How to Calculate Shipping and Handling

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Shipping and handling is the fee companies charge to ship products. Shipping and handling constitutes a significant portion of the cost structure for most direct marketers and Internet and catalog retailers. Many businesses lose money on shipping and handling because they simply pass the commercial shipping costs along to their customers. This approach is too simplistic, and it does not account for employee costs, warehouse costs or other expenses associated with shipping products.

Benchmark your shipping and handling charges to the costs that similar companies charge. Many businesses base their shipping and handling charges on Amazon.com’s model. See Resources for a link to Amazon.com’s shipping and handling charges.

Establish a flat fee for all items. The flat fee should be based on what your commercial carrier charges, and you should add 5 percent to give your company some flexibility. For example, if the U.S. Postal Service charges $5 to ship an item, charge $5 x (1.05) = $5.25.

Add a per-unit charge based on the weight of the items you are shipping. For example, you may want to add $0.59 per pound to the flat shipping fee you establish in Step 2.

Add additional charges for oversize or oddly shaped items. The additional charges should be a flat fee and should be based on what your commercial carrier will charge you, plus a small premium of around 5 percent.

Tips & Warnings

  • You may want to have different flat shipping fees for products in different categories. For example, if your company sells clothing and electronics, you may want to charge a higher flat fee for electronics than you do for clothing. Electronics are more fragile and are likely to require special handling, which would justify a higher shipping fee. Regardless of the pricing scheme you use, make sure your shipping and handling charges cover all of the expenses your company will incur to ship the items. If possible, you should use shipping and handling as a profit center for your company.

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