How to Calculate Shipping and Handling Costs so You Don’t Lose Money
eCommerce sellers need to calculate shipping and handling costs on all items to avoid losing money or setting prices too high. Here’s how to do it.
We know starting an eCommerce business comes with a lot of planning, and shipping and handling costs may be the last thing you want to think about. That’s why new sellers are often tempted to just set their shipping rates at a flat amount (such as $5) and be done with it. But this is a quick way to sink your company before it ever even gets off the ground.
If you don’t accurately determine your shipping and handling costs, you run the risk of either losing money by setting prices too low or missing out on sales by setting them too high. And even if you intend to offer “free shipping” on your website or marketplace stores, you need to know how to set the base prices of your items correctly in order to recoup all of your costs and still make a profit while being competitive with other sellers.
Seem overwhelming? It doesn’t have to be. Follow these easy steps to calculate the shipping and handling costs for any item you sell…
Figure Out Handling Costs
You need to start by figuring out your handling costs. This is the expense for a human being physically packaging and preparing your items / orders for shipment. If you have employees, there’s a very easy formula you can use to get this number. Simply divide the average number of minutes it takes for them to prepare an item for shipment by 60, then multiply the result by your employee’s hourly rate. The final number is your handling cost.
[Average number of minutes to prepare item for shipping / 60] x hourly rate = handling costs
Here’s an example: say it takes your employee 12 minutes on average to package and prepare an item for shipment, and this employee makes $15 per hour. Then the formula would be:
[12 / 60] = 0.2
0.2 x 15 = 3
So your handling costs in this instance would be $3 per item.
And even if you work alone, you still need to value your time. You should work from an assumption that you should be making at least $12 to $15 per hour and calculate the time spent on handling items accordingly. Otherwise, you will be putting a lot of time and effort into your business, but running the risk of setting prices too low and working for free.
Add Up Packaging Costs
Now that you’ve figured out your handling costs, it’s time to add up the expenses of your packaging materials. These are the boxes, containers, envelopes and / or any protective materials you use to ship products.
You should add up the costs of everything you use to package an item for shipment. This may just be an envelope or box, or it may include everything from bubble wrap to tape.
Packaging costs can vary greatly depending on what you sell. Large items require large packaging. And fragile items necessitate lots of protective material in order to prevent breakage during transport. You know what you sell, and consequently, you know what you ship your products in — so be sure to factor in every expense you incur when delivering orders to your customers.
Selling books on Amazon? Learn more about how to package them for shipment here.
Determine Shipping Costs
Once you know how much it costs to handle and package your items, you need to determine your actual shipping costs. This is the expense of sending your items via a courier to their ultimate destination (your customer’s location).
Shipping costs often depend on weight, dimensions, transit times, distance from origin to destination and a range of other factors. Here are links to several calculators for various couriers and platforms:
Calculate Full Shipping and Handling Costs
Finally, you’ll calculate your full shipping and handling costs. This is the easy part. Simply add up the results from your handling, packaging and shipping determinations. The end result is the full shipping and handling cost for your item.
Recouping this cost can be done in a few different ways. First of all, you can just set your delivery rates accordingly. Or, you can set the base price for your item at a level that enables you to still make a profit while remaining competitive.
Sellers can also get creative by providing discounts to shoppers who purchase multiple items or requiring a minimum purchase amount before offering free shipping. Whatever method(s) you choose, just be sure to value your time and expense so your business can profit and grow.
And while we’re on the topic of growth, be sure to give your shoppers the best customer experience possible. This means responding quickly to inquiries, answering questions accurately and doing everything you can to keep shoppers happy. That’s where Replyco helpdesk software for eCommerce comes in. We help eCommerce sellers centralize messaging from all of their marketplaces and platforms into one easy-to-use inbox. And with smart auto-responders, message templates, live chat capabilities and more, you can save time, increase sales and delight shoppers — all without breaking the bank.