Shipping costs eat into your margin, but charging the customer too much drives them away at the checkout. For many webshops, shipping costs are the largest variable cost item after purchasing, yet they receive much less attention than, for example, advertising costs. In this article, you will read specifically where the costs come from and what adjustments you can make to save on your shipping process starting today.
Why shipping costs have such a big impact on your margin
For many e-commerce companies, shipping is the second-largest expense, right after product procurement. While purchasing is often a hard bargain, shipping frequently remains overlooked. Yet, saving just a few cents per package, with thousands of shipments per month, has a direct impact on your bottom line.
There is also a direct link between shipping costs and the abandonment rate in your checkout. Research into shopping cart abandonments consistently shows that unexpected shipping costs are the primary reason for not completing an order. This means that lowering shipping costs for your webshop is not just about margin, but also about conversion.
It is important to distinguish between the visible shipping costs your customer sees in the checkout and the actual shipping costs you pay to the carrier. These two amounts differ significantly at many webshops: for example, you charge the customer €4,95, while you spend €6,20 yourself, including packaging and handling. That difference has to come from somewhere, usually from your margin.
The biggest cost drivers in your shipping process
Before you get started with saving, it is smart to know exactly where the costs originate. Four factors almost always play a role.
Dimensional weight: the hidden cost
Carriers calculate costs not only based on the actual weight of a package but also on its volume: the so-called dimension weight. As a result, a light but large box can end up being more expensive than a compact, heavier package. Many webshops unknowingly ship in boxes that are too large, often with added padding, causing them to end up in a higher tariff category without realizing it.
Returns as a creeping cost
Every return costs shipping twice: there and back. On top of that comes the time for inspection, repacking, and potential markdowns. With a return rate of 20 percent, which is not uncommon in clothing and shoes, this quickly adds up to a significant annual expense.
Other cost drivers are:
- Shipping errors, such as an incorrect or incomplete address, leading to a surcharge or a package being returned to the warehouse.
- Underpaid shipments, where you pay extra afterwards because the package was heavier or larger than specified.
- Manual processes, such as manually retyping address details or individually wrapping each package, which takes time and therefore money.
Tip: Track for a month how many of your shipments receive a surcharge from your carrier afterwards. This number provides immediate insight into how much money you are already unnecessarily losing due to incorrect weight or size estimates.
Lower shipping costs by choosing the right carrier
The choice of a carrier, or combination of carriers, has a direct effect on your costs per shipment.
When does a multicarrier approach pay off?
By not being dependent on a single carrier, you can choose the cheapest option per destination and package size. For example, carrier A is more competitively priced for letterbox packages, while carrier B scores better for larger packages to Belgium. A multi-carrier strategy pays off especially when you send more than a few hundred shipments per month and a portion of them go international.
Volume discount: from what number of packages do you negotiate?
Most carriers start negotiating seriously from around 50 to 100 packages per week, although this varies by company. Always ask about weight classes rather than a single fixed rate: sometimes there is more profit to be made in a more favorable rate for packages up to 2 kilos than in a general discount.
Zone rates also deserve attention when shipping internationally. Carriers work with zones (for example, NL, BE, rest of EU, worldwide), and rate differences between zones can be substantial. Additionally, always check if a letterbox rate is available for small, flat products: this is often significantly cheaper than a regular parcel rate.
| Carrier option | Suitable for | What to look out for |
|---|---|---|
| One regular carrier | Low volumes, simplicity desired | Less room for negotiation |
| Multicarrier | Medium to large volumes | Integration into your shipping process |
| Mailbox packages | Small, light products | Maximum dimensions and weight |
| Regional carrier | Local or border region delivery | More limited coverage area |
Pack smarter to save on shipping costs
Packaging is one of the quickest parts of your shipping process to optimize. Align the packaging with the actual product dimensions, instead of using one or two standard box sizes for your entire assortment. Every centimeter of air in a box costs you money through the dimensional weight.
Choose consciously between a box, envelope, or letterbox package for each product category. A book or piece of clothing can often fit perfectly in a sturdy envelope or letterbox package, while fragile products do require protection.
Option 1, smaller boxes: lower shipping costs due to reduced dimensional weight, but potentially a higher risk of damage to fragile products. Option 2, recycled filling material: often cheaper than traditional filling material and reduces weight, with a sustainable image as an added benefit.
Sustainable packaging is sometimes perceived as more expensive, but that is far from always true. Recycled cardboard and paper filler are often cheaper than plastic alternatives and weigh less as well. Furthermore, well-fitting packaging reduces damage during transport, which in turn results in fewer returns and complaints.
Operational efficiency: how your warehouse process affects shipping costs
Shipping costs are incurred not only by the carrier but also in your own warehouse. Errors during order picking and packing lead to incorrect shipments, returns, and extra shipping costs to rectify the situation. A well-thought-out order picking process prevents incorrect items from being shipped, thus avoiding double shipping costs.
The layout of your warehouse also plays a role. If your warehouse is well organized , your employees take shorter routes, you process orders faster, and you reduce the risk of errors that lead to extra shipping costs.
Batch processing of orders, where you collect multiple orders simultaneously and prepare them for shipment, also ensures more efficient processing and sometimes better agreements with your carrier regarding pickup times and volumes.
Automatic carrier selection based on weight, size, and destination
Software can significantly speed up this process. A WMS like Lyra WMS can automatically select the cheapest carrier per order based on weight, size, and destination, without an employee having to figure this out manually. This not only saves time but also prevents the human errors that lead to surcharges.
Passing on shipping costs: which strategy suits your webshop
There is no universally best answer to the question of whether you should display shipping costs separately or incorporate them into your product price. Free shipping starting from a threshold amount encourages customers to order just a little more, which increases your average order value. Always charging shipping costs is more transparent, but it can cost conversion.
A third option is to fully incorporate shipping costs into your product prices, so that the checkout displays “free shipping.” This works well psychologically, but it does require you to maintain competitive pricing.
Tip: Determine the tipping point between margin and conversion by A/B testing with different threshold amounts. Do not look only at the conversion rate, but also at the average order value and the net margin per order.
Limit returns to reduce shipping costs
Every return you prevent saves directly on shipping costs. Clear product information and accurate size charts reduce the number of returns caused by a product not fitting or being different than expected. This is one of the most effective measures, especially for clothing and shoes.
Set up your return policy smartly: a 30-day return period with clear terms often works just as well for customer satisfaction as an unlimited return period, but gives you more control over costs. Also consider whether you want to pass on part of the return costs, for example for returns without a valid reason, or whether you want to use free returns as a competitive advantage. Both choices are valid, as long as you understand the costs involved. If you want to delve deeper into this, read more about optimizing the return process.
Checklist: lower shipping costs in 8 steps
- Map out your current shipping costs by package size and destination.
- Compare rates from at least two to three carriers, including zone rates.
- Negotiate a volume discount as soon as you consistently send more than 50 packages per week.
- Adjust your packaging sizes to your best-selling products.
- Consider letterbox packages for small, flat items.
- Improve your order picking and packing process to reduce errors.
- Reduce returns with better product information and size charts.
- Automate carrier selection with software to always choose the cheapest option.
Do you want to know how to measure the progress of these improvements? Then take a look at the key warehouse KPIs that provide insight into your shipping and returns performance.
Frequently asked questions
What are the average shipping costs for an online shop in the Netherlands?
This varies significantly by package size, weight, and destination. A letterbox package easily costs between 3 and 4 euros, a standard package up to 10 kilos within the Netherlands is usually between 5 and 7 euros, and shipping to Belgium or the rest of Europe is on top of that. The exact rates differ per carrier and contract, so comparing always pays off.
Is free shipping always good for conversion?
Free shipping generally increases conversion, but at the same time reduces your margin because the costs have to come from somewhere. You calculate the break-even point by testing different threshold amounts and looking at the effect on both the conversion rate and the average order value. Free shipping is only actually profitable if the increase in revenue exceeds the lost margin.
How can I save on shipping costs with low order volumes?
For low volumes, it pays less to negotiate with carriers yourself. Instead, look into mailbox packages for small products, join a shipping platform that offers bundled rates for smaller webshops, or work with a fulfillment partner that already has competitive rates due to their own volume.
What does a return cost a webshop on average?
Return costs go beyond just the shipping costs of the returned package. Also factor in the time for inspection and repacking, any depreciation if the product can no longer be sold as new, and the shipping costs of any replacement shipment. In total, a return can easily cost two to three times as much as the original shipping costs.
Does a WMS help lower shipping costs?
Yes, a WMS can contribute to lower shipping costs in various ways. Think of automatic carrier selection based on weight and destination, packing advice per order, and error reduction during picking and packing. Systems like Lyra WMS combine these functions, allowing you to always choose the most cost-efficient shipping method without manual calculations.
Would you like to know how to handle this in your warehouse? Schedule a no-obligation discovery call and we'll go through it together.
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