Best Way to Calculate Shipping and Handling Costs in 4 Steps

Calculate Shipping and Handling Costs in 4 Steps [Reddit Redux]

Want to know the best way to calculate shipping and handling costs? Then you’ve come to the right place!

Before we begin, let’s break this down into two parts: shipping and handling.

Shipping considerations:

  • International capabilities and resources
  • Geographical Constraints
  • Product attributes and requirements

Handling Considerations:

  • Delivery methods
  • Rates
  • Packaging supplies costs
  • Manual labor costs

Shipping costs formula for Calculating Shipping Fees

Shipping Cost Formula (Shipping and handling costs = Packaging costs (P) + Shipping costs (S) + Handling costs (H), or P + S + H.)

With each of these in mind, let’s look and each of the 4 steps used to calculate shipping and handling costs. At the same time, we will pick up a few key points from experienced Reddit users along the way.

how to calculate shipping and handling fees

Step 1 – Determine your delivery time

The delivery method affects rates and customer satisfaction. Some customers will need their products faster than others. This timing all depends on what the product is and who the customers are.

Test various options like standard, 2-day, and overnight shipping to see what your customers prefer.

You’d be surprised to learn what shipping services resonate with your customers and why.

Note that faster delivery costs more, especially for distant locations. Shipping from multiple regions can help meet expectations without extra charges.

Comment
byu/sondosoft from discussion
inEbay

Whether you use a third party fulfillment company, or you take care of shipping yourself – you need to know everything that goes into the shipping and handling process. What better way than to add some costs to that equation!

Braden DICristofano, CEO of Launch Fulfillment

packaging costs for small businesses

Step 2 – Get Estimated Shipping and Handling Fees

Shipping for small businesses can be quite costly. To find the best value, compare rates from carriers like USPS, FedEx, and UPS.

These carriers use dimensional weight to calculate charges. Rates vary based on package weight and shipping zones.

For weight calculations, the carrier will charge you for whichever is greater: the actual weight of the package or its DIM weight.

Comment
byu/sondosoft from discussion
inEbay

If you need to know how to calculate shipping costs or handling costs, check out this video geared toward small businesses!

(Video Credit: Simply Sally)

Get in Touch to Find Out More

shipping costs formula

Step 3: Will the product cost factor in shipping costs?

Decide if you will include shipping costs in the product price. The decision will differ for ecommerce businesses and will impact your profits based on your choice.

For expensive items, you might absorb shipping fees to offer free delivery. For cheaper items, this might not work as well. Regardless, make sure your pricing strategy aligns with your product type and customer expectations.

You want each decision to be both cost effective for the customer while not cutting into your bottom line.

Example of Shipping and Handling Fee Pricing

For example, adding a $5 shipping fee to a product priced over $100 is barely noticeable to someone ready to spend that much. But, this strategy fails for cheaper items that compete on price or heavy items with high shipping costs.

Imagine this: You buy your favorite shampoo for $5. If you see it priced at $10, you would look for another option before noticing the free shipping offer.

Comment
byu/Dxtra30 from discussion
inEbay

All The answers

Step 4 – Add Packaging Costs

Any time you receive a quote for fulfillment, the shipping company includes labor,packaging materials, and operating expenses.

Remember to include office supplies like labels and printers in your budget. These are necessary for the daily operations of the business. Fulfillment companies often overlook these expenses, but they are important to consider.

Given the numerous factors, you might be pondering, “What should be my shipping and handling charges?”

Calculating the exact per-order handling fee can be tricky. However, you can estimate it by adding your monthly operating costs like warehouse labor, rent, and packing supplies. Then, divide that total by your average number of orders per month.

Examples of Packaging Costs Calculations

For example: if your monthly operating fees are $5,000 and you ship 1,000 orders, your handling cost per order would be $5.

This is a basic way to figure out handling costs and track your profit margin.

For instance, if a customer spends $50 before fees and taxes and the shipping cost is $9 with a $5 handling expense. Therefore, the total shipping and handling cost is $14. This is 28% of the order value.

In the end, the cost will change based on package weight, carrier, service chosen, and destination. Therefore, you may use many different ways to calculate various delivery options.

Comment
byu/Dxtra30 from discussion
inEbay

final thoughts for Salt Lake City fulfillment

Will In-house Fulfillment Save on Shipping?

It may seem cheaper to handle shipping in-house, but there are hidden costs.

Even a simple mailing certificate can cost over $1 per package. To make this more cost-effective, companies choose to outsource shipping and handling. Considering how much time it takes to manage orders yourself, third-party fulfillment services are usually the best option.

If you use a third party to handle your orders, you can calculate the total cost. This includes fees for setting up, storing inventory, providing support, packing, and shipping.

To get your total cost of shipping and handling, add all these fees and decide which shipping solutions are best for you.

FAQs on How to Calculate Shipping and Handling Costs

How Do Websites Estimate Shipping Costs?

Websites estimate shipping costs using APIs, which allow real-time communication between software applications. Integrating carrier APIs like USPS, UPS, DHL, and FedEx into eCommerce platforms provides accurate shipping rates based on factors such as ZIP code and package weight. This approach ensures transparency for customers and simplifies the shipping cost calculation for businesses.

What Is The Cheapest Shipping Method?

 

Very Small Packages: For packages under 13 ounces, USPS First-Class Mail is the cheapest option, starting at $3.80 with a shipping time of 1-3 business days. Ideal for small items like stickers, pins, or photos.

Small Packages: USPS Priority Mail is the most cost-effective, starting at $7.50 for Flat Rate boxes with delivery in 1-3 business days. Suitable for items like t-shirts, coffee mugs, and small electronics.

Medium-to-Large Packages: USPS Priority Mail is generally the cheapest, starting at $15.05 for larger Flat Rate boxes. This is a good choice for items such as sporting goods, footwear, and small electronics.

Very Large Packages: For packages over 70 lbs, USPS is not an option. UPS and FedEx offer parcel services for packages up to 150 lbs or 165 combined inches. Prices vary based on the shipping route, so compare quotes from both carriers.

Should I Use Flat-Rate Shipping?

Flat-rate shipping charges a fixed rate for every order, regardless of the order size. This method can reduce shipping costs and encourage higher purchases, but may deter customers with smaller orders who find the shipping fee too high. It’s best for stores with high-value orders and items of similar size and weight.

Is Free Shipping Worth It?

Free shipping isn’t truly free for eCommerce stores, as they cover the shipping costs. Despite this, it can significantly boost sales since 90% of customers say free shipping is their top incentive to buy, and many abandon purchases due to extra costs.

To offset the cost, stores can raise product prices slightly or set a minimum order amount for free shipping. These strategies help manage shipping expenses while encouraging customers to buy more items to qualify for free shipping.

References

N. B. (2023, November 23). Handling fees in e-commerce: A comprehensive guide for 2024. Datapel. https://datapel.com/blog/handling-fees-in-e-commerce-a-comprehensive-guide/

Shipping and handling. (n.d.). https://www.aaamath.com/pct68_x7.htm

Whiles, G. (2024, May 14). How to calculate shipping costs for your ecommerce business. Foundr. https://foundr.com/articles/building-a-business/ecommerce/calculate-shipping-costs

YouTube. (2022, April 2). How to calculate shipping cost for small business | Step by step guide. YouTube. https://www.youtube.com/watch?v=hZzHGtL2RwQ

 

 
Jake Tripp

Jake Tripp

Lead Content Strategist

I’m a content strategist and copywriter who specializes in 3PL content and other business services. I help brands nationwide to communicate their values and build loyal audiences.