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What is a Handling Fee?
inventory management

Handling-fee calculator: What is a handling fee?

In simplest terms, handling fees cover additional expenses associated with packaging a sale and getting it ready for shipping. Instead of that cost coming out of your pocket, your customers will cover the fee when it’s included in the total cost. Otherwise, you would have to pay some of these costs, and the more orders you get, the more money you’ll lose. Ensuring that you calculate handling fees correctly on your orders is important for managing your expenses and maintaining profit margins.

In addition to your own interests, you need to understand how handling fees will impact customers and sales. For instance, if your handling fees are perceived as too high, it may displease your customers. We've created this guide and a handling-fee calculator to help you navigate this delicate aspect of e-commerce sales.

What is a handling fee?

A handling fee is an amount charged to customers on top of their order subtotal and shipping fees. It covers the cost of expenses related to fulfillment, specifically packing fees based on required labor. However, it can also include:

  • Warehouse storage costs: This is the amount the warehouse charges to keep your products stored on-site.
  • Shipping costs: Shipping rates can include postage, surcharges, fuel charges, and additional fees for certain shipping options, such as expedited delivery. The cost of shipping is highly dependent on package weight and location, so keep that in mind when deciding  how much to charge for shipping. There may also be a difference between carriers so that’s another factor to consider.
  • Packaging costs: Packaging costs may include boxes, protective materials, and tape. It could also include other small details you might add to make your brand stand out, like branded tissue paper, stickers, etc.

Handling fees are charged once per order but not added to each individual product in an order. That said, handling charges may differ depending on whether they’re domestic or international—if you ship outside your country. This is because you may need to consider additional charges for international handling fees, like insurance or extra packaging supplies required to protect the item traveling at a further distance. International shipping fees can be quite high, so you don’t want that to cut into your profits.

While setting pricing for your online store keeps your business in the black, it’s also important to consider the other side of the equation. A handling fee that’s notably high may be enough to convince customers to abandon their shopping cart. Keep in mind—if customers can see your handling fee at checkout, that might impact their perception of your prices.

Some sellers roll the handling fee into the overall price, while others make it a separate line item on the invoice. If you are going to list it as a line item, make sure it’s clearly labeled on the invoice. That way, your customers don’t think you’re overcharging them. With  QuickBooks Online, you can customize your invoices easily and add or remove shipping and handling charges as needed.

Discover QuickBooks Free Inventory Management Tools & Templates

Why do we need a handling fee?

Handling charges help you maintain your profit margins and cover the additional costs of making sales. If factors like inventory carrying costs, expenses for packaging materials, and labor hours for order fulfillment haven’t been accounted for, you’ll need to charge handling fees.

How much are handling fees? You’ll need to calculate the average cost based on factors specific to your business.

How to calculate handling fees

Figuring out your handling fees is a fairly straightforward process, but it does require some math. To calculate handling fees based on labor, you will need to:

  • Determine the average number of minutes it takes to prepare each item for shipping.
  • Divide the result by 60.
  • Multiply the result by your hourly rate.

For example, 10 minutes / 60 = 0.16; 0.16 x $12 per hour = $2.00.

Based on this formula, $2.00 is your handling fee on orders.

If your handling fee seems high compared to competitors or you’ve had customer complaints, it could be time to assess your fulfillment costs. For example, you may need to find ways to lower your labor costs by making the process more efficient. Or, you might need to switch to more cost-effective packaging materials.

Once you’ve calculated the handling fee based on labor, you may want to add shipping and packaging costs. That way, all your bases are covered, and you’ll know you’ve accounted for the expenses related to shipping and handling.

Fulfilling orders on your own

Depending on the size of your business, you may have a team getting orders ready for shipment, or you might do it yourself. If you fulfill orders on your own—as many small business owners do—you might not consider adding handling costs. However, your time is valuable, and it’s part of the overhead costs of running your e-commerce business.

Determine the length of time it takes you to pack an order. Then set the minimum amount you’re willing to earn per hour to pack the items—that’s your hourly rate. Finally, complete the same formula from above:

[Average number of minutes worked on packaging an item / 60] x hourly rate

The result is your “opportunity cost,” which is the time you could have spent generating revenue. Use the amount of your opportunity cost as your handling fee on orders.

Implement handling fees easily with QuickBooks

Once you’ve determined your handling fee, you can set up an invoice template in QuickBooks Online which automatically adds that fee to each online sale. With the powerful functionality available within the QuickBooks platform, you can set your business up for multichannel sales and long-term success. Visit our pricing page to view plans or sign up for a free 30-day trial

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