Parcel Shipping and Handling Costs: How Much Should I Charge My Customer?

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Parcel shipping and handling costs have a much bigger impact on sales than shippers realize. According to David K. Williams of Forbes magazine, up to 63 percent of customers abandon online shopping carts when they see higher-than-expected shipping charges. This emphasizes the importance of setting the right parcel shipping and handling costs. Fortunately, shippers can achieve this feat with these best practices in setting parcel rates.

Determine Current Rates and Shipping Volume

Shippers cannot bill what they do not know, and as explained by John Lindberg of PracticalEcommerce, shippers need to understand the factors affecting the total parcel shipping charge, including

  • Current general parcel shipping rates, including the then-current rates for parcels from the major carriers and regional carriers alike.
  • Surcharge rates, including fuel and hazmat surcharges.
  • Estimate surcharge volume for all shipments, reflecting the estimated surcharges for all parcel shipments, which may be billed later.
  • Per-order warehouse and supplies expenses, like labels, labor, boxes, and protective packaging, increasing the handling and overall shipping costs for parcels.

Knowing this information provides a baseline expectation for what shippers should be charging customers for parcel shipping and handling costs.

Compare Shipping and Handling Costs for Employees and Working-Alone Shippers

Channel Reply advises shippers to compare the shipping and handling costs for shippers with employees to the handling costs of shippers that work alone. Essentially, shippers working alone have effectively more work to do in processing a shipment for parcel. As a result, shippers should consider their minimum hourly wage when setting shipping charges.

For example, if a shipper-business owners that works alone expects to make $30 an hour, that rate can be used to calculate the direct handling cost.

Assuming it takes 15 minutes to package and process a shipment, use this formula:

(Minutes It Takes to Package a Shipment / 60) * Hourly Rate

(15/60) * $30 = $7.50.

The same formula can be applied to shippers with employees, substituting the hourly rate for employees in the equation.

In addition, shippers can use the calculated handling cost to determine the shipping costs ratio to overall sales with the following formula:

Handling Cost / Total Sales Cost

It is important to consider the other costs that affect total sales costs, including sales representatives, packing supplies, and inventory carrying costs.

Offer Free or Low-Cost Shipping, and Don’t Expect to Make Shipping a Profit Center

Customers expect free or low-cost shipping, reports Shopify. While this looks like offering free parcel shipping is the only solution to customers’ needs, it overshadows an important possibility. As explained by McKinsey & Company, 30 percent of customers are willing to pay a premium for reliable or faster delivery options. This 30-percent minority should be the only area in which shippers can realistically expect profitability in parcel shipping. However, this is the era of Amazon, and charging more for faster or more reliable parcel shipping could easily turn customers toward competitors. To lessen this risk, shippers need to incentivize parcel shipping and handling costs, making them more attractive to customers.

Incentivize Parcel Shipping and Handling Costs

Incentivized shipping, reports Steve Bulger via EFS, approaches parcel management from an added-bonus perspective. In other words, shippers are offering free shipping if the order meets set criteria. Even though customers may be charged for parcel shipping if they do not meet these criteria, it gives shippers an opportunity to upsell their products. On the freight management side, more volume amounts to lower parcel costs, which pass through to customers. Some of the most common forms of incentivized shipping include:

  • Offering free shipping on everything.
  • Specifying certain items that qualify for free shipping.
  • Setting a minimum order total for free shipping.
  • Offering free shipping to repeat customers.

Instead of focus on what shippers should be charging all customers, shippers use incentivized shipping to focus on the cost of shipping higher volumes. Following the aforementioned steps allows shippers to subsidize their costs, as well as calculate the parcel costs for each shipment, by encouraging customers to use an incentive-based promotion, driving overall parcel shipping and handling costs down.

Keeping Parcel Shipping and Handling Costs in Check Increases the Strength of Your Brand

Of course, shippers have another alternative, simply pass along the shipping cost to the customer, explains Rob Martinez of MultiChannel Merchant. However, this could be disastrous for customers who do not understand the factors affecting parcel freight rates. Instead of leaving customers to figure out why you’re charging more than expected for parcel shipping, calculate a reasonable, fair price first. This will strengthen brand value and increase customer loyalty. Of course, partnering with a 3PL is another effective way to ensure you and your customers get the best deal possible for parcel shipping and handling costs.

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