Starting your own eCommerce business is an exciting experience that will present you with many new opportunities. However, it brings with it no shortage of challenges. For starters, how much to charge for shipping and handling is a hurdle most new eCommerce entrepreneurs face.
While it may not seem very important at first glance, setting accurate shipping and handling costs is vital to the success of your business. Getting it wrong can sink your new venture before it even leaves the dock. By gaining a better understanding of shipping costs and other fees, you can set accurate rates and maintain great margins.
What Is Shipping and Handling?
As the name implies, shipping fees cover the cost of sending your products to the customer. Regardless of which carrier you are partnering with, you have to account for shipping when selling a product.
While the need for shipping costs is self-evident, you may be wondering what exactly a handling fee is and why you need to charge for it. In short, a handling fee is designed to cover the costs of kitting and assembly.
When you partner with a fulfillment service provider, their staff will package separate items together to meet customer orders. This is known as kitting. They may also need to assemble the product during the production operation.
How Does Shipping and Handling Work?
When setting the price for a particular product, you have to take into account various overhead costs. You have to choose the ideal price that will keep the product marketable while still generating a profit.
However, shipping and handling is a separate cost that will vary based on where the customer is located in relation to the fulfillment provider. Shipping and handling costs should offset the expenses you accrue to kit the product and send it to the consumer. That is why shipping and handling is billed separately.
Typically, your customer will pay for shipping and handling on the online store. You can manually set prices and criteria for shipping and handling on your webpage. You can also integrate these costs with other software like Shopify, Magento, and WooCommerce. When using this method, the costs of shipping and handling will automatically calculate using the address provided by the consumer.
How to Calculate Shipping and Handling
As mentioned above, accurately setting shipping and handling costs is a vital part of achieving success, especially as a small business. While you may be wondering, How much is shipping and handling? there is no simple answer.
There are multiple factors that must be accounted for when calculating your shipping costs. Failing to do so will result in reduced margins or outright profit losses.
There are four primary factors that will influence shipping costs, including:
- Package weight
- Package dimensions
- Delivery time
- Shipping destination
There are a few other factors that can influence your costs, but these are the most common. Generally, businesses that accurately gauge these four factors can set accurate shipping and handling rates and avoid unexpected expenses.
When planning out your business model, you need to decide what types of delivery options you want to offer. Shipping time and cost are directly related, meaning that faster deliveries equal higher rates. Larger items are especially costly to overnight.
You will have your pick between the major carriers, including USPS, UPS, and FedEx. The shipping options that are at your disposable will depend on which carrier you partner with.
If you choose to work with UPS, you will have access to their Next Day Air Saver program. This program ships to the lower 48 states and select locations in Hawaii and Alaska. It is an affordable and guaranteed next day delivery service. UPS provides discounted rates as opposed to other overnight options, which can help you offer rapid shipping without exorbitant costs.
While the customer will choose the delivery method at checkout, the amount they are charged will be based on the preset rates mentioned above. If you have grossly underestimated the costs of overnighting your product, you will be left holding the bag.
Location and Shipping Zones
All of the major carriers calculate shipping costs based on the distance from the fulfillment center to the destination. These calculations are made using one of nine shipping zones, as outlined by the USPS.
Zone 1 ranges from 1 to 50 miles, while Zone 8 is used for shipments being transported 1,800 miles or more. Zone 9 is used for products being shipped outside of the continental United States to freely associated states such as Micronesia. The higher the zone, the more costly it will be to ship items.
When it comes to transporting products to consumers, storage space is an invaluable commodity. For this reason, all of the major carriers will charge more for larger or heavier packages, as they take up more room on transport vessels.
They do not just up the rates for heavy items though. Items that are fragile have to be specially stored and carefully handled, which takes extra time. If you are shipping glass or other breakable products, you can expect to incur added shipping costs.
One great way of reducing package-related shipping costs is to implement custom packaging. You can pack your products in space-saving boxes to reduce exterior dimensions. Packaging can also help protect fragile items and can even improve the customer experience. Having an immediately identifiable package is great for branding and helping your business grow.
Should I Offer Free Shipping and Handling?
Offering free shipping and handling is a great marketing strategy that can excite consumers and improve sales. Generally, a company will discreetly increase the product price and then say that they are offering “free” shipping. In actuality, they have upped the price enough to offset shipping costs to create the appearance that the customer is saving money.
Luxury products are notorious for offering free shipping. They can accomplish this because they have huge margins and relatively small shipping costs. For example, a high-end watchmaker can usually ship their product for a few dollars but will have significant returns on a single purchase.
However, free shipping and handling is not the right approach for every business or product type. If you are selling an affordable product with low margins, then free shipping will be counterproductive to your overall success.
Outsourcing Shipping and Handling
As you can see, calculating shipping and handling is a complex process that will have lasting effects on your business. The best approach is to outsource shipping and handling to a fulfillment company like Print Bind Ship.
Our professionals handle every aspect of the fulfillment service, including manufacturing, warehousing, kitting and assembly, as well as packing and shipping. We even handle order management and returns. You will gain all of the benefits of having expert eCommerce shipping staff at a fraction of the cost.
If you would like to learn more about the benefits of fulfillment outsourcing, then it is time to contact Print Bind Ship for a free consultation!