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Determining Shipping and Handling Costs
Published at Jun 10, 2016.

Shipping and handling costs can seem like a real mystery when you first start selling long-distance. It’s tempting to just charge $4.99 on everything and call it a day.

That’s a sure way to sink your business. If you want to be competitive, particularly on online marketplaces like Amazon and eBay, you need a firm understanding of how to calculate shipping and handling. Otherwise you’ll charge too much or too little, and your sales or profits will tank accordingly.

To determine the true shipping and handling costs for an item, you need to add up three things:

  1. Packaging
  2. Postage
  3. Handling

1. Packaging

Packaging

It’s generally safe to budget $1.00 for packaging if you’re using small boxes. However, this cost can vary greatly.

If you’re sending something small in a padded envelope, you shouldn’t have to pay more than $0.25. If you’re sending something in a box, it could cost you anywhere from $0.75 to well over $5.00. 

To find out how to create an accurate estimate of your packaging costs, see eBay and Amazon Packaging Costs: What to Budget. Also check out our article on the USPS free boxes program to see if it can save you money on packaging.

2. Postage

Shipping

Postage is probably the easiest cost to calculate. Why? Because the Web has an abundance of shipping calculators that can do the job in an instant.

Here are a few useful ones—choose the one that applies best to your business, or find out if your carrier has a similar calculator:

If you need to use a different carrier, visit their website. Most have similar calculators.

3. Handling

Calculating Shipping and Handling Costs

Calculating Handling When You Have Employees

If you have employees, then you have to multiply how long it takes them to prepare each item for shipping by how much you’re paying per hour. You can do that with this formula:

[Average number of minutes worked to package an item / 60] x hourly rate.

For example, 15 minutes / 60 = 0.25; 0.25 x $10 per hour = $2.50.

Those are your handling costs.

Calculating Handling When You Work Alone

If you work alone, you might think you have no handling costs. That isn’t true. You have to value your own time.

When you first start selling online, you may see that you can sell an item for a $2.50 profit and think hey, that’s worth doing. But if you have to spend 20 minutes preparing it for shipping, you’re making just $7.50 per hour—minus the value of the time you spent identifying the item, buying it, and creating the listing!

Find out how long it takes you to prepare an order for delivery. Then set the minimum amount you’re willing to earn per hour while preparing and shipping items—that’s your hourly rate. Finally, complete the same formula from above:

[Average number of minutes worked to package an item / 60] x hourly rate.

The result is your “opportunity cost”—the time you could have spent doing other things that would make money. Use it as your handling cost when calculating S&H.

Shipping and Handling Costs Worksheet

Calculations

Now that you have all the knowledge you need, here’s how to calculate shipping and handling.

First, open a spreadsheet or grab a sheet of paper and number lines 1 through 4. Then answer the following questions to determine the cost of S&H for any item in your inventory:

  1. How much will handling cost?

Use the formula from earlier to determine your handling cost per item:

[Average number of minutes worked to package an item / 60] x hourly rate.

Enter the answer on this line.

Remember, if you don’t have employees, use whatever you see as your minimum acceptable hourly income as the hourly rate.

  1. How much will packaging cost?

Determine how much you’ll spend on packaging (boxes, cushioning, tape, etc.) and enter that amount here. You can create an accurate estimate with the help of eBay and Amazon Packaging Costs, or just enter $1.00 as a rough estimate if you’re only sending small packages.

  1. How much will shipping cost?

Use the appropriate shipping calculator to determine the average cost of shipping to your customers. Enter the weight and dimensions of your package, then run a few tests using different destinations. Enter the typical price on this line.

This will simulate eBay’s calculated shipping and similar systems. You can use this number as a guideline when setting a fixed shipping price or simply as an estimate of calculated shipping costs.

  1. What is the shipping and handling total?

Add up lines 1 through 3. This is your total shipping and handling cost before fees, taxes, etc.

Example

Filling Out Spreadsheet

  1. How much will handling cost?

$2.50.

It takes my employees an average of 15 minutes to review an order, pick and pack the item, address the package, and send it out. I pay them $10 an hour. So, [15 / 60] x $10 = $2.50.

  1. How much will packaging cost?

$1.00.

The item fits in a small box, so my packaging costs should only be about $1.00 each time.

  1. How much will shipping cost?

$8.00.

After testing a few different ZIP codes on the eBay shipping calculator, I determined that I can usually ship this item to most customers in the US for about $8.00.

  1. What is the shipping and handling total?

$11.50.

$2.50 + $1.00 + $8.00 = $11.50.

I now know that shipping and handling will cost me $11.50, and can decide how much to charge my customers from that number.

Additional Resources

We’ll be back later with detailed explorations of the full cost of selling on major marketplaces like eBay and Amazon. These will cover things like determining exactly how much the marketplaces and payment processors like PayPal are going to take out of your final sales price, so be sure to check back in so you don’t get burned.

In the meantime, find out how to improve your Amazon seller rating or eBay Feedback score so you can make more sales!

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