The costing guide

How to calculate shipping cost

Shipping cost is what it costs to move one order to the customer: the carrier’s rate for that zone and weight band, plus the surcharges, plus the destination duty if you are shipping delivered. It is charged once per order, not per line, and it is the cost that varies most by country, so a single blended rate hides which markets are actually paying for themselves.

This cost is charged , .

Your rate

17.00
1 unit
17.00
3 units
17.00
1 unit
17.00
2 units

It lands once however many units are in the order. Charging it per line is the classic error, and it is the products that sell together that pay for it.

per order

On one order of 1 unit at 49.00 plus 4.90 shipping, it books 17.00.

Your P&L, on that order

Revenue53.90
Product cost
✓ Shipping-17.00
Payment
Gross profit36.90

At most, because 2 costs are still missing. A cost you have not given has no figure at all, never a zero. Everything you type stays in your browser.

Most costs are not one number. 21 countries in this shop.

Read the rate card the way the carrier bills

A carrier quote is a table of zones against weight bands. The cost of an order is the band its billable weight falls in, which is the greater of the actual weight and the dimensional weight: length x width x height divided by the carrier’s divisor. A light bulky parcel is billed on the box, not on the goods.

On top of the band come the surcharges, which are quoted separately and are not small: fuel as a percentage of the base rate and revised monthly, residential delivery, remote area, oversize, and a peak season surcharge in the last quarter. A rate card without the surcharges is not the price you will pay.

Who pays the duty at the other end

Delivered duty paid (DDP) means you pay the destination duty and import tax, so both are your cost and the customer sees no bill.

Delivered duty unpaid (DDU or DAP) means the carrier collects from the customer at the door. It costs you nothing on the statement and costs you refusals, which are the most expensive orders you can ship: you pay the outbound leg, the return leg and the handling, and you book no revenue at all.

If you ship DDP, destination duty is a shipping cost and belongs on this line, broken out by country, because it is a rate per destination and nothing else on the order predicts it.

Free shipping is a promotion, not a shipping rate

A free shipping threshold does not change what the carrier charges. It changes who pays. The cost stays exactly where it was, and what changed is that shipping revenue went to zero on those orders.

Model it that way: the carrier’s real rate on the cost line, and the shipping the customer paid, which may be nothing, on the revenue line. Netting the two into one “shipping” number hides the size of the promotion and makes the threshold impossible to evaluate.

Once per order, whatever is in it

A pick fee may be per unit and a label is per parcel, but the shipment itself is charged once. This is the single most common modelling error in fulfilment: applying an order level cost to each line of a multi line order. A three line order then carries three labels and three outbound shipments, and the products that tend to sell in company look unprofitable.

Where an order genuinely splits into two parcels it is two shipments, which is a fact about the order and not about the rate.

The country you ship to twice a year

Most shops have a long tail of destinations with a handful of orders each. Writing a rate for every one of them is work that buys nothing.

Break out the countries that carry real volume and let the rest fall to one rate for everywhere else. That is what the instrument above does when you break it out: named rows first, most specific match wins, and a last row that catches everything nobody named. The tail is then costed and visible, rather than costed at zero.

The check

Take one carrier invoice and one month of orders shipped and compare them twice.

First on money: the invoice total against what your rates produced for that month. Then on quantity: parcels billed against orders shipped. The second test is the stronger one, because it does not depend on any rate being right. If the carrier billed 48 labels and you shipped 52 orders, something is wrong regardless of what either of them cost, and no comparison of totals would have found it.

Where it usually goes wrong

  • A rate card without the surcharges

    Fuel is a percentage of the base rate and it is revised monthly, so a model built on the quoted band is wrong by a different amount every month.

  • Per line instead of per order

    Multi line orders are then overcharged, and the products that sell together look worse than they are.

  • Netting shipping revenue against shipping cost

    Both are real lines. Combined, neither the promotion nor the carrier can be evaluated.

  • One blended rate for every destination

    The blended rate is an average of the countries you happened to sell to last month. It moves when the mix moves and tells you nothing about either.

  • Ignoring destination duty on DDP orders

    It can exceed the freight on a low value order into a high tariff category.

This is one line of the statement. See where it sits.

Vecks works all of this out on your own orders and shows you where each figure came from. Ask for a seat.