How to calculate true shipping cost per order in Australia

Your true shipping cost per order is everything it takes to get one parcel to a customer: postage, packaging, the time to pick and pack it, payment fees on the shipping you charge, and an allowance for parcels that go wrong. Add those up, subtract them from what the customer paid for shipping, and you have your shipping margin per order. For many Australian stores that number is negative, and nobody notices because postage is the only line they look at.

This guide walks through each cost line, then puts them together in a worked example you can copy with your own numbers.

Why postage alone isn't your shipping cost

Postage is the biggest and most visible cost, so it's natural to treat it as the cost. Compare the Australia Post label price with what checkout charged, see they're close, and move on.

The problem is that every parcel also carries costs that never appear on the postage invoice:

• the box or satchel, void fill, tape and label
• the minutes someone spends picking, packing and lodging it
• the payment processing fee on the shipping amount the customer paid
• extras like signature on delivery or extra cover, if you add them
• parcels that get lost, damaged or returned and have to be resent or refunded

Each one is small. Together they're often a few dollars per order, and a few dollars on every order adds up quickly.

The cost lines, one at a time

Postage

Use what you actually pay for the service you use, on your own account or contract, not the retail price on a website. At the time of writing, Australia Post says parcel prices depend on the parcel's weight and dimensions, the delivery zone and the speed of service (Parcel Post or Express Post), and it lists any fees and surcharges that may apply on its business postage costs page.

Because size, weight and zone all change the price, there's no single postage figure for your store. Size matters more than many stores expect: a light parcel in a big box can be charged on its cubic weight rather than what it weighs. Work out the cost for your most common order type first, then repeat it for your bulkiest and most remote orders.

Packaging

Add up everything that goes into or onto a typical parcel: the box or satchel, tissue or void fill, tape, the label and any inserts. Divide bulk purchase prices by the number of units to get a per-parcel figure. Don't forget packaging that gets wasted or damaged before use.

Handling labour

This is the line most stores skip, especially when the owner does the packing. Time five or ten normal orders from pick to lodgement and take the average. Then:

Handling cost = minutes per order × (hourly labour cost ÷ 60)

Use the full cost of that time: wages plus super and other on-costs for staff. If it's your own time, give it an honest hourly value. Your time packing isn't free; it's time you're not spending on anything else. Our guide to pick and pack cost per order shows how to split that time into a fixed part and a per-item part, and how to check it against your paid hours.

Payment fees on shipping

Your payment provider usually charges a percentage of the whole order, including the shipping amount. That means a slice of every shipping charge goes to fees before it covers any postage.

Extras and the "goes wrong" allowance

If you add signature on delivery or extra cover to some orders, include their cost on those orders. Then add a small allowance for parcels you end up paying for twice: lost, damaged, sent to the wrong address, or refunded. Use your own history. If roughly 3 in every 100 orders need a reship, add 3% of a parcel's cost to every order. Returns need their own allowance, because a refunded order leaves you with both legs of postage; our guide to the real cost of a return shows how to work it out.

Worked example: one typical order

Here's one order from a made-up homewares store. All figures are illustrative and exclude GST. Swap in your own.

The customer paid $10.00 for shipping at checkout.

Cost line	How it's worked out	Cost
Postage	Say Parcel Post for this parcel costs	$11.20
Packaging	Box $1.10 + void fill $0.25 + tape and label $0.15	$1.50
Handling	4 minutes × ($36 per hour ÷ 60 = $0.60 per minute)	$2.40
Payment fees	Say 1.75% of the $10.00 shipping charge	$0.18
Reship allowance	3% × ($11.20 + $1.50 + $2.40 = $15.10)	$0.45
True shipping cost	$11.20 + $1.50 + $2.40 + $0.18 + $0.45	$15.73

Now the margin:

Shipping margin = shipping charged − true shipping cost
                = $10.00 − $15.73
                = −$5.73 per order

Looking at postage alone, this order seems to lose $1.20. The real loss is $5.73, nearly five times as much.

At 400 orders a month, that's 400 × $5.73 = $2,292 a month coming out of product margin. If the store's average gross margin on products is $30 an order, shipping is quietly eating $5.73 ÷ $30 = about 19% of it.

That isn't automatically a mistake. Plenty of stores choose to subsidise shipping to win the sale. The point is to make that a decision with a known price, not a leak you find at tax time.

Why a percentage markup didn't save it

Say the store had added a 20% markup to postage instead of charging a flat $10:

Shipping charged = $11.20 × 1.20 = $13.44
Shipping margin  = $13.44 − $15.73 = −$2.29 per order

Better, but still a loss. The markup added $2.24, while packaging, handling, fees and the reship allowance added $4.53 ($15.73 − $11.20). Most of those costs are roughly the same on every parcel regardless of postage, so a percentage markup recovers too little on cheaper parcels and can overshoot on expensive ones. Our guide to setting a shipping markup shows how to build one that tracks these costs.

This is why a markup isn't the same as shipping profit: a markup is a price decision, while profit is what's left after every cost line. Our guide to shipping profitability covers how shipping margin fits into the profit on a whole order.

A simple formula to keep

True shipping cost per order =
    postage
  + packaging
  + (handling minutes × hourly cost ÷ 60)
  + (payment fee % × shipping charged)
  + extras (signature, extra cover)
  + (reship rate × cost of one parcel)

Shipping margin per order = shipping charged − true shipping cost

Put it in a spreadsheet with one row per common order type, such as a small satchel order, a standard box and a heavy or bulky order, plus one row for a remote postcode. Most stores find one or two rows doing all the damage. Weight each row by how many orders it gets and you have your blended shipping margin across the whole store.

What to do with the number

Once you know your true cost, you have four levers:

1. Charge closer to cost. If your non-postage costs are about $4.50 a parcel, a fixed dollar add-on often tracks reality better than a percentage. A minimum shipping price can stop small, cheap parcels from undercharging.
2. Cut the non-postage costs. Right-size boxes, standardise packaging and tighten the packing routine. Saving a minute per order is worth $0.60 an order at $36 an hour.
3. Build it into product prices. If you prefer free or low-cost shipping, raise prices or set a free shipping threshold so the loss is covered by bigger orders. Our free shipping threshold calculator gives you a starting figure.
4. Accept a planned subsidy. Decide how much shipping loss per order you're willing to carry, and check against it every few months.

If you charge calculated rates, it helps to see what checkout will actually quote before customers do. TrkShp lets Australian Shopify stores preview live domestic Australia Post rates with a markup and minimum or maximum prices applied, so you can compare the quoted price with your true cost per order. The setup docs explain how the markup and caps work. Remember a preview is an estimate of what checkout will charge, not what your Australia Post invoice will say.

Key takeaways

• Your true shipping cost is postage plus packaging, handling, payment fees, extras and an allowance for parcels that go wrong.
• In the illustrative example, a $1.20 gap on postage was actually a $5.73 loss per order.
• Non-postage costs are mostly fixed per parcel, so a percentage markup often under-recovers them on cheaper parcels.
• Work out the cost for a few order types, including your bulkiest and most remote, not one average.
• Recalculate whenever postage rates, packaging or your packing process change.

On GST: if your business is registered, working ex GST on both sides usually gives the clearest picture. The ATO's GST guidance covers the basics, and your accountant can confirm how it applies to you.

Want to check what your Shopify checkout quotes against these numbers? See how TrkShp works.