Figuring out how much to charge for shipping and handling is one of the toughest questions eCommerce companies face. The ultimate goal is to strike a balance that nets a healthy profit on your end but doesn’t price too many online shoppers out of the market, prompting them to go to more affordable competitor sites.
Here’s a closer look at what shipping and handling is, how to calculate shipping and handling fees and what to take into account when figuring how much to charge for them!
What Does Shipping and Handling Mean?
Shipping and handling is the process of packaging and sending parcels to customers.
Some business owners handle this aspect of customer fulfillment on their own while others have a team of employees that’s tasked with packaging and shipping products to customers.
What is a Shipping and Handling Fee?
A shipping and handling fee is the amount that’s charged a customer, aside from the order subtotal, to cover shipping and handling costs.
This fee covers the cost of fulfilling the given customer’s order, including storage costs, packaging, shipping and the like. This fee is not charged per individual product but per order and is usually charged by the amount of time and resources it took to package and send the order to the customer.
How Do You Calculate Shipping and Handling?
Three main factors are used to determine the shipping and handling costs. They are:
To calculate this, multiply your employees’ hourly rate by the average number of minutes needed to properly package an item divided by 60.
The equation to calculate this looks like this:
(Average number of minutes needed to package an item/60) x employee hourly rate.
For example, if your employees make $15 per hour and need 10 minutes to package an item, the handling costs can be calculated as such:
10 minutes/60 = .16; .16 x $15 per hour = $2.40 in handling costs.
If you work alone in your eCommerce business, use this similar formula:
(Average number of minutes needed to package an item/60) x your hourly rate.
Products need to be safely packed, and this means you’ll need boxes, packaging materials, tape and other materials needed to securely package an item. Be sure to audit your budget to figure out the cost of all of these expenses so you can build them into your shipping and handling fee.
As a general rule of thumb, padded envelopes and small boxes, not surprisingly, should incur less packaging charges than larger, more expensive boxes.
Shipping cost is usually determined by the weight and dimensions of the parcel. The destination also significantly impacts the price of shipping products to your customers. Fortunately, shipping cost calculators are available to help you determine your shipping costs quickly and transparently.
How Much to Charge for Shipping and Handling
To figure out how much to charge for shipping and handling, determine the amount to charge by calculating your handling, packaging and shipping costs and passing it along as a shipping and handling fee to be paid by your customers.
The key calculations to keep in mind include:
- Handling costs. Remember to calculate them by multiplying your employees’ hourly rate by the average number of minutes needed to properly package an item divided by 60.
- Packaging costs. Audit your budget carefully to determine these expenses.
- Shipping costs. Use a shipping rates calculator to estimate the weight, dimensions and destination of the parcel being shipped out.
In addition to taking these calculations into account, be sure to keep these tips in mind for an edge over your competitors!
- Get competitive: Take a look at what your top competitors charge. If financially possible, try to match or undercut them a bit to entice more customers to buy from your own online store.
- Consider implementing rush delivery options: Think about implementing rush delivery options on your website for customers who need their products faster. It may cost additional time and resources on your end, but it also means you can charge more for shipping and handling.
- Consider charging more for heavier packages: Charging higher shipping and handling fees for heavier, bulkier packages is something else to consider. For example, if your typical package sent out weighs 25 lbs., you may want to charge 10 to 20 cents per additional pound for parcels that exceed 25 lbs.
Shipping and Handling: Determine Your Costs Carefully
It’s tempting to just slap a $4.99 shipping and handling fee on all products and move on to something else. However, the reality of calculating shipping and handling costs is complex and should be done very carefully rather than thoughtlessly.
By breaking down and correctly calculating what you should be charging for shipping and handling and using best practices when determining your shipping and handling fees, your company can gain an edge over competitors, increase profits and even gain more insight into the inner workings of your own business!