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How to calculate postage and packaging (shipping) price.

 
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I want to talk about how I calculate shipping costs for my home business.  

Before I do, I want to stress that the price of shipping is not the price of postage.  If you are an individual sending the item to your friend, it's gonna cost less.  That's because postage is one tiny part of shipping.  Postage is not the same as shipping.

This is also the reason why I encourage people to buy my items from local shops and I have a nice wholesale/retail price point to encourage shops to carry my items.  


How I calculate shipping costs:

1. I take the item to the post office (during their not-busy time of day - when in doubt talk to the post office staff to find out when their downtime is).  I ask them for thoughts on packaging options and if there is any changes I can make to the item to improve shipping. For example, if I make it a mm smaller one way or 50 grams lighter will it get me a cheaper rate?  What about the other way?  If I add a postcard to the item, will it push me into the next price bracket?  This takes about an hour.

2. I take the item home and research packaging.  I want something that is eco-friendly (reusable, compostable, or recyclable).  But there are two other issues that need to be considered.

    a. the weight and size dimensions of the packaging - is the weight or the size of the package going to push my shipping costs into another price bracket?  1 gram or 1 millimetre over the limit, and we can easily add $20 to the postage cost.
     b. the price of the packaging (including the price of shipping the packaging to my home and any duty I have to pay).  Most of the time, it comes to $1 per padded envelope and up to $10 per box.  

3. Time!  How long does it take to pack one item?  It should take less than 30 seconds to pack an item, plus another two minutes to process the shipping.  If it costs more than that, then I add my time to the packaging and shipping.

4. Insurance.  Most of the time, buying insurance from the post office is worth it.  A person might not get their parcel and someone has to pay for that.  The post office is way more experienced at dealing with lost items than I am.  In my personal experience shipping both for my cottage industry and in my wage work, less than 1% of 'lost' parcels are actually lost.  When a parcel is reported lost, the receiver needs to go through some steps, and 99% of the time they find it.  Unfortunately, the receiver is reluctant to go through these steps but I make it a policy that I cannot refund until the post office declares the item lost.  This helps motivate the receiver to work with the post office.

The insurance cost is either added onto the postage rate, or I have to be my own insurance agent which makes things a bit harder.  I calculated out the amount of time I've spent chasing down lost items this year (over 100 hours!) and divided out that time by the number of parcels I sent.  It works out to be one dollar per parcel to cover both time and money lost replacing items.  So I add one dollar per parcel to the shipping fee.

5. the more you ship, the better rate you can get.  Likewise, the less you ship, the more expensive things get.  This is calculated on 3-month bases and the shipping can suddenly go sky high if you are just coming out of your down season.  This needs to be taken into account.

6. do test shipping to friends before listing a large number.  There are often unexpected expenses and sometimes a shipping method or packaging damages the item.  

To recap, this is what shipping costs include:

+  postage
+  insurance
+  packaging
+  time
_____________
= Shipping


 
r ranson
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I forgot to mention that we also have to pay a money processing fee on shipping.  

When we receive money from a customer, we have to pay fees.  Money processing fees depend on the platform (paypal, etsy, square space) but this different from the fee we pay the place the listed the item.  

If I'm selling on etsy and they process the payment, I pay a fee to list the item.  I pay a fee when I sell the item.  I pay a fee for them processing the payment on the price of the item.  AND I PAY A FEE on them processing the payment for the SHIPPING.  

The fee for shipping payment processing is usually about $0.50, but it varies depending on the price of the shipping.  
 
pollinator
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When selling on ebay, I would box it, weigh it, measure it, use ebay's built in shipping calculator to figure postage, print label, go to usps.com and request pickup. No trip to the post office. They'll ship flat rate boxes to you free also. You can order them on usps.com. UPS and fedex both allow you to create an account without cost these days but I find they're more expensive for individuals that don't ship much. When I was selling on ebay, it was auto parts which are kind of heavy so flat rate boxes just worked best for me.
 
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I wanted to mention flat rate as well. Not the ideal solution for every item you might ship but there are sweet spots in size/weight around each flat rate size option that make them super useful
 
r ranson
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Flat rate postage is good if your country has it.  But that's just postage.



What I'm talking about is calculating how much to charge a customer for shipping.

With a flat rate box, you have to spend the time to get the box, make sure your item fits in the box requirements, then arrange for the box to be picked up or take it to the drop-off point.  How long does that take?  How is that time worth?  Or do you fold the cost of that into the price of the item and increase it accordingly?  

Maybe your item needs to be protected from damage during shipping.  One can buy packaging or reuse packaging.  If the latter, how many minutes does it take to salvage the packaging?  

How much does the label cost you?  How much for the toner?  I can do a label in two ways.  Each costs me $0.10 or $0.12.  The cheaper way takes longer to put on, but the other way is harder to recycle.  

Shipping is so much more than just postage.  
 
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