you will need to calculate your shipping costs to maintain your profit margins.
It is important to note that the impact of shipping costs goes way beyond business expenses. It is directly linked to sales strategy and customer satisfaction. It is necessary to understand the impact of shipping prices on an eCommerce business. Only then can you accurately calculate postage charges and compare the cost against value.
Why do you need to Calculate Postage Costs?
Postage cost has a direct impact on the profitability of an eCommerce business. If you don’t know the expenses for shipping, you will not be able to estimate profit margins. You will not know how much to charge your customers.
Furthermore, customers around the world are expecting eCommerce stores to deliver products faster. About 51% of online retailers offer same-day delivery. And 61% of customers will pay extra if they can get faster delivery.
But in stark contrast, customers would also abandon a purchase if the shipping cost is too high. Studies have found that 63% of consumers would not buy if the cost of shipping is expensive. This is a delicate balance you have to maintain to ensure conversion and profitability.
Calculating shipping costs becomes even more important when you are offering free shipping. It is one of the most attractive deals and one of the biggest influencers on purchase decisions.
You need to estimate postage costs for different locations to determine the limits for free shipping. For such offers, you will have to incorporate shipping charges into your product price. But, postage rates change based on the products and delivery destination. It will be difficult for you to do this if you don’t know the expenses involved in shipping.
Postage costs have an enormous impact on eCommerce sales, business expenses, and customer satisfaction. As an eCommerce company, you will want to reduce shipping costs as much as possible. But to do that, you first need to understand how to calculate postage charges.
Parameters that Decide Shipping Costs
To calculate postage costs, you first need to understand its parameters. We have divided the parameters into two categories:
- Product Parameters
- Logistics Parameters
Let’s see how these affect the cost of postage.
Please note: We will use simple values for calculation in all examples. This is because shipping rates change from region to region. If we take actual figures into account, the calculation will become complex.
Product Parameters
These parameters depend on your products. They are also the parameters where you have most control. If you are using demand forecasts, you can also predict the variation in these parameters. And consequently, you can predict the shipping costs.
Weight
Weight of a package has the most influence on postage rates. This is because shipping vehicles can carry a limited weight on each journey. Hence, parcel weight is directly proportional to postage prices.
If your parcel is heavy, it means that the vehicle has less room for other packages. On the other hand, a lighter package offers room to fit more packages into a vehicle.
For example, say the weight capacity of a delivery vehicle is 100 kgs and your parcel weighs 20 kgs. Then the vehicle only has room for 80 kgs worth of packages. However, if your parcel weighs only 5 kgs, the truck has space for 95 kgs of goods.
You will be charged postage prices based on how much weight your parcel deducts from the vehicle’s capacity. The charges per kg (or pound) depends on the shipping company, delivery destination, mode of delivery and so on.
Volumetric Weight
The shipping cost is directly proportional to the dimensions of the package. Larger the package, the higher the cost of shipping. Fulfilment companies transport products in vessels. They allot a price based on the space a package would occupy on their vessel.
For this, shipping companies consider the volumetric weight of a product.
Volumetric Weight = Height * Length * Width / Volumetric Constant
The dimensions of a package (Height, Length, Width) are divided by a volumetric constant. This constant depends on the measurement system used for the dimensions.
Different logistic companies also have different volumetric constants. The output of volumetric weight is measured in kgs or pounds depending on the prevailing measurement system of the region.
Let’s understand this with an example:
You want to find out the volumetric weight to calculate postage cost in Australia for a package with these dimensions:
- Height: 120 cms
- Length: 80 cms
- Width: 40 cms
You will first need to find out the volumetric constant of your partner shipping company. For this example, let’s say the volumetric constant is 4000. Here, you can calculate the volumetric weight of your package as follows:
120 (Height) * 80 (Length) * 40 (Width) / 4000 = 96 kg.
In this example, the volumetric weight of your parcel is 96 kg. Now you can replace the figures in the formula to come up with volumetric weight for different products that you sell on your eCommerce website. Though the output is in kilograms, this value is used to understand how much space a package will occupy in a cargo.
Packages with higher volumetric weight occupy more space. Hence, the postage costs for such packages is also higher.
Volume
Volume signifies the quantity of packages you want to ship. Unlike the above two factors, it is inversely proportional to postage rates per unit (weight or volumetric weight). Higher volume definitely means higher cost. But, you will pay less per unit.
For example, the cost of shipping a 10 kgs parcel will be $5. But if you ship a hundred such parcels together the cost of postage will be $400 instead of $500. Here the postage charges per parcel become $4 and you end up saving $100 on the overall shipment.
A larger volume fills up more space on a vehicle. Hence, the shipping company has to invest fewer resources in searching for clients to fill up the rest of the space.
For example, a shipping company has a delivery vehicle with a 100 kgs capacity. If you are shipping a 10 kgs parcel, they need to find clients to fill up the remaining 90 kgs. However, if you are shipping 8 such parcels. The shipping company only needs to find clients to fill 20 kgs on the vehicle.
As you are saving resources for the shipping company, they transfer a part of their savings to you in the form of a per unit discount.
Protection Warranty
Shipping is a risky business. Parcels can get damaged or lost in transit. That’s why you need to consider the protection warranty when you calculate postage costs. The protection warranty depends on the value of the parcel.
The cost of a protection warranty depends on the benefits it offers in case of mishaps during transit. If the shipping company will pay the full amount in case of damage or loss, the protection warranty will be expensive. Similarly, protection warranties offering partial coverage will be cheap.
Different shipping companies have different policies when it comes to protection warranties. Most shipping companies include basic warranty protection fees in postage charges. They also provide options for higher warranty protection with better coverage.
Logistics Parameters
These parameters usually depend on your customer’s location. You have the least amount of control on these parameters. That is why you should pay most attention to how they affect your shipping cost.
Destinations
The resources involved in shipping a parcel depend on how far it has to travel to reach the destination. The distance is directly proportional to costs of shipping. The more a package travels, the higher the shipping cost. This parameter also affects delivery time in the same way.
For a postage company, long-distance means that they have to spend more resources for delivery. Based on approximate distances, logistics companies divide delivery destinations into shipping zones.
Shipping companies have different zones for domestic and international postage as well. The cost of a parcel post depends on the distance between the origin zone and the destination zone. The distance between the two zones also decides the available modes of transport for postage. This again has a huge impact on parcel post pricing and delivery time.
Modes of Transport
The cost to post a parcel also depends on how the parcel travels. The mode of transport usually depends on the distance between the origin and destination. Greater distances require larger modes of transport. And larger modes of transport have higher postage charges.
The distance between the origin and destination also decides the number of transport options available. For example, you need air or sea transport for international shipping. But these options are not viable for delivery between neighbouring cities.
Alongside postage cost, the mode of transport also decides the delivery time. The general rule of thumb is that faster modes of transport are more expensive.
You also need to consider that international shipping requires multiple modes of transport. Regardless of air or sea travel, the final (last-mile) delivery is always done with road transport. For some destinations, a parcel might travel by all three modes.
You can estimate a delivery time and postage costs based on how far and how often a parcel travels.
Outcomes
Collectively both of these parameters decide how long shipping will take and how much it will cost you. But, even these outcomes are interdependent. Here is how they affect each other.
Delivery Time
The delivery time depends on the distance and the mode of transport. Different modes of transport can change delivery time.
For example, if you want two-day delivery for international postage, air transport is the only option. On the other hand, if you are willing to wait for four to five days, you can choose ocean freight. The first option will be fast and expensive. While the second option will be cheap, but slow.
Your choice of delivery time will directly affect the cost. Delivery time is inversely proportional to the cost of postage. Faster delivery usually means higher costs.
Shipping Cost
All the above parameters put together will decide your shipping cost. The importance of different parameters changes based on the destination and mode of transport.
The factors affecting the cost of international shipping are different from those affecting domestic shipping. Similarly, you have to consider different parameters for transport by road, sea, and air.
Regardless of the significance, you need to consider all the parameters to get accurate postage costs.
How Does a Postage Calculator Work?
A postage calculator takes various parameters into account to produce shipping charges for a parcel. You will need to put in all the parameters to get an accurate postage estimate.
The calculator then multiplies the dimensions of the parcel to get volumetric weight. This is compared to the weight of the parcel. Most shipping companies use either the weight or the volumetric weight, whichever is higher. Although some companies take both these parameters into account.
Alongside dimensions, the postage estimator will also consider the value of goods and the type of product. Although these two parameters are less important compared to weight, dimensions and distance.
Then the calculator finds out the distance between the origin and the destination. This distance is derived based on the shipping zones of the two locations. Based on this information it will derive a list of possible modes of transport.
Finally, the postage costs calculator will give you the price and the delivery time associated with it. And vice versa. You can put in different values for each parameter to check the outcome. Experiments with the shipping estimator will give you an idea of how different parameters affect the postage charges.
For example, keeping all other parameters constants, you can calculate postage cost by weight. Similarly, you can calculate shipping costs by distance to check order fulfilment expenses for different customer locations.
Let’s see how you can calculate the cost of shipping for different scenarios.
Ways to Calculate Postage Cost & Delivery Time
Here we will look at ways to estimate shipping costs in different scenarios. We will change different logistics parameters to see how they affect the postage prices.
Calculate Postage Cost by Destinations
Destination is the most important factor for shipping charges. It decided the distance for transportation. The destination also decides the laws and regulations that will affect postage costs. Hence, we will see how postage fees change for Domestic and International shipping.
Domestic Postage
Domestic shipping is quite straightforward. As international laws are taken out of play, it is easier to calculate shipping expenses. Even the modes of transport for domestic delivery are limited. So you only have to worry about a few parameters. Hence, you can get more accurate postage cost estimations.
Intracity
If the origin and destination are in the same city, postage calculation becomes very easy. You only need to consider the product parameters. For intra-city couriers, the cost of delivery will depend mostly on weight and volumetric weight.
Owing to the short distance, road transport is the only viable mode of transport. Even if you are transporting a large volume of products, there is no way you can get a ship into the city.
As the distance and mode of transport is locked, the cost will only vary based on delivery time. If you want same day delivery, you might have to pay higher postage fees. Even without express courier service, you can expect intra-city delivery within 24 hours.
Intercity
Intercity transport is a little more complicated than intra-city. The distance increases, but mode of transport remains the same.
Here you need to consider the product parameters, distance and delivery time. If the cities are far apart, the postage cost and delivery time will increase. Though the mode of transport remains the same, the size of the vehicle may change depending on the volume.
Even though standard and express intercity deliveries are done by road, you will see a significant difference in postage costs. This is because shipping companies use different types of vehicles for intercity transport.
International Shipping
International postage works a little differently from domestic delivery. As a parcel has to cross borders and cruise through international waters, new parameters come into play. There are two levels of international shipping. These are based on the distance between two countries and political alliances.
Let’s see how transport between countries impacts the cost of shipping.
Intracontinental
International charges become the most important factor when you are shipping across borders. These include international taxes, customs duties, import charges, paperwork charges, handling fees, and so on.
Many of these additional charges depend on the products you are shipping and the destination country. Owing to distance and additional charges, international shipping is more expensive. But, postage between countries on the same continent is relatively cheaper than intercontinental shipping.
This is primarily because countries on the same continent fall in the same shipping zone. Plus international unions have relatively liberal import laws and customs charges for one another. So it is cheaper and easier to transport products between such countries.
For instance, postage between Spain and Italy is cheaper than shipping between Spain and Morocco. This is despite Morocco being closer to Spain. In such cases, international laws & foreign policies have a bigger impact on postage charges than the distance.
The next most important factors are volume and mode of transport. If you are shipping large volumes through ships, you will have to pay less postage fees per unit. On the other hand, if you are sending smaller volumes by flight, your per-unit shipping cost will be higher.
Intercontinental
Calculating postage cost for intercontinental shipping has all the complications of intra-continental shipping. Plus you have to deal with the added distance and difficult international laws. In this case, distance and additional charges have an equal impact on postage fees.
As you are shipping between continents, the trade laws will not be as liberal. The custom charges will increase.
Aside from shipping costs, international laws and custom processes have a huge impact on delivery time as well. If you want to reduce delivery time for international postage, you will also have to pay more for a faster mode of transport.
Then based on the value of the products you have to add protection warranty charges. These charges will also be higher because the risk increases with distance.
Finally, you have to add all the product parameters to get the cost of shipping. The most impactful product parameters for international shipping are volume and volumetric weight. These are also the two areas where you can control the international parcel post pricing.
Calculating postage charges for international shipping can be a little complicated. There are a lot of factors to consider. Furthermore, each factor affects the charges in a variety of ways. It is much easier to hire an experienced 3PL partner to handle international shipping for your business.
Calculate Postage Costs by Mode of Transportation
The mode of transportation has a direct impact on postage costs as well as the time of delivery. Each mode of transport offers different advantages and limitations. If you want to calculate postage costs accurately, you need to understand each mode of transport.
Road
Road transport is the cheapest mode of transport. It is the only mode of transport for final (last-mile) delivery.
The postage charges for road transport depend heavily on distance and volumetric weight. The other parameters are also important. But their impact on the overall cost of postage is minimal.
Though additional factors come into play if you are shipping too large a volume. You will also have to consider additional charges if you use road transport for international postage.
Sea
Ocean Freights are the cheapest mode of transport for shipping in large volumes. It is also the most common mode of transport for international cargo. About 80% of international trade is carried out by the sea.
The most important factors for postage costs by sea are distance, volume, and international laws. The biggest advantage of shipping by sea is that you get the cheapest per-unit postage prices. If your volume is high, you get even better deals.
Air
Air transport has the fastest delivery time among all shipping options. It can be used for both domestic and international postage. But, it is also the costliest mode of transport.
Air transport also has the most limitations compared to other options. You cannot transport as much volume as a ship. Furthermore, it is dependent on the availability of an airport in the destination city. So it does not have the reach of road transport.
The biggest factors contributing to air shipping prices are distance and weight. But, if you are crossing international borders, you will have to consider customs charges and other expenses as well.
Despite all the limitations, Air transport is quite popular owing to its speed. It is a great option if you want fast shipping. But be prepared to pay additional postage fees.
How to Reduce Postage Costs
Once you understand how shipping costs are calculated, you can focus on reducing the charges. Here are a few ways you can cut down the cost of shipping.
Micro-Fulfilment
You can bring down postage parcel rates by reducing the distance between your storage and the customers. Instead of centralising your storage in one city, you can create micro-fulfilment centres close to your customer’s locations. To do this you first need to identify where the majority of your customers are located. Based on this information, you can find ideal spots for fulfilment centres.
Reduce Frequency & Increase Volume
Large volumes provide better per-unit shipping rates. So you can reduce the frequency of shipments and increase the volume for each shipment. For example, instead of shipping 100 kgs boxes 10 times a month, you can ship 1 tonne in a single shipment. Owing to the volume, you will have to pay less per unit. Hence, your shipping cost per product will also be less.
Get a 3PL Partner
You can relieve yourself from the burden of calculating shipping costs if you partner with a reliable 3PL company. Shipping companies like PACK & SEND can handle the entire order fulfilment process. You only need to define product parameters, volume and customer locations. A 3PL company will provide you with lucrative deals to bring down your postage costs and get the products to your customers in time.
Wrapping Up
Calculating postage costs may seem complex. But, the parameters that govern it are quite simple. If you understand the parameters, you can control the cost. This article has also explained how the shipping industry works and how they charge eCommerce companies.
This understanding will help you come up with innovative ways to manage postage charges. Still, if you find the task too daunting, you can use the PACK & SEND postage calculator.
Frequently Asked Questions (FAQs)
How much does it cost to post a parcel?
The cost of parcel postage depends on a variety of factors. This includes weight, distance, delivery speed and so on. You can use an online postage calculator (link above) to get an estimate for shipping charges.
How much is postage cost in Australia?
Postage cost in Australia depends on the delivery destination and the mode of transport. As you are shipping within Australia, you will not have to pay additional charges. You only need to pay for the weight of the parcel and the distance it travels.
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