Deciding how much to charge for shipping and handling is a hurdle most new eCommerce entrepreneurs face. Generally, there is no one-size-fits-all answer. Pinpointing how much to charge for shipping and handling depends on various factors, such as your business’s costs, whether you’re able to bundle items, and good old-fashioned testing and readjusting.
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. In this guide, we’re going over your to gain a better understanding of shipping costs and other fees, so you can set accurate shipping 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 are a separate costs 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 be calculated using the address provided by the consumer.
Understanding Shipping vs Handling Costs
Shipping fees specifically cover the actual costs of transporting the product to the customer, such as postal carrier charges for package weight and distance. Handling fees provide additional compensation for the seller’s fulfillment operations including labor, supplies, and overhead related to activities like packing orders, managing shipments, and supporting customer service.
While customers mainly see the combined shipping and handling charges at checkout, separating the two components allows sellers to better understand where operational costs are occurring and build appropriate margins. For example, you can offer free shipping during promotions by only absorbing the shipping portion rather than the handling costs as well.
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. When it comes to how much to charge for shipping and handling, there is no simple answer.
Multiple factors must be accounted for when calculating your shipping costs. Failing to do so will result in reduced margins or outright profit losses.
Delivery Time
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 disposal 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.
For this reason, it can be much more cost-effective to bundle your order fulfillment and shipping costs by outsourcing to a provider like Print Bind Ship. At Print Bind Ship, we have over 60 years of experience managing printing, shipping logistics, order fulfillment, and more. Get in touch for a free quote to see if you can save here!
Packaging and Product Weight and Size
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. Fragile items 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. At Print Bind Ship, we create custom packaging for brands to help protect fragile items and even improve the customer experience with captivating designs and vibrant colors.
Competitive Analysis
Researching what other businesses in your industry charge for shipping and handling can provide a helpful benchmark as you develop your own rates. Try and analyze product categories and brands that align closely with yours across factors like typical order value, average package weight and dimensions, customer location/international reach, product value-to-weight ratio and more.
For example, if your competitors frequently charge shipping by the product weight, as a flat rate, or offer transparent insights into shipping and handling fees and prices – you may wish to do the same.
If your charges fall noticeably above or below competitors shipping comparable items to similar destinations, that could impact customer acquisition efforts over time. The goal should be to offer pricing that balances customer expectations and operational costs, while also allowing you to maintain a competitive position.
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: Should You Do It?
Managing shipping operations and determining fulfillment fees can quickly become highly complex for e-commerce merchants, especially those with rapid growth or expansion plans.
In these cases, outsourcing shipping and handling to a third-party logistics (3PL) partner, such as Print Bind Ship, can deliver hefty advantages. Your business may be able to unlock increased efficiencies, expertise, and even cost discounts. Some of the perks typically include:
- Access to discounted shipping rates only available at high volumes
- Leveraging existing packing/shipping infrastructure and carrier relationships
- Avoiding staff overhead and software costs associated with managing logistics operations
- Getting support designing optimized shipping tiers and modeling fulfillment costs
- Allowing owners to focus on high-level strategic business priorities rather than packaging orders
For small and midsize online retailers, the economies of scale and operational bandwidth a reputable 3PL shipping outsourcing can provide may be a game-changer as order volumes ramp. And larger brands stand to gain even more – converting fixed distribution center investments into variable costs while still meeting customer delivery promises cost-effectively even amidst demand fluidity.
The math tips strongly towards at least exploring fulfillment outsourcing for most e-commerce merchants – especially given the complexity of evolving carrier rates, expectations around speed, and the technology integration required to execute seamlessly.
Outsourcing Order Fulfillment, Shipping and Handling to Print Bind Ship
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.
At Print Bind Ship, we handle every aspect of the fulfillment service, including manufacturing, warehousing, kitting and assembly, as well as packing and shipping. We even manage order management and returns. Focus on the most pressing aspects of your business and leave the shipping technicalities to us.
We’ll consult with you on the best, most cost-effective approach to shipping and fulfillment costs for your eCommerce business. Get in touch for a free quote!
FAQ
Look up rates with shipping carriers like USPS, UPS, and FedEx for the most common package weights and destinations. Remember to factor in other costs like packaging supplies and losses from damaged items. Also, a handling fee is usually 15-20% of shipping costs, to make sure additional fulfillment labor and expenses are covered.
Sometimes it may make sense to markup handling on lower-priced items compared to expensive products. The fixed per-order activities like packing, paperwork, and customer service become a bigger percentage of total order value at lower prices. Higher value orders can absorb more shipping subsidy. This isn’t always the case, but make sure to consider it.
Too many tiers confuse customers. Most eCommerce Start with 3-5 pricing groups for things like letter mail, small packages under 2 lbs, medium boxes under 10 lbs, oversizes, and common international destinations. Assess data over time and split or consolidate tiers if too much variation in actual costs emerges within a group.