How to calculate cost per shipment?

Deciphering Your Cost Per Shipment: A Practical Guide for Businesses

Accurate pricing is crucial for profitability, especially in the shipping and logistics industry. Knowing your cost per shipment isn’t just about covering expenses; it’s about understanding your operational efficiency and setting competitive, yet profitable, shipping rates. This guide provides a clear breakdown of how to calculate this vital metric and offers insights into optimizing your process.

The Basic Calculation:

The most straightforward method involves calculating your average cost per shipment over a defined period, typically a month. This approach offers a realistic view of your current expenditure and allows for trend analysis over time. The formula is simple:

Total Monthly Shipping Expenses / Total Number of Shipments = Cost Per Shipment

Let’s break this down further:

• Total Monthly Shipping Expenses: This encompasses all costs directly related to your shipping operations within a given month. This includes:

  • Freight Costs: The charges from your chosen carrier(s) – this is often the largest component.
  • Packaging Materials: Boxes, tape, bubble wrap, inserts, etc.
  • Labor Costs: Wages paid to employees handling packaging, loading, and shipping. Include any associated benefits.
  • Shipping Supplies: Labels, ink, and other consumable items.
  • Insurance: Costs for insuring packages against loss or damage.
  • Warehouse Rent/Utilities: If you have a dedicated shipping area, these costs should be proportionally allocated.
  • Technology & Software: Subscription fees for shipping software, tracking systems, or related tools.

• Total Number of Shipments: This represents the total number of individual packages or shipments sent during the same month. Keep in mind that this number might differ from the number of orders processed, especially if multiple items are shipped together.

Example:

Let’s say your total monthly shipping expenses for June were $5,000, and you shipped 250 packages. Your cost per shipment would be:

$5,000 / 250 = $20

This means your average cost per shipment in June was $20.

Beyond the Basics: Refining Your Calculation

While the basic calculation provides a starting point, a more refined approach can yield a more accurate and nuanced understanding of your cost structure. Consider these factors:

• Shipment Weight & Dimensions: Larger or heavier shipments naturally incur higher costs. You can segment your data to calculate cost per shipment based on weight classes or dimensions for more granular insights.
• Shipping Destination: Shipping costs often vary based on distance and location. Analyze costs separately for local, national, and international shipments.
• Shipping Method: The cost difference between expedited and standard shipping can be significant. Track costs for each shipping method employed.

Using the Data:

Understanding your cost per shipment is not just about knowing a number. This data informs crucial business decisions:

• Pricing Strategy: Use your cost per shipment as a baseline to set profitable shipping rates for your customers. Remember to factor in a margin for profit.
• Negotiating with Carriers: Armed with accurate cost data, you can negotiate better rates with shipping providers.
• Process Optimization: Identify areas where costs are high and explore opportunities for improvement, such as negotiating better packaging rates or streamlining your shipping processes.

By diligently tracking your shipping expenses and applying this straightforward calculation, you can gain valuable insights into your business’s operational efficiency and pave the way for more informed and profitable shipping strategies. Remember that regular monitoring and analysis are key to keeping your finger on the pulse of your shipping costs.