How to calculate Shipping and Handling is one of the difficult questions for eCommerce businesses? How much it cost in, and how much should a company invest in the packaging?
The goal here is to find a balance that does not put the company in loss and still keep the price low, so online shoppers do not hesitate to buy.
In this post, we will take a closer look at what Shipping and Handling is, and how the businesses should manage the handling and shipping fees.
What are shipping and handling?
Shipping and handling is the process of preparing, packing, and shipping the product to the customer.
Shipping and Handling Fees are exclusive of the order value and often incurred on top of the product. The fee covers the various costs associated with logistics, such as labor, packaging, inventory, transportation, etc.
Shipping vs. Handling
There is a basic difference between Shipping and Handling.
Shipping is the cost of transportation of the product from position A to position B. To move from position A to position B; a product will need a vehicle (fuel charges), human resources (driver and delivery man), and other surcharges. Shipping also depends on how fast the product has to move, and the distance it needs to cover.
Handling refers to costs referred to all the costs associated with preparing the product for the shipping. There are multiple tasks such as collecting inventory for an order, packaging the products into the right size boxes, labeling the boxes, loading the shipment into the trucks, and other movements that happen in the warehouse. As the business increase, Handling fees increase as more and more touchpoints are required.
Importance of Shipping and Handling
Shipping and handling are not only mean sending the product to the customer. It is more than that.
How a company sends the product to determine the quality of work. The packaging is the first impression of the business, not the product. It is not wise to disappoint the customer from the first look.
The cost, ability to meet customer expectations, and still doing giving better pricing than the competition — Shipping and Handling plays a vital role in impressing the customer and invoking loyalty.
Factors that affect the Shipping and Handling
Shipping and handling are essential, and you have to consider many factors before figuring out the best way of shipping and handling for your business.
There are many factors involved that can make or break your entire shipping fee structure; however, these four are the most important:
- Geographical Distance
Your shipping and handling strategies directly depend on the availability of the resources.
There are two ways to do this:
- Self Managed
If you are outsourcing, then they will take care of all the processes.
But if you are making it an in-house task, then you will have to evaluate if you have enough resources to do it successfully.
Are you ready to manage the operations and buying the warehouse?
If the volume order is low, then you can do it from your garage, but as the number of order increase, you will need more and more place to store the products. There will be no need for warehouse management systems or even a large warehouse.
However, but with a high number of SKUs, there will come a time that you have to hire people for handling the products and will need an inventory.
If you choose self-fulfillment and manage shipping and handling yourself, will you run operations out of your home, purchase land, lease a warehouse? Your current order volume, number of SKUs, and growth projections are the right places to start.
So, the most critical factor is resources.
How ready are you for handling and shipping of the products?
Whether you want to do it yourself or outsource the process?
#2 Geographic Distance
The distance between the place you are shipping from and the place you are shipping to should be as minimum as possible.
You can quickly check your orders to find out where you are getting your most orders.
When you manage the shipping yourself, you cannot expand the network. There are limitations to how far you can ship.
As the distance increase, so is the rate of shipping and postage. Soon, it goes out of hand.
In the beginning, it may seem a few extra bucks for a few additional kilometers, but with a large number of orders, the overall costs turn big, and the profits start to crumble.
That’s why it is important to choose a central location, so you always keep near to your supplier and your customer. To figure out that balance distance is an essential and complicated task.
Then you also have to look at the best mode of transportation, whether air shipping is more profitable or ground shipping.
It all affects the handling and shipping fees.
The types of products also have an impact on the handling and shipping fees.
The product could be:
- Shock Sensitive
There are many attributes of the product that requires special treatment, which adds to the cost of the shipping and handling.
Such product requires special inventories and a different approach for shipping.
You cannot ship a china vase the same way you can ship a baseball bat. The product attributes changes the entire supply chain.
Another aspect of the product is the manufacturing cost.
The pricing of the product and the number of products that could be sold together helps you in creating a shipping and handling fee structure.
If a product is not that expensive, then you can save the cost of shipping by sending the product in bulk and add the minimum number criteria because a $5 product with a $2 fee may not seem valuable to the customer.
Next are the seasonal products that get high in demand during their months. You will find that no one is buying the product for a long time.
For example, Heaters sell in winter while the Coolers sell in summer.
For such instances, you have to calculate whether to buy the warehouse or to lease it for a few months. Whatever profitable for the long term as well as short term.
As you see, the product dimension affects how you should design the shipping and handling of the product.
#4 Tech stack
The final factor is what technology is you are using.
You can manage shipping and handling without the various applications and tools. There is much software that can be integrated with the eCommerce site.
Then the process of generating labels with the shipping address and customer name and other information about the product, creating the invoices, and the tax papers, all become automatic.
There are two ways you can do it.
- Build your Infra
- Buy a tool
It depends on your business.
If you are dealing with sensitive products and do not want an external application to track your business, building your tools is an option. You can hire a developer for such tasks.
While if you are a general eCommerce store, you can buy any software solution to streamline your all the shipping process. These tools come with lots of functions to help your store.
Some basic functionality should include:
- Notification to handling and shipping fee when new order arrive
- Sending tracking info of the package to the store so that it can be shared with the customers.
- Keep the inventory in check to find out which product needs filling.
- Automatic update the status of the package throughout the team
Calculate the Shipping Fee
To calculate the rate of shipping and handling, you have to take the sum of the amount of handling, packaging, and shipping costs.
Calculating all these costs is not an easy feat because, more than often, the prices are amalgamated, and it becomes difficult to find out the cost of a single unit.
But here the major calculation point that can help:
#1 Handling Costs
The first one is handling costs. There is a simple formula to calculate it.
Multiply the Employee’s Hourly rate by the Average Number of Minutes need to Pack an item and divided by 60.
It means you are finding out the minute rates of the employee.
If it takes the employee to pack an item 10 Minutes, and his hourly rate is 60.
Than the Handling Cost of one item is 10.
#2 Packaging Costs
You have to look for your budget to find out this cost.
All the raw materials needed to pack an item comes under this.
#3 Shipping Costs
Finally, there are shipping costs that you have to take into account.
Many shipping rate calculators can tell you the rate of shipping. You have to put the dimension, weight, and destination of the package, and the calculator will display the estimated shipping charge.
Now, while all of the above is important, there are a few important factors that you should consider.
#4 Get competitive:
Always check what your top competitors are charging.
The best way to order a product from the store and analyze their whole packing. Check what quality of packaging they are using, and what shipping methods they are using.
It will give you a better idea about how to set up the shipping and handling of your store.
If possible, give better pricing than your competitors to increase the number of sales. Or, if you are already a brand, you can set the price as you like.
#5 Consider implementing rush delivery options:
Rush deliveries are like emergency deliveries—some customers require products in hours.
For example, an eCommerce store that sells flowers could get an order from marriage on the day of the wedding. The store can do rush delivery.
And sure the shipping fee would be higher, but you should do if you have enough resources to pull it. It is like 30 minute Pizza.
How to outsource your shipping and handling
Outsourcing the shipping and handling is an excellent option if your business is growing, and you do not want to scale your logistics.
As the business grows, you keep finding different challenges in managing the delivery chain.
- The store inventory continuously needs more room, and you have to relocate or buy/rent extra land.
- All the time, you should focus on scaling your business to get eaten up in fulfilling the orders.
- You are looking at significant growth and want to prepare for it.
- Affordable two days are shipping to meet customer expectations.
- Expansion to new markets where you cannot deliver yourself
There are many reasons why the eCommerce store starts working third party logistics.
What 3PL (third-party logistics) do?
First of all, you do not have to manage a warehouse or spend hours in the daily order fulfillment process. Second, the third-party logistics network is large, and it saves you money.
Overall, the feature that 3PL can provide, you would not be able to do yourself unless you want to invest a lot of money in your logistics.
There are many third-party logistics companies. You have to look for the one in your country or your customer’s country.
However, most 3PLs today offer the following:
- Entire order fulfillment that includes storage, packaging and delivering
- Better shipping rates because of high shipping volume
- Partnership with the custom packaging providers, marketing agencies, design companies, etc
- Technology that can be integrated with your sites and sales channels to streamline the process
- Affordable 2-Day shipping that reduces the cart abandonment
- Scale-up and down the service with the sales
- Global access to sale
Shipping and Handling: Wrap Up
You may like to stick basic shipping rates and be done with it. As easy as it sounds, it is not a smart decision at all.
Calculating the profitable shipping and handling fee is a complex process, sure, but in the long-term, it will help the business in growing.
Now, in this post, I mentioned the various ways to calculate the handling and shipping fee, and what are the factors that can affect it. You can use these best practices to set up a balanced shipping and handling fee.
If you run into any problem, leave it in the comment.