Two ways to price delivery at checkout
An online store has to show a delivery price before the customer pays. The two main approaches are:
- Flat rate shipping, where the customer is charged a fixed amount (or a small set of fixed amounts) regardless of the exact cost of that parcel.
- Calculated shipping, where the price is worked out for each order from weight, size, destination and service, usually by asking the carrier or a shipping tool for a live rate.
Neither is better in every case. The right choice depends on how much your parcel costs vary, what your customers expect, and how sensitive your margins are.
How flat rate works
With a flat rate, the store sets a number, such as one price for all domestic orders, and charges it each time. Variations are common: a price per item band, a price per region, or a price that changes with order value. The business then absorbs the difference between the flat rate and the real carrier cost on each shipment. Some orders cost more to ship than the customer paid, and others cost less.
Advantages:
- Simple and predictable for customers. The price is the same early in the shopping journey, which can reduce surprises late in checkout.
- Easy to communicate. A single line on the product page or in the footer is enough.
- Simple to run. No live carrier connection is needed, and the rate is easy to change.
- Supports promotions. A flat price pairs easily with free shipping above a spend level.
Drawbacks:
- Margin risk. If most orders are heavier or go further than the average, the store loses money on shipping. This is especially true where a few large orders are far more expensive than the rest.
- Cross-subsidy. Customers with small, nearby orders effectively pay for those with large, distant ones.
- Rate changes are your problem. Carrier price rises and new surcharges reduce margin until the flat rate is updated.
How calculated shipping works
With calculated shipping, the checkout asks for the destination, combines it with the order’s weight and package size, and returns a price. Ecommerce platforms and rate shopping tools can connect to carriers, and some offer a choice of services at different speeds and prices. A store can pass the carrier price straight through or add a handling margin.
Advantages:
- Closer to actual cost. Shipping income tracks the real expense, protecting margin on heavy or distant orders.
- Fair to customers. A small, nearby parcel is cheaper than a large, far one.
- Service choice. Customers can pick a faster or cheaper option, showing real service levels.
Drawbacks:
- Less predictable for the shopper. The price is not known until the address is entered, and a higher figure at that stage is a common reason for abandoning a cart.
- More setup. It depends on accurate product weights and dimensions in the catalog. Wrong data produces wrong prices, and the integration between store and shipping software has to be maintained.
- Price may be out of line with competitors. A calculated figure that is higher than a rival’s flat price can look uncompetitive even if it reflects reality.
Comparing the two
| Question | Flat rate | Calculated |
|---|---|---|
| Customer sees price early? | Usually yes | Often only after entering an address |
| Matches real cost? | Roughly, on average | Closely |
| Setup effort | Low | Higher, needs good product data |
| Margin protection on heavy orders | Weak | Strong |
| Easy to combine with promotions | Yes | Possible, needs more thought |
What decides the choice
Variation in parcel cost. If nearly all your products are small and light, and you ship within one region, a flat rate often fits well. If your range includes bulky items or you ship to many zones, the average hides large differences. The zone charts of your carrier show how big those differences could be.
Margin. Where margins are thin, an average that is slightly off can erase profit. Work out your cost per parcel across typical orders and compare it to the flat figure before settling on one.
Customer expectations. Some shoppers value a known, simple price. Others expect to pay what the delivery actually costs. Looking at where customers abandon the checkout provides evidence.
International sales. Cross-border orders involve wider variation, plus duties and taxes, and flat rates tend to be harder to keep sensible. Many stores use calculated or region-based pricing for those orders.
Middle routes
Many stores use a hybrid:
- Banded flat rates by weight, order value or region, which keep a simple look but reduce the cross-subsidy.
- Flat rates for most orders, calculated rates for exceptions such as oversized products.
- Calculated rates with a free shipping threshold, so that the shipping line disappears for larger baskets. The effect of a threshold is discussed in its own article.
- Table rates loaded from a spreadsheet, based on the zones and weight breaks in your own carrier agreement.
Testing and adjusting
Whichever model you choose, treat it as a hypothesis. Track shipping income against shipping cost per order, watch conversion at the shipping step, and review after any annual rate change. Small adjustments, made one at a time, make it clearer what caused any movement in results. Outcomes vary by store and audience, so use your own data rather than assuming another shop’s results will apply.