Is Shipping Silently Devouring Your Profit? The KPIs Every Company Should Track

Most companies don’t pay enough attention to what shipping is really costing them. They don’t realize how much profit is being lost in the process. I’ve run into companies where shipping eats up 10%, 15%, sometimes even 30% of their total sales. At that point, you're not talking about overhead. You’re talking about erosion of your bottom line.

Let me be clear: shipping is not just a budget line. It’s part of your margin. It’s either contributing to it or eating away at it. And if you’re not tracking it properly, as a percentage of sales, you’re making important business decisions in the dark.

Best-in-class operations keep shipping costs between 4% and 7% of revenue. If you’re higher than that, you’re leaving real money on the table. For a $10 million business, getting your shipping under control could free up $500,000 or more. That’s not theory. That’s the reality I see every day with the companies we work with.

However, too often, sales numbers get all the attention. Once orders are placed and the boxes are out the door, everything is considered done. From my perspective, it’s not. The transaction isn’t complete until the product is delivered. That last leg matters for your profit and reputation.

Customer expectations aren’t getting easier. People want shipping to be free. They want it fast. And they’ll abandon their cart if it’s not. I’ve seen the data: nearly 90% of shoppers say free shipping is a deciding factor. Call it the Amazon effect on consumer psychology. 

What’s more, two-thirds of customers will drop out if the cost feels too high. 

And if delivery goes sideways? One unhappy customer doesn’t just walk away. They make sure ten others hear about it.

You can’t afford to treat shipping as an afterthought. It directly impacts your margin, your customer experience, and your ability to stay competitive. 

Your Shipping Score and Why It Matters

One of the most important numbers any retail CFO should be tracking is what I call the “shipping score”: your total shipping costs as a percentage of sales. Spend $1,000 to ship $10,000 worth of orders? That’s a 10% shipping score. It’s a simple concept, but most companies either don’t track it or track it in the wrong place.

If your score is high, you’re bleeding margin. You have less room to move on price, less flexibility to offer free shipping, and less capital to reinvest in growth. On the flip side, if your score is low (because you’re recovering some of your shipping costs or have optimized your rates), you’re in a strong position. You can fund better acquisition strategies, improve customer retention, and build leverage in innovation.

I’ve dealt with a lot of companies that think their shipping costs are under control, only to realize they’re missing part of the picture. A business might report a 5% shipping ratio, but only look at outbound. Once you include inbound freight, return logistics, or the fact that shipping costs are buried in different departments, the real number is often closer to 8% or 9%. That difference matters.

There are a lot of dollars that are spent that don’t show up in the right department. So companies think they are doing better than they actually are.

I’ve encountered the full spectrum in real-world operations. One B2C company offering free shipping came in at 12%—until they accounted for the shipping revenue baked into pricing. After that, their real shipping ratio dropped to 3%. 

Another e-commerce business, shipping heavier products around the $150 price point, hovered around 15%. Once it factored in shipping income, it came down to 4%. 

In B2B, I worked with a company that saw outbound shipping hit 25% of their COGS before renegotiating contracts and bringing it down to 20%.

Different industries, different challenges. Nevertheless, the constant is this: when you measure your shipping score properly and monitor it over time, you start seeing where the leaks are and where the gains can come from.

How You Can Measure Your Shipping Score—With or Without A CFO

Knowing your shipping score is one thing. Measuring it properly is another. Many companies oversimplify this step. Others leave it to the finance team and never look at it again. Whether you have a CFO or not, you need to own this number, day in, day out.

Start with the basics: total shipping costs divided by total sales. That gives you a rough ratio. Want to go deeper? Break it down by average shipping cost per order, or look at each carrier separately to see how it stacks up. 

Here’s what I’ve learned after working with dozens of teams: surface-level math only gets you so far. If you really want to understand your shipping spend, you have to think holistically. I split the costs into two buckets: what I call supply chain costs in general, and then I look at everything from the initial transport to your warehouse or 3PL, right down to the last mile. Every step in your shipping journey counts:

• Direct shipping fees (base rates, fuel surcharges, residential delivery)
• Fulfillment labour costs
• Packaging materials (boxes, void fill, tape, labels)
• Technology costs (shipping software, TMS systems)
• Insurance and liability costs
• International duties and taxes (for DDP shipments)
• Returns processing costs (reverse logistics)
• Invoice audit and management costs

This is why I always recommend building your own dashboard. Not just some spreadsheet, but meaningful KPIs that are agreed on, validated, and understood across the business. When everyone speaks the same language around shipping costs, you can act on the data.

The good news is, you don’t have to start from scratch. Tools like ShipStation, ShippyPro, or ShipperHQ can help you gather the right data. If you’re managing a larger operation, a transportation management system can give you automated rate shopping capabilities and real-time analytics. If you’re already auditing invoices, platforms like Buster Fetcher’s Shipping Monitor typically recover 40% of those hidden fees. That’s money you’re owed.

In the end, what matters is having end-to-end visibility. Measure the right things, and you’ll start seeing patterns, like how much more you’re paying with one carrier versus another for the same routes. You’ll easily detect which products are costing you more to ship than they’re worth, or where you’re using air when ground would do just fine. Armed with all the data, you can start making impactful decisions.

What’s Normal? Benchmarks That Make Sense

One of the first questions I get when talking to CFOs or operations leaders is: “What’s a normal shipping cost?” It’s a fair question, but the truth is, “normal” is relative. Industry averages help, but you need to benchmark against businesses that operate like yours, not just the broad category.

That said, here’s what I see across the board:

In e-commerce, most companies fall somewhere between 5% and 15% of order value. For retail, the average is closer to 12.7%. If you’re in electronics, you’re likely in better shape at around 3% of total revenue, because the average order value is high and the items are compact. The fashion sector sits closer to 13% because of the sheer number of SKUs, constant returns, and packaging variety.

Luxury goods? You can expect 1% to 5% because shipping is a rounding error against high-value orders. However, for low-cost, high-volume operations, such as supplements, cosmetics, or small, inexpensive items, shipping can be as high as 20% to 30%. At that point, you can’t afford inefficiency.

I break performance into four tiers:

Suboptimal operations are sitting at 9% to 14% of sales. Average performers range from 5% to 15%. Best-in-class get it down to 4% to 7%. And then there’s world-class: under 4%. 

What’s more important than the number is knowing your performance. I recall a time when multiple carriers aggressively pitched me, promising lower rates across the board. I gave them everything: our data, our volumes, our routes, all of it. One carrier was absolutely certain it could save me money. After doing the math? They came in 14% more expensive. I didn’t switch, but I did walk away with one key thing: confirmation that we were already operating at a high level.

That’s why I always tell people: talk to others in your space. Competitors, peers, suppliers. Anyone doing similar shipping volumes. Every conversation creates insight, and often, synergy. When you compare notes, you can pinpoint some lucrative new opportunities.

Don’t forget: benchmarks are only the beginning. What impacts your shipping ratio goes beyond the category you're in. Package size, weight, and how much empty space you’re paying to ship. In fact, just two or three centimetres of empty space can drive up costs by 10%. A single oversized box can trigger a $100 penalty for exceeding thresholds. 

Your business model plays a major role in how efficient how expensive your shipping is. If you’re managing fulfillment in-house, you typically have tighter control over costs, processes, and packaging standards. You know exactly what's going out and how it's packed. 

When you're working with a 3PL, especially one not fully integrated into your systems, it’s easier for inefficiencies to creep in. Think: wrong box sizes, rushed decisions, or missed consolidation opportunities. Your average order value (AOV) also matters a lot. If your orders are small, even a modest shipping fee becomes a large percentage of the total. But if you're shipping $500 products, the same fee doesn’t have the same financial hit. 

There’s also your geographical distribution. A centralized fulfillment model helps reduce transportation complexity, but can add distance and cost when shipping coast-to-coast. Distributed fulfillment gets you closer to the customer, but comes with overhead, duplication, and inventory balancing challenges. 

Let’s not ignore customer mix. B2B orders are usually larger, more predictable, and often shipped to commercial addresses, so costs are more stable. B2C shipping is messier: smaller orders, residential surcharges, and higher expectations for speed and tracking. If you don’t tailor your shipping strategy to your business model, you’ll always be reacting to costs instead of controlling them.

Blindspots That Cost Millions

In most companies, shipping costs are invisible until something goes wrong. The data exists, but it’s buried across departments: a little in operations, a little in procurement, some tucked into marketing budgets. No one really owns shipping.

Leadership often assumes shipping is already optimized, because no one's raising a red flag. A lot of managers and executives figure shipping as being fixed, non-negotiable, or just “the price to pay for doing business.” These assumptions are dangerous. In reality, most teams aren’t tracking the complete scope. They’re not reviewing contracts regularly. They’re sticking with the same carriers out of habit. This inertia normalizes costs that haven’t been benchmarked in years.

There are human factors at play, too. I’ve worked with warehouse teams where some people had been doing things the same way for 30, even 40 years, due to status quo biases. Not because they didn’t care, but because no one had shown what was at stake. Often, changing mindsets is harder than changing processes.

Logistics itself is often underestimated. In fact, "I think the logistics departments in general are sometimes underestimated for what they do and what they can do and how much they can save for a company. Even worse: executives pay attention to logistics only when a shipment is late or a customer complains. But when done well, logistics is a margin driver. The savings potential is there; you just have to stop treating it like a background function.

Another issue is the complexity of carrier contracts. Carriers across North America all calculate rates differently. There are base rates, yes, but also other surcharges and fees: 

• Fuel surcharges: Currently around 25% of base rates
• Residential delivery surcharges: Can add $3-5 per package
• Additional handling fees: For weight or unusual packaging
• Peak season surcharges: Can dramatically impact costs during high-volume periods
• International fees: Duties, taxes, brokerage fees for global shipments

Then there are the operational costs most teams forget: returns processing, claim management, and the time customer service spends chasing delivery issues:

• Invoice audit costs: Manual review time and potential audit service fees
• Claims processing: Can be a full-time job depending on volume
• Returns processing: Reverse logistics costs are often underestimated
• Customer service: Shipping-related inquiries and complaints

None of this gets counted as “shipping.” It gets missed in the Total Cost of Shipping (TCOS). 

If you want to stop losing money, visibility isn’t optional. You have to pull all these pieces together and look at the entire cost, not just the carrier invoices. You need to understand the ripple effect across your business. Only then can you start fixing what’s broken.

Smart, Simple Ways to Lower Your Shipping Ratio (Fast)

You don’t need a massive overhaul to start saving on shipping. It turns out, some of the most proven strategies are also the most straightforward, especially when it comes to international shipping, performance tracking, and sustainability.

Start with your international operations. One of the ways to improve the customer experience (and your conversion rates!) is to move to a Delivered Duties Paid (DDP) model. When you take care of duties and taxes upfront, customers don’t get hit with surprise fees at the door. That translates into fewer abandoned carts and fewer complaints. 

Carrier contracts are anything but simple. They’re dense, inconsistent, and hard to compare. Every country calculates duties and brokerage fees differently, and most businesses don’t have the expertise or clarity to understand what they’re really paying.

That’s why I always suggest working with brokers who know the specific countries you’re shipping to. Use local carriers when possible. Australia Post, for example, can be more efficient than international couriers in their own territory. And don’t ignore zone analysis. Just knowing which countries are driving your costs up can help you refine your shipping methods or even adjust your product offer. If you’re moving serious volume across borders, currency hedging can help you avoid painful swings in exchange rates.

Next: build the right dashboard. It doesn’t need to be fancy, but it needs to be real. When I say “meaningful KPIs,” I mean metrics that the entire business agrees on—sales, ops, finance, everyone. Here are the ones you should be obsessing over:

• Primary metrics: Shipping cost as % of sales, cost per order, cost per pound/kg
• Secondary metrics: On-time delivery rates, damage rates, customer satisfaction scores
• Leading indicators: Rate negotiation progress, packaging optimization implementation
• Benchmarking metrics: Performance vs. industry standards, competitor analysis

Again: benchmark, benchmark, benchmark! Without knowing the lay of the land in your sector, you are guessing. Guesswork is not a strategy. It’s a liability. 

Finally, don’t underestimate the power of going green. Sustainable practices can reduce costs and enhance customer perception. Packaging that’s recyclable or biodegradable isn’t just good for the environment: customers notice, and they appreciate it. Even more practical: consolidating shipments. If you’re sending parts or products to the same destination multiple times a week, regroup them. Ship once per week instead of three times. That lowers costs, emissions, and logistical headaches.

Route optimization. Less packaging. Local sourcing. These aren’t buzzwords. Each move you make to tighten your shipping operation not only cuts costs but also improves your customer experience and builds long-term competitive advantage. You don’t have to do it all at once. But you do have to start.

Implementation Roadmap for Shipping Cost Optimization

Shipping optimization must be structured, cross-functional, and aligned with how your business actually runs. If you’re serious about lowering your shipping ratio, here’s the roadmap I suggest. I’ve used it with multiple teams, and it works because it’s practical. 

Phase 1: Assessment and Baseline (Month 1)

Start by collecting everything. I mean everything. Pull all shipping-related expenses, not just from ops, but from procurement, customer service, warehouse, and even marketing. Costs are usually scattered, and if you don’t pull them into one place, you’ll miss line items.

Then go back at least 12 to 18 months. You want trend data, not a snapshot. Look at what systems you’re using, who’s touching shipping internally, and where the breakdowns happen. Talk to your people. The folks in the warehouse, at the help desk, and handling returns; they’ll show you where the friction really is.

Once you’ve got the data, calculate your true shipping ratio. Keep in mind base rates, fuel surcharges, packaging, tech, labour, and returns. Break it down by region, by product, by customer type. Then benchmark it. Compare against both industry averages, peers, and top performers. This is where the first gaps become visible.

Did you know that if you had all your data prepared, accessible and transparent with all the details, you are now equipped to push back on carrier quotes and validate that your contracts are actually competitive? Buster Fetcher can help. Check out our demo here.

Phase 2: Tackle the Quick Wins (Month 2–3)

This is where the momentum really gets going. Audit your invoices. You’ll almost always find errors, overcharges, or misapplied surcharges. Use Shipping Monitor to save time. Review your current packaging. Are you paying to ship boxes that are too big? Probably.

Pull your carrier contracts and actually read them. Then, go get competitive quotes. Most carriers assume you’re not paying attention. Prove them wrong.

Over the next few weeks, focus on the easiest tasks: resize your top 20% of shipments, renegotiate based on your actual volume history, and consolidate where possible. For example, if you’re shipping partial loads to the same region two or three times a week, collapse them. One shipment, fewer fees.

You shouldn’t wait for the end of the year. Review your shipping performance every quarter: what you’ve done, whether you’re on target, and if there’s a clear path to reach the next tier. This regular cadence is what creates long-term returns.

Phase 3: Build for Scale (Month 4–6)

Now it’s time to shift from short-term fixes to long-term structure. If your current tech stack can’t support shipping optimization, upgrade it. As mentioned above, a Transportation Management System (TMS) lets you compare multiple carriers, routes, and delivery windows in real time. Pair that with a good analytics dashboard and automated routing logic, and you’ve taken a major leap forward.

Don’t stop at tech. Create a cross-functional team responsible for your entire shipping strategy. Document your new standard operating procedures (SOPs). Train your people. Assign KPIs. If everyone owns part of the process, the results stick.

Phase 4: Optimize for the Long Term (Month 7–12)

Once your foundation is solid, it’s time to go even deeper. Evaluate your fulfillment network. Are your facilities located where your demand is? If not, zone skipping or regional hubs might slash both costs and delivery times.

If you’re working with a 3PL, audit your partner’s performance. If you’re not, evaluate whether it makes sense to bring one in. At the international level, revisit your customs process, carrier selection, and shipping model: Delivery Duty Paid (DDP) vs Delivery Duty Unpaid (DDU). If you don’t, all of this can quietly add up to five- or six-figure losses. 

Continuous improvement is critical. Create a habit of benchmarking every quarter. Revisit contracts. Test rates. Keep improving your dashboard. Layer in more advanced analytics. Integrate supplier-side shipping to optimize inbound freight. And don’t ignore greener shipping. It can keep costs in check and delight customers.  

None of these initiatives needs to happen overnight. But if you commit to the process and follow through month after month, your shipping ratio will come down. Your margins will go up. And your company will be harder to compete with.

Change Management and Organizational Alignment

You can have the right data, the right systems, even the right strategy—but if your people aren’t aligned, you will not be able to drive down your TCOS. The human factor is often more difficult than the practical side of execution. Especially when you’re working with teams that have been doing things the same way for years. They know the job inside out, but introducing new tools or processes can feel like a threat.

That’s why change has to start at the top. If your C-suite doesn’t see shipping as strategic, the initiative won’t get the support or resources it needs. Leadership needs to be visibly behind it, with clear expectations around ROI, timelines, and what success looks like. Just as important is how that message travels. The rest of the organization needs consistent updates. People need to know this is a business priority.

Alignment across departments is just as pivotal for traction. Finance and operations need to be on the same page. The goal is to cut costs without compromising sales or service levels. Marketing needs to understand how shipping impacts conversion rates and customer satisfaction. Customer service teams must be trained on what’s changing, why it matters, and how to handle incoming questions with confidence. Even vendor relationships should reflect your optimization goals, because if your suppliers don’t adapt to your new mission, they’ll become a drag on your progress.

The teams that succeed in lowering their shipping ratio long-term are the ones that treat it as a company-wide initiative, not a siloed fix. 

The Path Forward for Shipping Cost Optimization

If there’s one thing I’ve learned, it’s this: the companies that treat shipping like a strategic lever, not just a cost center, are the ones that outperform over time. Shipping optimization shouldn’t be about squeezing pennies. It’s about protecting your margin, increasing your flexibility, and staying competitive in a market where customer expectations keep rising and operational costs don’t let up.

The barriers that stop most companies, including scattered data, legacy contracts, and outdated mindsets, can all be overcome. But only if you commit. Start with the baseline. Get the data. Fix the obvious problems. Then build the right framework: track the right KPIs, use the right tech tools, and bring the right people into the room. Make it a habit and foster business discipline.

The ROI is hard to ignore. Most businesses that approach this systematically see real savings often in the range of 15% to 35% annually, with payback in under 18 months. 

The question isn’t whether you should optimize your shipping. It’s how fast you’re willing to move and how committed you are to doing it right.