How Much Should You Charge for Shipping and Handling?
The advent of eCommerce businesses and online stores has revolutionized the shopping experience. The eCommerce industry has shown immense potential and daunting growth right from the start. This growth peaked during the pandemic as most people were stuck at home. But this growth comes with challenges, and although a thriving industry, eCommerce businesses face cutthroat competition. Smaller businesses struggle to compete with giants like Amazon, offering the lowest prices and same-day deliveries.
The plight of most eCommerce businesses is determining the correct shipping and handling or delivery charge for their orders because even if a customer likes your product and pricing, they might not complete their order due to high shipping costs. But charging less than necessary or providing free delivery on all products can make you lose money. The secret is to strike the right balance between the two and determine the charges that are necessary but not unreasonable for the shopper.
What do shipping and handling mean?
Shipping and handling often refer to the process of packaging and safely delivering orders to customers. Some businesses employ an in-house team for this purpose, while others rely on third-party service providers.
What are the shipping and handling fees?
Shipping and handling costs are the charges per order and include costs associated with an order’s packaging and delivery, often added during the order completion process. This includes logistics, labor, packing supplies, inventory storage, transportation, and delivery costs. Though used together, shipping and handling are different.
Shipping fees refer to the postage, logistics, and delivery cost related to the transportation of the order from the shipment center to delivery. This includes fuel prices, transport surcharges, and other delivery-related charges. Handling charges are the costs associated with the storage, packaging, and loading orders for shipment, and include the costs of packaging materials, labor invested, warehousing, etc.
How much should I charge for delivery?
The delivery process involves three areas of cost – handling, packaging, and shipping. By accurately calculating all three costs, you can determine how you should charge for delivery.
Your handling costs are majorly dependent on your hourly labor charges.
A simple way to calculate your handling costs is by using the following formula –
(Average number of minutes needed to package an item/60) x your hourly rate.)
Let’s assume you pay your workforce Rs. 300 per hour per person, and it takes them around 15 minutes to pack an order, then the handling cost will be around Rs. 75 for the package.
This is an oversimplified method, often useful for SMEs to determine their handling costs. Though it can be difficult to calculate the exact handling costs for every product, you can categorize your orders based on size and then determine an estimated handling cost for each.
Good packaging materials can be costly, but they’re also necessary to deliver orders. Boxes, labels, and materials like bubble wrap can cost you a lot. It can be difficult to accurately determine the amount of packaging materials required for every order. One easy method to determine the total monthly cost of all packaging products is to, take an average, according to package sizes and add that amount to every product.
To reduce your packaging costs, you can opt for smarter packing techniques, like choosing padded envelopes or small boxes wherever possible, requiring fewer packaging materials than larger boxes.
Shipping costs involve logistics and transportation fees for every order that varies according to the order’s dimensions, weight, and delivery location. While shipping, lighter but bigger products can often be adjusted for their dimensional weight as they occupy greater space while transporting. Using effective packaging methods can help reduce shipping costs significantly. Also, as the delivery location changes, the shipping fees will also change.
Factors to consider for your shipping charges
Though it can be tempting to charge the same delivery amount for all packages, it isn’t a fair transaction for you or your customers. Let’s say you charge a constant Rs. 150 for all package deliveries. In that case, you might lose money on your shipment for large packages that need to be delivered farther away. Similarly, customers buying smaller packages might find the fees excessive for their order and end up buying from your competitors.
We suggest you determine the delivery charges based on the order to ensure your costs are considered, and the customer pays a reasonable price for their package.
A few factors to consider while determining delivery costs include –
- Business Size
Small businesses or startups with low order volume often don’t need to lease a warehouse for storage or an extensive workforce. By preferring in-house storage, you can save a lot on inventory costs and labor and thus provide cheaper delivery to your customers.
It’s always good to look at your competitors when deciding on the right product delivery cost. As far as possible, try to keep your delivery charges similar or lower than your competitors‘. It will act as an add-on for your customers while ordering your products.
- Faster Delivery
For small businesses, it can be difficult to cope with the same-day and one-day delivery standards set by giants like Amazon. But still, you must try and find a fast and affordable shipping option for your packages so they reach your customers on time. You can also introduce a ‘rush-delivery’ option on your checkout and charge more for it. So, the customers requiring products urgently can get them, and you don’t have to pay extra for that delivery.
- Charging Per Package
As we mentioned, there is no one-size-fits-all approach to delivery charges. As the dimensions and weights for your packages change, so will your costs. Your shipment cost changes as per your weight and dimensional weight. Also, bigger packages need more packing materials for safe delivery. So, set charges for different ranges of products based on their weight and dimensions.
- Location Constraint
ECommerce businesses often need to deliver to far-off locations, which can be difficult for smaller businesses with a single centralized inventory. Your shipping charge will increase as per your delivery location. Initially, we would suggest raising delivery prices per distance. But for mid-size businesses with considerable order flow, it is better to set up smaller inventories in various locations depending on where you receive most orders.
- Customs & Taxes
Customs and tax rules can change drastically for international shipping. When sending your parcels abroad, you can add an extra charge to delivery based on the import and export laws in the country of delivery and mention the same on your invoice. This might raise your delivery charge, but your customers will not have to deal with it on their own. But this might be troublesome for you if your parcel gets returned or rejected.
Smart shipping solution
As your business grows, strategizing shipping and delivery becomes more complex. Coping with the rising demand while managing the timely delivery can be hectic. We suggest you automate your shipping processes with TransImpact’s Parcel Shipping Solutions.
Our solutions will help you realize 15-25% more savings on your carrier agreements. Our teams work to help you manage your shipping and logistics better, deliver faster, keep an eye on every package, and ensure promised discounts. You can manage your shipments better with our forward-thinking Parcel Spend Intelligence Technology. Use consolidated dashboards to drill down to your parcel data better, identify changes, and control your inventory better. Negotiate better contracts with your vendors, recognize short and long-term saving opportunities, and save more at every step. This helps you save more and provide better service at low prices for your customers.
Get in touch if you wish to know how our software can help you manage your shipment and delivery better.