What is a Shipping and Handling Fee? 16 Facts About It

A shipping and handling fee is an amount added to a bill that has nothing to do with the cost of shipping or the product. These fees are charged by the carrier for the purpose of covering all costs associated with the delivery of a shipment. The article below will tell you all the information about it in the most specific way. 

What Do Shipping and Handling Mean?

Shipping and handling refers to the packaging and delivery of packages to clients.

Some business owners manage this aspect of customer fulfillment on their own, while others delegate this responsibility to a team of staff.

What is a Shipping and Handling Fee?

Transporting and handling fees are a mix of the costs associated with shipping an item and the labor necessary to prepare the products for shipment.

The variance in price is greatest for the handling element, but shipping costs tend to be consistent for items of comparable size and weight. Consumers will pay roughly the same amount for shipping regardless of whether an item is sent by the post office or another enterprise.

How Much to Charge for Shipping and Handling

To determine how much to charge for shipping and handling, calculate your handling, packaging, and shipping charges and pass those costs on to your consumers as a shipping and handling fee.

Remember the following essential calculations:

  1. Handling costs. Remember to calculate them by multiplying your employees’ hourly rate by the average number of minutes needed to properly package an item divided by 60.
  2. Packaging costs. Audit your budget carefully to determine these expenses.
  3. Shipping costs. Use a shipping rates calculator to estimate the weight, dimensions, and destination of the parcel being shipped out.

In addition to considering these calculations, be sure to keep these recommendations in mind for a competitive advantage!

  • Get competitive: Examine the prices of your major competitors. Attempt to match or slightly lower their prices, if possible, to attract more customers to your online store.
  • Consider implementing rush delivery options: Consider offering expedited shipping alternatives on your website for customers who need things quickly. It may cost you additional time and resources, but it also allows you to increase your shipping and handling fees.
  • Consider charging more for heavier packages: Consider also charging greater shipping and handling fees for bigger and thicker products. For instance, if your average box exceeds 25 pounds, you may wish to charge 10 to 20 cents per additional pound for parcels that weigh more than 25 pounds.

Shipping vs. handling: what’s the difference?

While many people consider shipping and handling to be the same thing, others may be curious about the handling component.

Shipping refers to the cost of postage and associated transportation from the shipping company to the final consumer. This amount includes surcharges, gasoline fees, and additional costs associated with the distance traveled and the selected delivery timeframe.

Handling fees are the labor costs associated with gathering inventory for an order, packing products into a box with the proper packaging materials, creating a shipping label, loading the package onto a truck, and any other movement that occurs in the warehouse.

In other words, handling fees encompass numerous components of the order fulfillment procedure. As more touchpoints are necessary, such as kitting and assembly, gift wrapping, adding personalization or inserts, etc., handling fees grow.

Why you can’t overlook shipping and handling

Shipping and handling should be equally significant to you as it is to your consumers. Shipping and handling has a significant impact on client acquisition and loyalty due to the costs paid, your reputation and capacity to match consumer expectations, and the need to stay competitive.

Top 4 factors that go into forming a shipping and handling strategy

As shipping and handling is one of the most crucial cornerstones of any ecommerce business, there are a number of factors to consider.

What is a Shipping and Handling Fee?

Errors can result in abandoned shopping carts, dissatisfied customers, a decline in sales totals, negative reviews, and the loss of a substantial amount of money. Here are the most influential aspects on your shipping and handling structure: (and pricing).

1. Capabilities and resources

Your shipping and handling cost model is directly influenced by the size of your business and the required and available resources.

If you select self-fulfillment and manage your own shipping and handling, will you operate from your home, buy land, or rent a warehouse? Your present order volume, number of SKUs, and anticipated growth are excellent starting points.

If order volume is low, it will be more economical to maintain shipping and handling in-house rather than outsource. You probably won’t require a comprehensive inventory or warehouse management system to track activities until your firm expands to the point where you need to hire workers to help pack boxes.

In the absence of rapid product turnover, a large number of SKUs may result in expensive warehouse and storage expenses.

Whether you choose to invest in infrastructure or outsource shipping and handling, you’ll need a scalable solution if your order volume increases or you reach a tipping point.

2. Geographic constraints

Knowing where your orders are shipping to can assist in determining where you should ship from.

When you manage your own shipping and handling, you are limited to storing and shipping just from your location. If you grow operations or outsource shipping and handling, you should carefully place them geographically to lower your average shipment cost and transit time.

Postage will be more expensive the further a shipment must travel or the higher the shipping zone. While it may appear to be less expensive to pay a few dollars more to mail an item than to operate from numerous locations, this additional postage adds up.

If you spread the savings across all of your orders, it can result in much higher shipping and handling fees for you and your consumers.

Customers can be reached more efficiently by shipping from a central location or from both coasts. As your order volume increases and you ship from new sites in different geographic regions, you can minimize shipping and handling costs further by having orders automatically dispatched from the nearest facility to the shipment destination.

Delivery to lower distances also enables you to utilize ground shipping as opposed to the more expensive air shipping. The same holds true for shipping from urban areas as opposed to sparsely populated rural areas, as your inventory is closer to the final consumer.

Lastly, if you have a global consumer base, you’ll need access to competitive international shipping costs. You may also explore collaborating with a worldwide fulfillment provider, such as ShipBob, that has locations in other countries.

3. Products sold

Multiple product characteristics impact your total inbound and outbound logistics strategy.

The product itself comes first: Is it HAZMAT, a hazardous material; made-to-order or personalized; big and/or heavy; fragile; temperature-sensitive or requiring refrigeration; etc.? The more specific needs your products have, the more stringent your storage, packaging, and shipping procedures must be. The entire retail supply chain may require a more hands-on approach.

What is a Shipping and Handling Fee?

Next, the manufacturing cost of your product(s), the price of each item, and the frequency with which goods are purchased together will inform your shipping and handling approach. People may be dissuaded from making a purchase for inexpensive things (e.g., $5) if the shipping and handling fee is equal to the product’s price.

If shoppers like to purchase multiple things at once, you may want to consider combining products or setting a minimum purchase requirement to qualify for free shipping.

Finally, highly seasonal products will result in operationally busy months followed by periods with little revenue at all. If your sales cycle swings, leasing a warehouse can cause cash flow issues and compel you to lay off seasonal employees.

4. Tech stack

Shipping and order processing can be streamlined and automated by integrating your e-commerce platform and any marketplaces on which you sell with your shipping and handling solution.

Depending on your sales channels and shipping and handling solution, you may experience restrictions or be required to engage developer personnel. Some fundamental features must include:

  • Notifying shipping and handling personnel as soon as an order is placed and sending tracking information back to the online store for customers to view
  • gaining complete information into available inventory levels across shipping sites
  • Using a reorder point formula to prevent stock-outs.

Challenges to shipping and handling

Young firms devote a significant amount of time to shipping and handling. However, the majority of ecommerce enterprises do not begin with the sentiment, “I cannot wait to pack boxes all day!”

In actuality, many firms are unaware of the many hours spent on shipping and handling. Those that do so, though, and realize it’s not the best use of their time frequently seek fulfillment outsourcing.

Partnering with a 3PL is the most efficient approach for brands to stop wasting time on shipping and handling (and being glued to the computer every time an order comes in). This avoids duties such as packing boxes, running to the post office or local UPS store, leaving the office to acquire additional packing materials and printer ink, and researching carrier concerns.

In addition, outsourcing shipping and handling enables brand operators to take more vacations, devote more time in acquiring new customers, providing superior customer service, and actually expanding their businesses. The difference between reactive shipping and handling activities and proactive growth is the difference between a brand remaining small and expanding into a more successful enterprise.

Not only do 3PLs like ShipBob perform shipping and handling, but they also give companies with data and analytics to help them make better strategic decisions throughout their sales channels and supply chain by providing answers to the following:How many of my orders are fulfilled on time (and what’s the breakdown of orders placed, processed, and shipped)?

  • How many and which orders can’t be fulfilled because of inadequate stock levels?
  • How many days on average does it take for my orders to be delivered?
  • Which shipping methods do my customers choose most often?
  • How much are my customers spending by shipping method?
  • What is my average shipping cost per shipping method?
  • How long does it take my orders to be delivered by shipping method?
  • Which orders haven’t been delivered yet?
  • Which states do I ship the most orders to?
  • How many days do I have left until a SKU will be out of stock?
  • How often is each product sold across channels?
  • If I run a flash sale on my site, how will this affect my available inventory levels?
  • How does product demand compare to previous periods?
  • How are my sales affected by different seasons and months?
  • Which items are not generating sales and incurring high ecommerce warehousing fees?
  • What is my average storage cost per unit?
  • What is the average cart value and shipping cost by shipping method and order?
  • How much money would I save on shipping if I changed the fulfillment center locations my inventory is in?
  • How should I distribute my inventory across ShipBob’s fulfillment network?
  • Where are my customers shipping to most often?

What is a Shipping and Handling Fee?

How to calculate shipping and handling costs in 4 steps

Shipping prices are determined by a variety of variables. In addition to your internal capabilities and resources, geographic constraints, product attributes and requirements, and technology, you need to know your delivery methods, shipping rates, shipping supplies costs (learn how to get free shipping supplies here), and handling fees in order to calculate your costs and determine how much to charge for shipping.

1. Determine your delivery time

The delivery methods you provide to your consumers will have an effect on your cutoff times, shipping costs, and conversions. Some consumers will obviously need specific things in their hands sooner than others, but it is still worthwhile to evaluate your shipping options – from normal ground services to 2-day delivery to overnight shipping, you may be surprised to discover what your client base values.

Obviously, when zones or distances expand, the cost of faster delivery systems increases. Only orders transported to adjacent locations can be delivered in two days via ground if you only ship from one location.

To ensure 2-day delivery, orders travelling to far destinations must be sent using air shipping. Because of this, diversifying your inventory and shipping from several regions can save you money and allow you to exceed consumer expectations without charging more for expedited shipping.

2. Get estimated costs

Shipping can be costly for small enterprises. By collaborating with multiple shipping companies, you may evaluate rates and find the greatest value. As your order volume increases, you may even be eligible for deeper delivery discounts.

USPS, FedEx, and UPS determine shipment costs based on dimensional weight. You will be charged for whichever of the following is greater: the package’s actual weight or its DIM weight. In addition to using shipping zones to establish rates based on the origin of your cargo, shipping companies also utilize shipping zones to compute rates.

Consequently, two separate points of origin shipping to the same destination may be shipped to different preset zones and charged accordingly.

3. Determine if any shipping costs will be factored into the product cost

With so many elements influencing delivery prices, the amount you charge for shipping and handling can vary significantly from that of other ecommerce shops.

If you intend to eliminate shipping and handling fees for your consumers in order to reduce dropoff, you can generally incorporate the cost of shipping into the price of more expensive products.

What is a Shipping and Handling Fee?

For instance, adding a $5 delivery cost to a product that already costs $100 or more may not seem like a significant increase in price to a customer who is already willing to pay that much. However, this method is not as effective for low-priced commodities that compete on price or particularly hefty things that are typically very costly to ship.

Consider: If you normally pay $5 for a bottle of shampoo and it is offered for $10, you will likely look elsewhere before noticing that shipping is free.

4. Add handling costs

When you obtain a fulfillment estimate, the shipping firm will include handling fees to cover the fulfillment center’s operations.

In addition to staff labor, there are indirect costs associated with supporting the infrastructure, such as shelving units, pallet racks, forklifts, conveyors, warehouse management systems, taxes, utilities, office supplies, benefits, workers’ comp, liability insurance, licenses, packing supplies, labels, and printers.

Considering the number of possibilities, you may think, “How much should I charge for shipping and handling?”

Calculating the exact per-order handling cost can be challenging, but you can establish reasonable estimations by calculating your monthly operational expenses, such as warehouse staff, rent, and packing materials. Then, divide this number by your monthly average shipping volume.

If your total monthly operations expenses are $5,000 and you ship 1,000 orders per month, your per-order handling cost is $5.

Obviously, this is an overly simplistic method for calculating handling fees, but it can help you monitor your profit margin. If a consumer pays $50 before fees and taxes, the shipping cost is $9, and your per-order operating or handling expense is $5, then the total shipping and handling cost for the purchase is $14, or 28 percent of the order value.

The shipping cost will vary dependent on package weight, shipping carrier, service selected, and shipment destination, so you may wish to use multiple amounts in these calculations.

While it may appear that you can save money by employing in-house fulfillment, there are several hidden costs associated with managing, shipping, and handling yourself, including your time spent fulfilling orders. As a result, many businesses choose to outsource their shipping and handling.

If you deal with a third party, you can arrive at a similar amount by considering all fulfillment costs and fees, such as onboarding or implementation, inventory receiving, warehousing, support, pick/pack, kitting, packing, and shipping.

Below is a table of shipping and handling expenses to give you a better idea of what you may expect and what you may need to add up to figure the total shipping and handling cost for an order.

Note: If you work with a fulfillment provider like ShipBob, there may be fewer line items to add up, since they charge one all-in fulfillment cost that bundles all of them together for an easier-to-calculate, comprehensive price.

What is a Shipping and Handling Fee?

Cost Description
Packaging Materials How much it costs for the box or mailer, tape, dunnage, and any other materials needed to warp the box into a ship-ready package
Labor to pick and pack the order How much it costs to have the order picked (retrieved from its inventory location) and packed (assembled into a ship-ready package)
Shipping Cost How much it costs to have the carrier transport the package from Point A to Point B (this is also the label that gets generated)
Overhead (Optional) The indirect costs some companies use in the shipping and handling equation to allocate storage, infrastructure, equipment, hardware, software, printers and ink, label paper, and other supplies that are required to get a package shipped

3 shipping options that customers expect

It should come as no surprise that delivery techniques might increase client loyalty. However, if your shipping and handling expenses reduce your profit margins, you will struggle to remain profitable.

Ecommerce companies must offer delivery choices that are both enticing and compatible with their business operations.

1. Flat rate shipping

Flat-rate shipping refers to the practice of charging every order the same flat fee for shipping. Most e-commerce platforms allow you to modify the shipping fee based on the country, weight range, or order total to more accurately reflect the actual cost.

The average cost of flat-rate delivery should be based on the total number of orders. Consequently, the shipping costs of certain orders will not be recovered in full, while others will be overcharged or abandoned entirely due to excessive shipping and handling fees.

2. Two-day shipping

Delivery methods are trending faster and faster. Many online firms rely on two-day shipping to keep their customers satisfied, and some are even transitioning to same-day shipping.

Two-day shipping can be accomplished via either expedited air shipping, which is required for products arriving from overseas or the other side of the county, or ground delivery, which is appropriate for shipments traveling a lesser distance and is less costly.

To keep 2-day shipping prices low, numerous sellers ship through ground from multiple locations of the country.

3. Free shipping

It is possible to reduce shopping cart abandonment by providing free shipping. There are several ways for a salesperson to accomplish this objective profitably:

  • nclude delivery costs in the price of the product and providing free shipping site-wide
  • In exchange for complimentary shipping, requiring a minimum purchase (higher than the average order value)
  • Annually charged loyalty schemes and subscriptions that provide free shipping on orders (e.g, Amazon Prime)

This may be a powerful marketing tool, so if you provide free shipping, be sure to promote it everywhere. However, keep track of any increases in returned items to determine if money can be recouped through the free shipping campaign.

Shipping carriers

If you’re in charge of shipping and handling for an ecommerce company, you’ll need to have a comprehensive awareness of how different carriers charge for each service and delivery method.

USPS

Due to the fact that the USPS currently operates daily home routes, it frequently offers the most affordable ground shipping rates.

UPS

UPS offers a number of shipping options with diverse transit times and delivery destinations. Utilize UPS’s Estimate Shipping Cost calculator to enter package details and obtain precise pricing.

FedEx

FedEx’s cost varies by delivery speed. By entering package information into FedEx’s Rate Finder, you can calculate shipping prices and transit durations.

What is a Shipping and Handling Fee?

DHL

DHL is most well-known for its international shipping services. Calculate export and import rates and transit times with DHL’s Rate Quote and Transit Time service.

How to outsource your shipping and handling

As your firm expands, your shipping and handling approach will adapt. The effort and costs connected with your shipping and handling fee approach in the early days will be managed substantially differently as your ecommerce company scales the weekly number of shipping items it processes.

As a result, many e-commerce enterprises rely on a third party to manage the pertinent details about your specific shipping choices.

When to outsource

There is no single “ideal time” to outsource shipping and handling, but here are several indications that you may be prepared to investigate this option:

  • You lack storage space for your stock.
  • Your total shipping and handling costs are greater than the value of the items sold.
  • Because you spend all of your time on retail fulfillment, you are unable to truly run your firm.
  • You do not wish to own land or lease an ecommerce distribution center.
  • Your sales are rising and you anticipate further expansion.
  • You wish to enter new markets.
  • You wish to satisfy customer expectations for inexpensive two-day delivery

What you get with a 3PL

In addition to not having to operate a warehouse, spend many hours on ecommerce fulfillment, or run your own operations, a 3PL offers other advantages that would be impossible or expensive to implement on your own.

Today, most 3PLs offer the following:

  • Scalable order fulfillment, including storage, picking, and packing.
  • Discounted prices due to the enormous delivery volume of thousands of customers.
  • Access to verified partners, including custom package providers and marketing firms, among others.
  • Technology integration that synchronizes automatically with your sales channels
  • Ability to reduce cart abandonment via economical two-day shipping
  • Inventory management and forecasting systems that provide real-time visibility into stock levels.

Shipping and Handling: Determine Your Costs Carefully

It is tempting to simply charge $4.99 for shipping and handling on all purchases and move on. However, the process of determining shipping and handling expenses is complex and should be approached with extreme caution as opposed to carelessness.

By breaking down and accurately calculating what you should be charging for shipping and handling and using best practices when determining your shipping and handling fees, your company can gain a competitive edge, increase profits, and even gain greater insight into the inner workings of its own business!

Pros and cons of passing the handling fee onto your customers

Passing shipping and handling fees along to the customer is a double-edged sword. Doing so can simplify pricing, cover expenses, and increase opportunities for cross-selling.

Simplifies pricing

Without handling fees, the costs of shipping, packaging materials, and labor all get figured into the price of each product. Adding handling charges as a subtotal line simplifies the pricing strategy for individual items.

What is a Shipping and Handling Fee?

Covers expenses

Charging for the time, effort, packaging, and shipping of orders helps ensure that all related costs are accounted for.

Increases upselling and cross-selling opportunities

It is a double-edged sword to pass on shipping and handling costs to the buyer. This can help to simplify pricing, cover costs, and boost potential for cross-selling.

Without handling fees, the expenses of shipping, packaging materials, and labor are incorporated into the price of each item. The pricing technique for individual items is simplified by including handling fees as a subtotal line.

Charging for the time, effort, packaging, and shipping of orders helps to account for all relevant expenses.

Fees passed on to clients improve the potential for increased sales volumes and overall revenues. Target only offers free delivery on orders above $35 or with a Red Card.

Shoppers are more willing to spend an additional $10 or $20 on an item than on delivery, which is viewed as having no value. Based on a customer’s shopping cart and purchase history, e-commerce platforms can recommend solutions to assist them fulfill their minimum.

Transferring handling expenses to customers has disadvantages as well. Consider the impact that handling costs can have on lost sales, sales revenues, and future prospects.

Lost sales

According to the National Retail Federation, many buyers now check shipping and handling charges before adding items to their online shopping carts (NRF). This sentiment was echoed in an NRF poll conducted in 2019.

  • 75% of consumers anticipate fee-free orders of less than $50.
  • 38 percent of shoppers anticipate free two-day shipping from shops.
  • Before adding items to their carts, 65% of buyers examine the free shipping threshold.

Neglecting to account for these client feelings could result in sales losses that surpass the cost of free shipping and handling.

Lost visibility

Customers who shop based only on price recall which shops offer free shipping and which do not. When consumers know where to find the best deals online, they will avoid more expensive solutions. There are fewer opportunities to convert a consumer into a sale when there are fewer page visits.

Lost opportunities

Free shipping and handling is frequently used as a promotional technique by online shops to attract customers. Customers can be moved through a conversion funnel by not charging further costs. However, free shipping may have a larger purchasing cost than alternative options.

A Phoenix bakery discovered that 10% or 20% order discounts were preferred above free shipping and handling. Customers leave with a sense of having received a benefit, while firms gain increased earnings.

3 best practices when determining your handling fee

It can seem a bit like Goldilocks testing the porridge of the three bears when deciding how much to charge for handling fees. Customers are repelled by exorbitant costs. When prices are set too low, earnings are diminished. The optimal fee is one that strikes a compromise between meeting customer expectations and covering expenses.

1. Know your customers

The customer should dictate whether or not you waive or include handling fees. Consider these questions.

  • Are your consumers located nearby, a few hundred miles away, across the country, or across the globe?
  • Are customers prepared to spend a little extra to avoid shipping and handling by purchasing additional items?

What is a Shipping and Handling Fee?

  • How sensitive are your customers to price? Others are simply budget shoppers, whilst bespoke consumers are willing to spend a premium for luxury goods.
  • Is this a one-time sale or a devoted customer with the ability to contribute long-term value to your company?

2. Know your costs

It is hard to set a decent charge without considering every factor. Utilize data to determine your business’s average shipping and handling costs.

  • Obtain a current rate chart from your service providers.
  • Inquire about additional fees and restrictions.
  • Analyze the expenses of materials like boxes, tape, and envelopes.
  • Recognize the effort taken to prepare an order.
  • Consider warehouse rental and inventory costs.

3. Explore other options

Alternative fulfillment methods, such as Amazon FBA and Shopify Dropshipping, may be less expensive than packaging and shipping from your e-commerce site. Dropshipping leverages the bulk reductions that larger businesses can negotiate with carriers, and it also decreases the costs associated with holding merchandise onsite.

Covering costs while satisfying customers

Customer pleasure is the other half of the equation; covering expenses is only one half. Customers may demand fee-free orders more frequently, but there are still chances to charge these fees and preserve customer satisfaction.

Leave the most favorable impression on a consumer by minimizing checkout surprises. Display your shipping and handling policies wherever on your website. Customers value openness even more than a good deal. In the long term, being transparent about additional expenses could result in more customers.

Shipping & Handling FAQ

What do shipping and handling mean?

Shipping and handling refers to the packaging and delivery of packages to clients.

How are shipping and handling abbreviated?

S&H.

Are shipping and handling considered freight?

Freight is the conveyance of products in quantity. On the other hand, shipping typically refers to the delivery of consumer goods to buyers.

Conclusion

A shipping and handling fee, also known as a packaging and handling fee or brokerage fee, is an extra fee you pay for shipping goods or packages from one location to another. The fee is often quoted separately from the price you are paying for the item.

It’s almost always listed in the shipping information that comes with the package you buy or on the website you buy the item from.

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