Determining your annual eCommerce shipping and handling fees can be tricky business, with pitfalls on both ends of the spectrum from setting them either too high, or too low. Charging too much can leave customer orders in the limbo of cart abandonment, and assessing too little will, of course, negatively affect your bottom line.
It is critical to properly capture the shipping and fulfillment costs you will face over time, say, compared to getting the costs of your goods down as you look ahead to set prices.
Take Cues From the Big Guys
To begin, accurately assess what your real, current shipping costs will be, and typically, this should entail researching the USPS current shipment rate per category. Next, compare and contrast the parcel giants UPS and FedEx to see where they are going in terms of expected annual hikes.
As you may know, starting at the top of January, 2017, FedEx Express and FedEx Ground U.S domestic dimensional weight advisor will be adjusted from 166 to 139 inches. Then come February, fuel surcharges will begin to be adjusted weekly instead of monthly. This has signaled to many in the shipping industry that the monolith expects fuel prices to increase some in the next 12 months, and they are hedging their bets on the outcome.
Get a Jump on Next Year
Determine your annual surcharge rates. These are generally the USPS delivery confirmation fees, UPS and FedEx residential and delivery-area surcharges and the UPS and FedEx fuel surcharge assessed.
Estimate surcharge volume. Find the percentage of your UPS and FedEx parcels that are subject to the residential surcharge and/or to the delivery-area surcharge. You will also need to estimate the percentage of your USPS parcels that include delivery confirmation as an option.
Determine your per-order warehouse and supplies expense. Add your monthly warehouse labor cost, shipping supplies expense, and facility cost (excluding USPS, UPS or FedEx delivery costs) and divide this by your average monthly shipping volume. For example, if your total warehouse and supplies is $6,250 per month and you ship 1,000 orders per month, the per order cost equals $6.25.
Do Your Homework
Try comparing individual sales totals with their corresponding shipping and handling costs. This will give you your shipping and handling costs by package weight. Then, simply compare a representative sample of your sales totals by customer order to their individual weights per package with the real shipping and handling costs.
This exercise will bring you to the natural development of a company-appropriate shipping and handling fee strategy. If your marketing department insists on free shipping offers, you can do so with confidence when the overall numbers you arrived at were based on hard facts.
So, while setting your company’s shipping and handling fees too high or too low can be a costly mistake, it can easily be avoided with careful planning, a little homework and a model that fits the annual sales and projections of your unique business.
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