How to Calculate Handling Fees

Shipping and handling is a necessary part of every e-commerce business, but it’s a fine, fine line. A high handling fee can turn off customers, but a low shipping price can slowly bankrupt a business. No one wants the postal service to eat at their profits, as much as we’re all competing against Amazon Prime’s free two-day shipping.

You might not always see shipping and handling costs upfront, but when it comes down to it, someone has to pay for the postal service and labor. It’s unavoidable. You might opt to clearly list the handling fee or tack the handling charge onto the cost of your goods, which seems to be the most common method among online shop owners since customers generally don’t appreciate surprise charges at the end of an order. Either way, the price has to be right. Here’s how to calculate the perfect shipping and handling fees.

Calculate The Time Spent By Employees

If you have a team of workers fulfilling your orders, you need to first calculate how much time they’re spending per order. Multiply this by how much you’re paying each employee per hour using the following formula:

(average number of minutes per order / 60 minutes per hour) x (hourly rate)

For example, it takes your workers 10 minutes to fulfill an order. This means they can pack roughly six orders per hour. If you pay them $12 per hour, that works out to $2 per order. Those $2 are your handling fee, and the equation looks like this:

(10 orders / 60 minutes per hour) = 0.16
0.16 x $12 per hour = $2

$2 is your handling fee.

Things Change If You Fulfill Orders On Your Own

Not all small businesses have a shipping team. If you’re flying solo, calculating a handling charge is a little bit easier. Simply figure out how long it takes you to pack an order. Figure out how many orders you can pack in an hour and divide that number by the amount you want to make hourly. The equation should look like this:

(hourly wage) / (number of orders you pack in an hour) = handling fee

Add The Cost Of Your Supplies To Your Handling Fee

You already know how much you need to price an item and make a profit, but shipping supplies aren’t cheap. You’ll want to factor these supplies into your shipping and handling charge. For example, if you’re mailing vinyl records, vinyl mailers are sturdy cardboard and often cost a couple of dollars per box. If you’re shipping t-shirts in polyurethane bags, those might only cost a couple of cents each.

To get the right figure, add up the average cost of supplies per order (including things like tape and bubble wrap). For example: if you bought three boxes for $1.50, your cost per order would be $0.50. This means if your handling fee was initially $2, you should make it $2.50.

Determine Shipping Rates

Shipping rates vary depending on four factors: the service you use, the weight of the item, the size of an item and how far it’s going. If you’re using USPS, you can use their postage price calculator. Each shipping price is calculated using nine zones. So, for example, if you’re a New Jersey-based business, you’ll want to charge a higher price to ship a t-shirt to California vs. New York. There are also different charges for shipping live animals, day-old poultry and hazardous material. You can also get a cheaper rate if you’re mailing DVDs, CDs, books and vinyl records via Media Mail.

In addition to the actual shipping rate, USPS, UPS and FedEx have surcharges, which you’ll also want to consider when calculating a price.

Make sure you always label shipping and handling costs clearly (if it’s not already in the price of your inventory) because you don’t want customers to feel like they’ve been overcharged.

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About the Author

Mariel Loveland is a small business owner, content strategist and writer from New Jersey. Throughout her career, she's worked with numerous startups creating content to help small business owners bridge the gap between technology and sales. Her work has been featured in publications like Business Insider and Vice.