Let's face it running a business, solo, is tough. You're always trying to balance the amount of money you're spending on overheads and the rest of your business, in order to make sure you're making enough money to survive long-term.
When it comes to shipping your products, it may seem like you're only paying $4.50 for postage, but there are expenses - both indirect and direct - that many merchants don't factor into the cost of doing business.
In this article, we're going to break down these costs so you aren't caught out when you start or expand your business.
What is shipping and handling?
Many people think of shipping and handling costs as one and the same. They are, in fact, very different things associated with different costs.
Shipping costs refer to the cost of postage and related transportation to get the package from the shipping carrier to the consumer. This fee includes surcharges, fuel charges, and other costs related to the distance travelled and delivery time chosen.
Handling costs refer to the labour associated with collecting inventory for an order, packaging products, generating shipping labels and loading the shipment onto a truck.
The cost of packing materials and supplies
At the most basic level, product packaging serves to protect the product inside during shipment between the retailer and the customer. A product's packaging communicates many things, from what a product can do for your customers to your company values. In fact, one-third of a consumer's decision making is based solely on a product's packaging. Depending on how you package your items and which carriers and services you use, you may need to purchase any combination of the following:
- Packing tape
- Bubble wrap
- Boxes, envelopes and mailers
- Labels and paper
- Printer and ink
- Mail bins
The cost of transportation
Transportation costs refers to the cost of having to get the shipments to the shipping location. This often takes the form of driving to the post office, or in our case, your nearest drop-off point. These trips add up, as you're putting more miles on your vehicle, with the cost of gas and general wear and tear. Every hour that you're spending delivering parcels, is time that you could spend on your customer acquisition channels.
The cost of dimensional weight
Dimensional weight is a pricing tool that carriers use to determine how much they will charge you to ship a package. The dimensional weight of a package is found by calculating the cubic size of the parcel and dividing it by a set DIM factor. The number is then compared to the parcel's actual weight and the larger of the two items is used as the billable weight.
The cost of inefficiencies
In retail fulfilment, when you don't already know the best practices, your processes are manual and time consuming. As more orders roll in the inefficiencies double and triple.
- Bulk discounts: If you're shipping multiple packages a month, shipping by yourself, means that you don't have the best rates negotiated with carriers.
- Automation: If your store isn't connected to technologies that are already out there, you're losing time and money on automated processes and data driven decisions.
The cost of shipping insurance
Shipping insurance is a service that protects business owners against lost, stolen or damaged packages. If an insured package does not reach its destination or it is damaged along the way, the business owner is reimbursed the declared value of the items in the packages. If you're shipping in high volumes of valuable items, then the shipping insurance will likely pay for itself, as the more you ship, the more you stand to lose. For eCommerce businesses shipping insurance is a no-brainer, 70% of customers are unlikely to shop from an online store after a poor delivery experience. Shipping insurance allows you to win back customers by quickly reimbursing or replacing items without taking a loss.
Interparcel offers free transit warranty on goods below $100 for all services except DHL eCommerce (in which it is free up to $50), and a standard 2% fee on goods up to $2000.
The cost of a bad customer experience
These days (since the dawn of Amazon), customers expect their goods to be delivered in three to five days, if not sooner. When you're shipping from your store, you would think that business owners would prefer the cheapest option, but when shipments take too long to arrive at the doorstep of a customer, you're jeopardizing your long-term business with that customer. If it happens multiple times, you can expect to lose them as a repeat customer and as an overall brand advocate.
The cost of a shipping internationally
As you may know, shipping internationally means that the sender or the recipient will have to pay taxes and duties under certain conditions. There are two ways duties can be applied: delivery duty paid (DDP) and delivery duty unpaid (DDU). DDP is when the merchant is responsible for all the duties and taxes associated with the shipment, and DDU is when the customer is responsible for paying for those associated costs.
- Customs clearance fee: Some countries apply separate fees to cover the cost of moving your products through the custom clearance process. Most carriers independently impose their own flat rate fees, that vary per country, to cover this process.
- Customs bond: For importers, there are two main types of bonds, single-entry and continuous transaction bonds. This bond is essentially your insurance policy that the costs associated with importing goods will be paid. This typically applies to commercial goods valued over $2500.
- Documentation fees: The correct customs paperwork required will vary from country to country. Typically, countries need a commercial invoice and export packing list.
- International shipping rates: There's no escaping the fact that international shipping costs are high, especially for heavier items. If you're shipping by yourself, you're potentially missing out on tailored pricing deals that courier aggregators like Interparcel have with individual carriers.
- Remote area surcharge: Depending on your pick-up location, you can face a surcharge. This means that your location is far from the usual collection path of the courier.