How to Be More Effective with Pricing on Shopify

What is a Handling Fee?

A handling fee is a charge added to the cost of a product to cover the expenses associated with processing and fulfilling an order. This fee typically accounts for tasks like packaging, labor, shipping preparation, and other administrative costs. It ensures that businesses recoup the operational costs involved in getting the product ready for shipment.

For example, if you run an online store, the handling fee helps cover the costs of packaging materials, the time it takes for employees to prepare the order, and any administrative tasks such as labeling.

What is a Handling Fee Calculator?

A handling fee calculator is a tool that helps businesses determine the appropriate handling fee to charge customers based on the specific costs of preparing an order. The tool takes into account various factors, such as labor, packaging materials, and any other additional handling costs.

How Does a Handling Fee Calculator Work?

1. Input Labor Costs: You enter the labor costs involved in handling each order. This could be the hourly rate of employees multiplied by the time it takes to pack and prepare an order.
2. Enter Packaging Material Costs: The calculator asks for the costs of packaging materials, such as boxes, bubble wrap, and labels.
3. Add Additional Administrative Costs: If there are any other fees associated with processing an order (e.g., order management software fees or shipping labels), those are also inputted into the calculator.
4. Calculate the Total Handling Fee: The calculator will sum up all these inputs to give you an accurate handling fee per order. For example, if labor costs $5 per order, packaging materials cost $2, and other fees are $1, the handling fee would be $8.

Benefits of Using a Handling Fee Calculator

1. Accurately Covers Costs: Using a handling fee calculator ensures that you’re not losing money on the small but important costs of processing an order. It guarantees that you’re covering all aspects of handling, like packaging and labor, without undercharging.
2. Improves Profit Margins: Charging a proper handling fee can boost your profit margins by ensuring you’re not absorbing the extra costs yourself. This is especially important for businesses with low product margins or high processing costs.
3. Ensures Transparency: Including a handling fee in customer invoices shows them exactly where the costs are coming from, improving transparency. Customers may be more understanding of additional charges when they know it’s for order processing and packaging.
4. Streamlines Pricing Strategy: A handling fee calculator simplifies the process of setting up consistent fees across your business, saving you time and ensuring uniform pricing for every customer.
5. Allows for Scalable Operations: As your business grows, a handling fee calculator ensures your costs are accurately reflected, even when handling multiple orders at scale.

How Could a Handling Fee Affect My Profitability?

1. Increased Profit Margins: By charging an appropriate handling fee, you’re making sure that the costs associated with order fulfillment don’t eat into your profits. This can be crucial for businesses with slim product margins.
2. Customer Expectations: While handling fees can improve profitability, they may also impact customer perception. If the fee seems too high or isn’t clearly explained, it might deter customers from purchasing. Striking a balance between covering your costs and keeping the fee reasonable is key to maintaining customer satisfaction and retention.
3. Impact on Pricing Competitiveness: Adding handling fees could make your total price appear higher than competitors who don’t list these fees separately. However, if competitors absorb those handling costs into product prices, your pricing may remain competitive depending on how clearly the fees are communicated.
4. Better Financial Planning: By incorporating handling fees into your pricing structure, you have a better understanding of your operational costs, allowing you to manage profitability more effectively and plan for growth.

In summary, a handling fee calculator helps businesses accurately cover all the costs of processing an order, ensuring that operational expenses don’t cut into profits. While handling fees can boost profitability, balancing them with customer expectations is crucial for maintaining long-term success.

The interesting factor in this pricing strategy is how the strategy works. And that is how humans read a computer screen. Most of the time, when someone is reading a website, they’re doing so left to right. This means that the magnitude of importance is always given to the item on the left. So for $5, the number of 5 is important. But if you reduce that price by 1 cent, then it looks like $4.99 and the magnitude of importance is 4 which is much smaller to the brain.

This doesn’t always work. There are some who can get past this simple trick. But it is a good option.

Some people have suggested getting around the people noticing the pricing difference, you can use a different number, .x7. This can be another good option, but there isn’t any evidence that this works anymore effectively. However, it is a value that is routinely used on retail stores.

There are also some other ways that you can be more effective with pricing. For instance, you can try decoy pricing. This is where you have three sizes of a product, and you make the medium and large options to be closely priced, so the customers choose the larger to feel like they’re getting a better deal.

Or you could try tiered pricing where you offer a discount if a customer orders more of a set product. This can be easily done with an app like Volume & Discounted Pricing.