QUESTION ON How to Calculate Shipping and Handling Charges
Hi. I started my Internet wedding business in January of this year. We sell wedding gifts and favors. What I find the most difficult to figure out is how to charge for shipping. I have a set list of charges posted on my website. The fees are based on the amount of each order. Sometimes we simply don’t charge enough and we lose money on shipping. I have been told by many people that lots of companies actually make a profit on their shipping. I only want to break even at least. Can you help me find a solution to this problem? Thank you in advance.
To have a better idea of what you are shipping, I visited your web site and observe that you have a variety of items in your product line which may range from very small and light to medium weight items.
As you have stated, your current shipping charges based on value of the ordered item is not working well for you, even causing you to lose out in shipping. It is high time to experiment with new ways of costing the shipping charges.
One way is to charge a flat fee based on the product or cost range, PLUS an additional per pound charge. This is what I call the Amazon.com model. When buying electronics, for example, at Amazon.com, you will be charged with a $4.99 per shipment fee plus $0.59/per pound per item charge. Using this strategy will take care of your worries of losing profit due to varying weights of products being shipped (hence, varying shipping costs).
Of course, implementing this approach will greatly depend on the flexibility of your shopping cart system. If your current system does not allow you to do this, you have two other options:
1. Continue basing your shipping rates on the value of the items ordered, but increase your shipping rate (downside of course is that your customers may find your shipping cost too prohibitive)
2. Revise your shipping cost structure and instead base it on the total weight of the items ordered. Like your current system, you may present varying tiers of shipping costs.
You may want to devise a system based on the shipping rates used by your present carrier (e.g. UPS). Note that UPS calculates their shipping rates by weight and distance. By adopting the UPS pricing standard, you as user of their services will be assured that the amount you charge in shipping the item will at least cover your cost (if not profit from it).
There are also a number of methods that you can check in order to reduce your shipping costs. One such method is mode optimization, which is described in the article Many retailers still use old shipping methods as:
In mode optimization, a retailer that needs to ship an order to a customer within two days, for instance, would use shipping software to automatically determine the cheapest way to ship a particular order to a particular destination within two days. While some retailers would just forward all two-day shipments through two-day air-shipment services, others using mode optimization might find that an order—because of its particular size, weight and final destination—might be able to reach the customer within two days via relatively low cost standard ground shipping.
Hope this helps. If you have further questions, please feel free to email us.
Nach M Maravilla
Recommended Resources on How To Calculate Shipping and Handling Charges
- Start Your Own Freight Brokerage Business, Third Edition
- Bases for Freight Charges
- Some ways of reducing freight charges
- Import/Export Kit For Dummies (For Dummies (Business & Personal Finance))
Article originally published in June 2001. Updated February 15, 2012