In plain words
Shipping cost is what you pay a carrier to move a parcel from your warehouse to the customer. It is set by the parcel's weight, its size and how far it travels, and you owe it whether the customer paid for shipping or not.
It is usually the largest cost of a small order after the product, and the one a multi-unit offer saves most on. Three items in one parcel pay one label. That saving is most of the room a bundle discount has.
Formula
- Shipping cost = the carrier's rate for the parcel's billable weight and zone × parcels
Worked example
On an example rate card, one bag ships for $7.50 and three bags in one parcel for $10.10. The engine reads the label from the parcel's weight.
Send the same three bags in two parcels at a flat $7.50 label and the engine charges $15.00.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
Shipping cost is not shipping revenue
What the customer pays for shipping is revenue. What the carrier charges you is cost. They are set separately and rarely match. Free shipping sets the first to zero and leaves the second untouched.
Using it
Use your real rates for the weights and zones you ship most. A national average hides the zones that hurt. Recheck when the carrier's rates change, which is at least once a year, and when a product's weight or box changes. Then price free shipping as what it is: a decision about revenue, on top of a cost you pay either way.
In Offer Suite
Offer Suite's engine charges a label per parcel, from a flat cost or from a table by the order's shipping weight. Once an order has shipped it can record what the carrier actually charged, which replaces the estimate.
Source: Offer Suite's margin engine and its cost grains.