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Shipping and fulfillment costs are vital aspects of pricing and profitability for any e-commerce business. They determine the final price of all products sold from your store. Both of these costs are considered business expenses.
When it comes to selling your products online, the costs of shipping and fulfillment can make or break a business. As a business owner, you need to understand how much shipping will cost you, how much it will cost your customers, and how those two figures compare. Thus, you must have an estimate as to how much you’ll spend on shipping before you open your doors.
We’ve broken down everything you need to know about calculating shipping and fulfillment costs. Read on to learn more.
What Are Shipping and Fulfillment Costs?
Shipping costs include shipping materials, postage, and any extra fees you pay to a third-party courier. Fulfillment costs are the expenses associated with getting your product from its current location in storage to your customer’s doorstep. These costs can include labor, product packaging, and additional fees paid to external companies for services such as warehousing, segregation, and storage.
Guide to Calculating Shipping and Fulfillment Costs
As a seller, you must know how much it costs to get your products from the warehouse to the customer. Here are some key factors to keep in mind when calculating your shipping costs:
1. Package Size and Weight
Package size and weight are critical factors affecting your shipping costs. In general, larger packages will cost more to ship than smaller ones. This is because the packages will take up much space in the means used to transport them.
You must familiarize yourself with your chosen shipping provider’s pricing structure. For example, some may charge each item per dimensional weight, which is the package length x width x height. Meanwhile, others may use both dimensional weight and product weight. You must note, however, that product weight is different from package weight, with the latter including the total weight of the packaging and product.
2. Shipping Surcharges
Shipping surcharges are additional fees you can charge as a seller to cover the cost of shipping the order. These surcharges should be applied on top of the actual shipping costs. Note that these are usually reserved for large orders or items that are difficult to pack and ship or for addresses that fall outside your courier’s service area.
For example, if someone is buying a small item from your online store, you can add a flat rate for shipping during the checkout process. But if they’re ordering something large or fragile that will need additional handling, you can add a shipping surcharge.
3. Quantity of Packages in One Order
You’ll have lower shipping costs if you ship packages in bulk. Sending orders individually the moment they’re placed may get them to the customer faster. However, this will be costly on your end because you have to consider the unit of each order when calculating shipping and fulfillment costs.
One way to save costs while making sure your customers’ orders arrive on time is to schedule set shipping days in a week. Depending on the volume of your orders, you can schedule two or three days a week to ship out your merchandise.
4. Labor Costs
You must consider labor when calculating shipping and fulfillment costs. This is especially relevant if your items are stored in a warehouse and need to be individually packed before shipment. Depending on your courier, you may also have to account for the labor costs of the drivers who will deliver the packages to your customer’s doorstep.
5. Distance to Customer’s Address
You’ll also have to consider how far your customers are from the fulfillment center or warehouse when calculating shipping costs. Shipping their order will be relatively inexpensive if they’re only a few miles away. But if they’re in another state or country, you’ll need to factor in travel time and gas costs for the delivery.
6. Shipping Method
The type of shipping method you use can significantly impact the final cost. Options such as ground shipping, expedited overnight delivery, or international air transport all have different price points depending on where your products are going and how quickly they need to arrive.
For example, ground shipping is generally less expensive than air freight, but it can take longer to arrive. But if you’re sending products out of state or internationally, air transport will likely be more cost-effective. Depending on which method, there will be price disparities between the different shipping methods. You should always consider the shipping method when calculating your total cost of goods sold (COGS).
The cost of shipping your products is one of the most critical factors you must consider when running an e-commerce business. It’s best to consider the shipping and fulfillment costs before you start shipping your orders, as inefficient processes may impact your business’s profitability. Hence, the more accurate you are with your shipping estimates, you’ll have an easier time calculating your expected profit margins.
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