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How to Calculate Shipping & Handling

How to Calculate Shipping & Handling
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  • 0:00 Shipping & Handling
  • 1:09 Packaging Cost
  • 1:34 Shipping Cost
  • 2:42 Handling Cost
  • 3:45 Total Cost
  • 4:26 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Study the following lesson to learn how you can calculate your shipping and handling fee so you are not losing money when shipping your product to your customers. Afterwards test your new knowledge with a quiz.

Shipping & Handling

Meet Larry. Larry is the owner of a small Internet company that sells nothing but stickers. He has little decorative stickers for cards and scrapbooking stickers. He also has bumper stickers and window decals. Since he is an Internet company, he doesn't have a store where people can come and buy his stickers. All his stickers are on his website where people can look at them and then order them. This means Larry has to ship all his stickers out.

His stickers are very well-priced and very affordable. Because his stickers have such a low price, Larry has to make sure that when he ships out his stickers that he doesn't lose money. Even a small amount may mean that he loses money on an order. To help him calculate the proper shipping and handling fee to charge his customers, he makes a very careful analysis of all the costs that go into shipping and handling fees.

A shipping and handling fee is a fee that customers pay to cover the cost the business pays to ship the item to them. Let's see what is involved in Larry's analysis. You might be surprised to find that it's not all about the cost to actually ship the item. There is more involved.

Packaging Cost

The first thing that Larry considers is the cost of his packaging. Larry purchases special bubble envelopes with his company name written on them. These bubble envelopes protect his stickers while they are in transit. Larry purchased these special bubble envelopes for $50 for 100 of them. So, each envelope costs $0.50. Larry adds this $0.50 per envelope into his shipping and handling fee.

Shipping Cost

The next thing that Larry considers is the cost to ship the item. For this cost, he goes to his shipping company and gets a rate sheet. This rate sheet tells Larry how much the shipping company charges per ounce as well as the different prices for shipping to different countries. Since most of Larry's orders come from the United States, this is what Larry is calculating.

According to the shipping company, the cost to ship within the United States is $0.43 for the first ounce, then it's $0.11 for each additional ounce. So, if his envelope of stickers is under one ounce, then the shipping cost is $0.43. If his item is over one ounce but under two ounces, then it will cost Larry $0.43 + $0.11 = $0.54. If his item is over two ounces but under three ounces, then it will cost Larry $0.43 + $0.11 + $0.11 = $0.65 to ship. Larry makes a table here to account for the different weights and the different costs for each weight. His table looks like this right now:

Weight Packaging Cost Shipping Cost
1 ounce $0.50 $0.43
2 ounces $0.50 $0.54
3 ounces $0.50 $0.65
4 ounces $0.50 $0.76

Larry's orders are mostly four ounces or less, so his table includes information up to four ounces.

Handling Cost

Next, Larry considers his handling cost. This is the cost of the time it takes Larry and his crew to put the stickers together, wrap them up nicely, put them into the envelope and then to label the envelope. Yes, time is money because Larry has to pay his employees for their time to pack his orders. He needs to include this cost into the shipping and handling fee.

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