How to Calculate and Manage Order Handling Fee

One common mistake many businesses often make is failing to fully take into account their order handling fees. These fees are not just about adding an extra charge to your customer’s invoice; they’re about smartly covering the costs that come with processing orders while ensuring profitability and maintaining customer satisfaction.

In this post, we’ll dive deep into what order handling fees entail, their significance, and how you can effectively manage them.

Understanding Order Handling Fees

Order handling fee

Order handling fees encompass the costs associated with processing customer orders, from the moment an order is received until it’s ready for shipment. This includes picking the items from the warehouse, packaging them securely, processing the order in your system, and preparing the package for shipping. Unlike shipping fees, which cover the cost of transporting an order to the customer’s doorstep, order handling fees focus on the logistical aspects within your control and operations.

What Costs Does Handling Fee Cover?

Handling fees are the fees you charge customers for processing their order, besides their order subtotal and shipping costs. It often covers the following:

  • Labor Costs: The manpower required for order fulfillment is a significant cost driver. This includes everything from picking merchandise to packaging and processing orders.

  • Packaging Costs: This includes the cost of boxes, tape, bubble wrap, and other materials needed to ensure products reach customers safely.

  • Warehousing Expenses: Rent, utilities, and the costs procured by running a warehouse management software

  • Overhead Costs: These are the general administrative expenses, equipment maintenance, and other overheads necessary for order processing.

Why Is Calculating Handling Fees Important?

For apparel businesses, small or large, every penny counts. Efficiently calculated order handling fees ensure that you’re not undercharging or overcharging your customers, thereby maintaining a healthy bottom line. They also play a pivotal role in covering operational costs without cutting into your profit margins.

In an industry where customer satisfaction can make or break a business, transparently incorporating these fees can foster trust and loyalty among your customers.

Other reasons to calculate and charge customers a handling fee are as follows:

  • To protect your profit margins

  • For enhancing transparency

  • For streamlining operational efficiency

  • Gives you a competitive advantage

  • Facilitates better decision-making

How to Calculate Order Handling Fees

order handling costs

Calculating your order handling costs is anything but rocket science. It’s so simple that you can get it done in a few minutes.

To calculate handling fees, first, you have to determine your labor cost. This is done by dividing the number of minutes it takes on average to ready an order for shipping by 60 and multiplying it by the hourly rate.

For example, if it takes 15 minutes on average to prepare an order for shipment and you pay $20/hour in labor, this will come out at:

15/60 * 20 = $5.

The next step is to add packaging fees, which is the cost of packaging materials, to this figure. Let’s say this is $1 on average.

In total, your order handling fee will come out at $6 ($5 + $1).

It’s important to ensure your order handling costs aren’t above the industry standard, or else you risk losing your customers. This calls for effective warehouse organization and, if possible, adopting a lean approach to managing your warehouse operations.

Best Practices for Managing Handling Fees

1. Calculate Accurately

The cornerstone of effective handling fee management is accuracy. Underestimate these fees, and you’ll erode your margins; overestimate, and you might deter potential customers with higher prices. Factor in all costs associated with your fulfillment process, including labor, packaging materials, warehousing, and any technology used to track and process orders. Utilize software solutions, like Uphance, that can help streamline this calculation, ensuring you cover costs without unnecessarily inflating prices.

2. Maintain Transparency with Customers

Transparency isn’t just a buzzword; it’s a practice that can significantly impact your customer relationships and brand perception. Be upfront about your order fulfillment costs and explain why they’re necessary. Customers appreciate knowing what they’re paying for, and a breakdown of costs can help them understand the value you’re providing. This transparency builds trust and can lead to higher customer retention rates.

3. Regularly Review and Adjust Fees

The only constant in business is change, and this holds especially true for handling fees. Regularly review these fees to ensure they still accurately reflect your current costs. As your business scales, you might find more efficient ways to handle orders, or your costs may increase due to external factors like inflation or changes in supplier pricing. Adjust your handling fees accordingly to ensure they remain fair and reflective of your operations.

4. Leverage Technology for Efficiency

In today’s tech-driven market, leveraging technology to manage handling fees is non-negotiable. Software solutions can automate the calculation of these fees, integrate seamlessly with your existing systems, and provide analytics to help you understand and optimize your fulfillment processes. Look for platforms that offer real-time data on inventory, order processing times, and other key metrics that impact handling fees. This technology not only streamlines operations but also provides a data-driven basis for your fee structure.

5. Educate Your Team

Ensure your team understands the importance of accurate handling fee management and how it impacts the broader business objectives. From the warehouse staff to customer service representatives, each team member plays a role in optimizing the order fulfillment process. Training sessions and regular updates on process improvements can help maintain awareness and alignment across your organization.

6. Offer Choices to Customers

One size does not fit all, especially when it comes to shipping and handling. Offer your customers options, such as standard and expedited shipping, each with its own handling fee. This flexibility allows customers to choose the option that best

suits their needs and budget, improving their overall shopping experience. It also subtly communicates the extra value and effort involved in faster processing times, justifying any additional fees for expedited services.

7. Benchmark Against Industry Standards

Stay informed about the handling fee practices of your competitors and industry benchmarks. This doesn’t mean you should simply match what others are charging, but understanding the landscape can help you position your fees competitively. If your fees are significantly higher, ensure you’re communicating the added value or efficiencies that justify these costs. Conversely, if your fees are lower, highlight this advantage in your marketing materials as a value proposition.

8. Focus on Packaging Efficiency

Packaging plays a significant role in the calculation of handling fees. By optimizing your packaging process—using materials that are both cost-effective and protective, standardizing box sizes, and minimizing waste—you can reduce costs and environmental impact. Efficient packaging can also improve the customer unboxing experience, a subtle but powerful branding opportunity.

9. Analyze and Reduce Return Rates

Returns are an often overlooked aspect of handling fee management. A high return rate not only impacts your bottom line directly through lost sales but also indirectly through increased handling and processing costs. Analyze return reasons and implement changes to product descriptions, quality control, or customer service to reduce these rates. Lower return rates mean more accurate handling fee calculations and improved overall efficiency.

10. Communicate Value, Not Just Costs

Finally, while transparency about handling fees is crucial, so is communicating the value these fees enable you to deliver. Whether it’s exceptional packaging, fast processing times, or superior customer service, make sure your customers understand what their fees are funding. This shifts the narrative from cost to value, reinforcing the benefits of choosing your brand.

Streamline Order Management with Uphance

Managing order fulfillment with Uphance saves you the trouble of manually calculating handling fees and adding them to your customers’ orders. Just input your key variables and Uphance will handle the rest.

In addition, Uphance makes it easy to manage and track your shipments, automatically process order returns, and manage your invoices.

Why not schedule a demo right away to see Uphance in action?

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