20 June, 2022

What is Handling Fees? + How to Calculate

When ordering online, customers have many expectations. They want faster delivery, no transit damage, live order status, and most importantly, they expect to receive the correct item.

You’ll have to optimize your operations to meet these expectations, which comes at a cost. Shipping fees cover transportation. But what about the cost of packaging items so they don’t break in transit? What about the cost of safely storing and maintaining inventory in your warehouses?

That’s where handling fees come in. In this article, we’ll break down handling fees, show you how to calculate them, and explain why they’re necessary.

 

What is a handling fee?

A handling fee is an amount charged to a customer on top of the order subtotal and shipping fees. It covers fulfillment expenses such as:

  • Warehouse storage: The amount charged by the warehouse to securely hold your inventory, ensuring there is no quality deterioration.
  • Packaging: This includes boxes, tape, and protective material. It also includes other minor details you may add to make the brand stand out, such as branded tissue paper, gift wrap, stickers, etc.
  • Labor: The time it takes for your warehouse team to fulfill an order.

Helpful tip: Handling fees are charged once per order, not per each product in the order.

Handling charges may differ depending on whether deliveries are domestic or international. International orders might have additional expenses such as insurance or extra packaging to preserve the products throughout a longer journey.

 

How to calculate handling fees

Calculating the handling fee is a straightforward process.

Step 1: Determine the average number of minutes it takes to prepare each item for shipping.

This step will help you determine the time it takes for your employees to prepare a package for shipping. It includes the time needed to pick the ordered items from the warehouse shelves and package them. The more efficiently your warehouse team works, the lower this number will be.

For this example, let’s assume it takes approximately 15 minutes to prepare an order.

Step 2: Divide the result by 60.

Convert the time from minutes to hours. Continuing the example: 15 / 60 = 0.25.

Step 3: Multiply the result by the employee’s hourly rate.

Assuming the hourly rate of your warehouse team is $10: 0.25 x $10 = $2.50.

So for this example, the handling fee for the order is $2.50.

It is best to also include the packaging cost in the handling fee — after all, bubble wrap and boxes expenses. For this example, the packaging material for the order costs $1.50.

Total handling cost = $4 [$2.50 (handling fees) + $1.50 (packaging fees)]

If your handling fees are high compared to competitors or you have had customer complaints, you may need to assess your fulfillment costs and streamline your process.

Shipping costs

Shipping costs include postage, fuel charges, surcharges, and additional fees for certain shipping options like expedited delivery. The cost of shipping depends on package weight and location.

If you outsource your shipping to a carrier (e.g., FedEx or USPS), you should factor in their fee. Compare prices to find the ideal shipping provider.

Setting shipping and handling fees

While setting prices that keep your online business in the black, consider the fact that high shipping and handling fees may be enough to convince customers to abandon their shopping carts.

Some sellers roll the handling fee into the overall price, while others make it a separate line item on the invoice. If customers can see the shipping and handling fees at checkout, that may impact their perception of the product prices.

If you list shipping and handling as a line item, make sure it’s clearly labeled on the invoice. Cin7 inventory management software offers various integrations that allow you to customize your invoices easily and add or remove shipping and handling fees as needed.

 

Benefits of charging handling fees

Here are the advantages of charging handling fees:

#1 Fulfillment cost recovery:

A business cannot sustain itself without covering costs. Let’s better understand this with examples from the service industry. The service industry doesn’t deal with physical products but it’s common to see a “service charge” on services provided. This allows businesses to recuperate administrative, processing, or labor costs. For example, the service fee added to concert tickets covers the costs of offering venue security and mailing the physical tickets to the customer. A service charge added to meals and drinks at food and beverage establishments covers the cost of offering fine glassware and storing and serving wine.

If you don’t recover fulfillment costs with handling fees, you’ll need to compromise on fulfillment quality by using cheaper packaging or making other concessions in quality. In the long run, this will hurt your business’ reputation.

#2  Better pricing breakdown

If you do not charge handling fees, you will need to add the costs of packaging and fulfillment to the final price of each product. Instead, adding the handling fee as a line item separate from the subtotal can help simplify the pricing for single items.

#3 Possibility to upsell and cross-sell products

Handling fees apply to the entire order rather than individual items. This opens up opportunities to sell more and increase your overall profit margin.

Customers love free shipping — it can even be a deal breaker — so you can set up a minimum order amount to make orders eligible for free shipping and handling. This way, if the original order amount was $30 but an order is eligible for free shipping and handling at $40, a customer is more likely to spend an additional $10.

To encourage customers to spend more, use their order history to recommend specific products they might be interested in purchasing. They might buy something else and spend more to get free shipping, making a happy customer and raising your profit margin.

 

Use Cin7 to fulfill your orders with ease

After calculating the shipping and handling fee, you can set up the invoice template via various integrations offered by Cin7 inventory management software, such as QuickBooks Online, which will automatically add the fee to each online sale.

Cin7 has several other features that streamline your order receiving and fulfillment process, such as printing pick lists or batch tracking. Cin7 will help you set your business for multichannel sales and long-term success.

Are you interested in trying out Cin7 for your business? Book a free demo with our experts now.

TAGS

CATEGORIES

Uncategorized

SHARE THIS POST

Stop managing your inventory.
Start connecting it.

You might also like

All you need to know about forecasting a new product

The Greek philosopher, Heraclitus, once stated, “The only constant in life is change.” While this observation is applicable to how we can live our best lives, it also relates to the business world. If businesses did not actively upgrade their products, we would still be using products that are nowhere close to meeting their potential […]

Why your offline business needs an online store

Online shopping has become an integral part of the post-pandemic era. If you had a business with one or more stores, you probably had to shut your doors during the lockdown. While most brick-and-mortar stores had to close, online stores continued to flourish. Experienced companies got creative and started selling online, on social media, and […]

How to create gift guides that drive ecommerce sales

Gift guides are a great way to make your ecommerce store more appealing to customers. They can be used for any niche, but they are particularly effective in the food and beverage sector. Essentially, a gift guide is a list of products that are offered at a discounted price. They can be used as an […]