How to calculate postage and packaging (shipping) price.

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
+  fees and taxes
_____________
= Shipping

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.  

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.

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

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.  

I was extremely disappointed when I checked the shipping costs recently. For a 3 ounce tiny package (super light!), it costs $9.65 to ship WITHIN the US. Just three years ago, that would have cost only $3.50. I have to go and update all of my listings here on permies to reflect the raised price. It's so sad, because I try really hard to make my creations reasonably priced so people can buy natural toys and sculptures, and the shipping increases have made that impossible.

Nicole Alderman wrote:I was extremely disappointed when I checked the shipping costs recently. For a 3 ounce tiny package (super light!), it costs $9.65 to ship WITHIN the US. Just three years ago, that would have cost only $3.50. I have to go and update all of my listings here on permies to reflect the raised price. It's so sad, because I try really hard to make my creations reasonably priced so people can buy natural toys and sculptures, and the shipping increases have made that impossible.

I, too, sent a package today, except that it was 4 ozs. I paid $3.40 for postage. I don't understand how yours could have been so much. What shipping service did you use? I used USPS. Anything under 16 ounces is considered First Class mail. Did you send yours First Class? And was it USPS? Even though USPS keeps going up, it is still the least expensive shipping service in the US.

I forgot to add that I use a site called Pirate Ship (pirateship.com) where one gets discounted USPS rates. When I bought the postage today through pirateship, the price above is what I paid. Had I gone to the post office to buy the postage, it would have cost $4.20 which is still quite a bit less than what you paid.

Annie Collins wrote:

Nicole Alderman wrote:I was extremely disappointed when I checked the shipping costs recently. For a 3 ounce tiny package (super light!), it costs $9.65 to ship WITHIN the US. Just three years ago, that would have cost only $3.50. I have to go and update all of my listings here on permies to reflect the raised price. It's so sad, because I try really hard to make my creations reasonably priced so people can buy natural toys and sculptures, and the shipping increases have made that impossible.

I, too, sent a package today, except that it was 4 ozs. I paid $3.40 for postage. I don't understand how yours could have been so much. What shipping service did you use? I used USPS. Anything under 16 ounces is considered First Class mail. Did you send yours First Class? And was it USPS? Even though USPS keeps going up, it is still the least expensive shipping service in the US.

I haven't shipped mine out yet--I just went online and put my information into USPS's shipping calculator. I read through the shipping prices at least twice, but it looks like I'm blind, because I did not see the First Class shipping info. It still shows $4.45 and not $3.40, though.  Thank you so much, because you've given me hope--$4.45 is still a lot better than $9.65! I don't understand why they bury the First Class prices online. Thank you for pointing them out!

Before 2020, when I ship to the USA, I had a loss rate of 1%.  It's the only country that seems to lose my parcels.  Given that following up on each loss and delay takes 20 to 50 hours (average 40 hours) per parcel.  That is a lot of time out of my year.  That is time I could be used to create exciting new things or hanging out on permies making new content.  

Since 2020, that's gone up to 10% for US shipments.  That's a huge increase.  Made worse that the USPS isn't accepting claims for delays or losses for many shipments.  It's also a bit weird that the temporary price increase to ship to the USA implemented last fall hasn't gone away in the new year as promised.  Maybe it's going away next month?  But to be quite frank, this is getting to be a serious pain to ship to the US and I'm very tempted to stop until the USPS improves.    

I haven't increased my shipping to the US yet to include this "temporary" price increase so I'm currently undercharging just over $2 per shipment.  Swallowing that isn't sustainable, especially when I have to spend so much time tracking down delayed and lost parcels.

...

What's better?  

One book costs $24 plus $17 shipping
Or should I make a listing where the book costs $41 and free shipping?  Personally, I don't like this option as the customer would have to pay more tax and possible customs.  

...

So the other option - I sell wholesale.  If someone in the USA wanted to buy my book in bulk and sell it on Amazon or other US market places, I would encourage that.  
Until that time, I'm stuck charging what it costs me to ship.  

r ranson wrote:
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.  

THIS!!!

I've also donated quite a few books to different libraries.  

Nicole Alderman wrote:I haven't shipped mine out yet--I just went online and put my information into USPS's shipping calculator. I read through the shipping prices at least twice, but it looks like I'm blind, because I did not see the First Class shipping info. It still shows $4.45 and not $3.40, though.  Thank you so much, because you've given me hope--$4.45 is still a lot better than $9.65! I don't understand why they bury the First Class prices online. Thank you for pointing them out!

Mine was less than what is shown on the USPS shipping calculator because I bought the postage through www.pirateship.com. They are kind of a USPS postage wholesaler and anyone can sign up with an email address and a password. I use it for my business packages as well as sending personal things.

Yes, there are services like pirateship in the US that buy postage in bulk and pass the saving on to the customer.  Often it works really well, except during exceptional times (so like the regular post office)

In Canada, if one lives near a major urban centre chitchats is an option for shipping to the USA.  But the cost of getting the parcel to the dropoff spot from my place was considerably more than using the postal system.  

Nicole, I ship everything "Priority Flat Rate Shipping" because trying to calculate shipping things to different zipcodes is a pain.

So you can send that item if it will fit into a Priority Flat Rate Envelope for $7.95.  

https://www.usps.com/ship/priority-mail.htm#flatrate

The post office seems to have changed something in their processing. I've gotten complaints this year about seeds arriving broken or crushed. That's never happened to me before!

This isn't anything to do with how to calculate shipping, but I don't many Americans are aware of what a dire state their postal system is in right now.  

The United States Postal Service (USPS) is a complicated beast.  There are many different ways you can send a parcel depending on size, where it's going, what's in it (media mail)... there are almost 20 different choices, whereas most postal services have 2 to 6 choices.  It makes administration an expencive mess and then you have to hire people to look inside parcels... It depends on the honesty of the person shipping the parcel, but since most of those are confused, they choose the cheapest option...

I suspect given the prices Americans pay for postage that the USPS is heavily subsidized.

On top of this, over the last 4 years, there has been a lot of political pressure for the USPS to stop being so inefficient.  

So they looked around and asked "how come other countries don't have this kind of problem? What do they do?"

In Canada, the packages go through a machine that measures how big they are.  If there is a discrepancy between the size declared and the actual size when it goes through the machine, the sender is charged the difference and a fee for not measuring correctly.  If for some reason, someone sat on the box before it got to the machine and the dimensions are 2cm bigger in one way, then well, SOL, you still get to pay the difference.  (always add 2cm to each dimension when shipping via Canada Post!).  It sounds like USPS started doing this this fall, but stoped because of outrage.

Similarly, the modern machines for sorting (and measuring) flat mail (letter mail in Canada), have fancy rollers.  Rollers that crush anything that goes through it.  These are especially good at crushing seeds.  It sounds like the USPS is updating their machines to do the same.

Now, we add on to this that since Summer 2020, the demand for the postal service has been "black friday levels" constantly with a peak at the holiday season.  There are fewer staff due to things.   And stuff. and...

Add to that the new fashion on Tick Tock to mail order stuff and then claim it never arrived, costing the USPS loads in insurance payouts.  

It's pretty obvious why a system that was barely holding together 5 years ago is now on the verge of collapse and is one of the reasons most international sellers I know aren't shipping to the US right now.