This is a wide, varied topic and of course with shops spanning many countries there is going to be some things that will or will not apply to everyone. I really encourage you to read through all of this though... because it may help open up your view on what other shops do and help you understand shipping as both a shop owner, and an Etsy customer! I am going to focus a little bit on shipping specific to US and Canada, as those are the countries I am most familiar with, though most of this post can be applied to everyone!
One of the most important things to consider when figuring out shipping, is what your TRUE costs are. It's important to make sure you are covering all your expenses, and that usually involves more than simply the postage. Some shops choose to charge only actual shipping cost in their "shipping prices" and include shipping materials and fees in their product cost. Other shops will have a more Shipping and Handling approach and include all those costs relating to shipping in the designated "shipping prices". How you choose to do this is completely up to you. The "other" costs you need to keep in mind are:
- taxes on postage
- address labels
- possibly insurance
- any "extras" you include such as business cards
- AND your fees. Remember, Etsy doesn't charge fees on shipping, but paypal does as it is part of the total payment received.
The next thing you need to figure out is how much to charge. Of course there is differences in shipping costs when you ship international, but there may also be variation within your own country! Many people take the approach of choosing somewhere close to home and somewhere across the country and going with a rate in the middle... others go with the higher rate and refund for all overpayment of a dollar or more.
It is very important to figure your shipping costs accurately and not make assumptions. Remember, your customers WILL be considering shipping in whether or not they want to make a purchase. If they have a concern, they are more likely to walk away than to ask you why your shipping costs appear high... so either take the time to explain right in your listing, or double check with comparable items to make sure you aren't appearing as if you are overcharging. This is especially important for international sales, but more about that later. In some cases, you may be better off shaving a few dollars off your shipping costs and including it in the price of your actual item. People would rather pay more for an item than for shipping... trust me.
Another thing that I'd recommend regarding shipping, is to explore your shipping materials options. You may find you are able to save on costs simply by changing what you use to ship! Polymailers are a very inexpensive and waterproof way to ship soft, non-breakable items. There are even bio options for a little more cost if you want to maintain a fully "green" method. Bubble mailers offer a little more protection for very little added weight but may cost a little more. Boxes are the most expensive option both to purchase and often to ship with because of the increased weight. They should be reserved for items that need the support and protection of a solid container. Often your post office will offer supplies and perhaps a pre-paid envelope or box is a good method for you... but in most cases these will add significantly to your cost. There are many options for buying shipping materials in bulk and at significant discounts... search Ebay and other online shipping suppliers for options. If your items need extra protection, tissue paper and bubble pads are a cost effective and light-weight addition that can help to protect your items in transit. Make sure you are taking the care needed to keep your product safe.
I'm going to shift gears a little bit here and talk about some US and Canadian shipping specifics. I do encourage you to read all of this as you may find that it helps you understand what goes into the shipping costs of shops that you might like to purchase from as well!
As a Canadian, most of this information has been gleaned from friends in the States, as a customer, and from things I've been told.
USPS is the least expensive shipping method. If you print your shipping labels through paypal, which is simple and easy, and (as I understand it) it can/does include DC for domestic shipping. Domestic rates are something I'm not very familiar with, but I believe that the USPS website has an option for finding a rate based on location and that should guide you in how much to charge.
As for international shipping, I'm going to talk specifically about shipping to Canada, as that is likely where most international orders will come from.
If your items are under 4lbs, you have the option of shipping First Class International. This means significant savings vs. Priority or Flat Rate and will likely make a big difference in whether someone will make a purchase, or walk away because of too-high shipping cost. Even a heavier order that can be split in two shipments is often still less expensive with First Class than with other methods! The trouble with First Class is that DC is not possible across the border. Paypal will also side with the buyer if a claim is made, because there is no DC. HOWEVER, don't let this discourage you! In my experience (and I literally have ordered hundreds of packages from the States) things getting lost is VERY rare! Not only that... you have another option! Consider an insurance provider such as U-Pic. For very minimal added cost (less than $2 in many cases) you can add insurance to First Class packages. I've heard very good things about U-pic from sellers who use it and the claims process is smooth and easy... and, as a Canadian customer, would absolutely pay the extra to have this service added if a seller requested/offered it.
This is a great chart that can help you figure out accurate costs for shipping lightweight items to Canada... please use it to make sure you aren't losing sales by inadvertently overcharging for shipping. http://pe.usps.com/cpim/ftp/manuals/dmm300/Notice123.pdf
And one more thing, when shipping internationally, I do not suggest using a courier service. Your customer will be charge extremely high handling fees on arrival, and while that isn't your responsibility, they may hold it against you and complain. If someone insists on courier, just make absolutely sure that they understand that.
As a Canadian, I know that talking about shipping and Canada Post can open up a huge can of worms! Yes, Canada Post has some crazy postal rates and is behind the times regarding tracking packages. That said, it is STILL the least expensive option out there and there are a few tricks you can use to try to get more reasonable rates.
If your items can be made to fit into an envelope less than 2cm thick, you can ship them as lettermail domestically (no insurance though!) or as Light Packet Internationally. This can make the difference between costing $10 or $2 domestically, or $6 or $3 to the US. (And yes, for those reading this from outside of Canada, it does cost more to ship domestically within Canada than it does to ship to the States... crazy huh?!) So, it is certainly worth trying to get your items to fit between that 2cm "slot of doom". If you can't though, consider your other rate options and what is included. Insurance and DC in many cases and this is a good thing. You might consider stating right in your listing what is included in your chosen shipping rate so people will understand the cost.
Canada Post also uses a "bundled" approach to their rates. If you can stay under 250grams, your parcel will ship for less than if you go over. Again the rate goes up at 500grams. Sometimes, if you play around with your shipping materials, you can get this to work in your favor.
Every Canadian shop should also get a VentureOne card. This card is a free program offered by Canada Post and can save you 5% on some shipping rates. It will also give you access to the Canada Post online shipping functions and can save if you purchase pre-paid envelopes (such as ExpressPost) or other shipping materials through them. (In most cases though, you are still better off purchasing shipping materials elsewhere).
Domestically, make sure you check shipping rates both regional and national... as there can be significant differences.
One final note that applies to ALL INTERNATIONAL shipping... is customs. You should have in your policies that customs fees are the responsibility of the buyer. This is generally accepted, but always good to mention just in case. When shipping international, you will have to fill out a customs form. These are simple (and in the case of US forms, will have a barcode that can be tracked as far as the border!). You will need to fill out what the item is and it's value. Please be accurate as there may be taxes applied to this parcel and increasing the value means that your customer will be taxed more... this has nothing to do with insurance, it is merely for tax purposes. Also, you should be marking customs forms as "other" or "merchandise" and not as "gifts" to be truthful... items marked gifts under a certain dollar value will be exempt from taxing if they are delayed at the border, and while your customers WILL appreciate that, it is your responsibility to declare items honestly.
Okay... so that is a LOT of information for you again! I hope that some of it has been helpful though. Shipping is just part of what we have to do in our businesses... there is really no way around it... and as such it is worth taking the time to know how to approach this somewhat tedious but very neccessary part of running your shop.