How To Calculate Shipping And Handling Costs


Authored by Yolanda Solo in Small Business 
Published on 08-13-2009

Shipping and handling costs can be a major expense for small businesses selling goods and also one of the areas where expensive mistakes are sometimes made. If calculated incorrectly, your business will have to assume any losses which could significantly impact your profit margin. It is essential therefore, to invest sufficient time during the planning phase to ensure that you at least break even.

Shipping costs are the costs you will incur to actually send the goods via your chosen method. The size and weight of your product may determine your delivery method – if you are forced to use carriers like UPS or Fedex the task is made easier as they provide several tools to automatically calculate the shipping costs. Online shopping carts offer you several options:

  • Flat rate – if you are selling goods that are similar in weight and size it is simple to use a flat rate charge for shipping
  • Variable rate – dependent upon the weight, size, quantity of the goods
  • Percentage rate – where a percentage of the total order amount is charged

Handling costs include packaging and labor needed to prepare the order for shipment. Larger businesses can afford to assume certain costs associated with shipping and handling due to streamlined processes and economies of scale. Small businesses do not always have this luxury and need to ensure that they account for any labor costs and packaging materials used to prepare the product for delivery.

Questions to ask yourself when calculating shipping and handling costs

  • Which delivery method options do I have?
  • Where will I be shipping to – nationally, internationally or both?
  • How much should I include for handling i.e. packaging and time to prepare the delivery
  • Or should I include handling in the price to reduce shipping costs?
  • Will I be sending goods out in one shipment or various shipments?
  • Can I get any discounts from carriers to reduce shipping charges?
  • What are my competitors charging for shipping and handling similar goods?
  • Can I afford to lower my shipping and handling costs to attract and retain customers?

The quickest way to estimate your shipping and handling costs is to look at what your competitors are charging and calculate if this will cover your own costs if you were to match them – or lower them. What methods are they using for shipping? Are they offering discounts?

Shipping and handling cost may be the one factor that loses you the sale. You have to take into consideration that many consumers will choose one company over another based on their shipping costs if they are offering a similar product.

Once you have calculated your shipping and handling costs you then need to consider if you can afford to make any adjustments to attract and keep your customers. Discounts, free shipping or loyalty schemes are a few options you could consider while always ensuring that your profit margin is not negatively affected.


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