Leveraged by both B2C or B2B businesses, handling fee is the number one additional fee that allows passing on fulfillment costs to a customer. For you as a merchant, it allows absorbing costs related to order assembly, packaging, shipping, and avoiding profit losses.
On the surface, handling fees seem easy to implement. However, for the many, they are dreaded―complicated both methodologically and technically for business owners, and disliked by customers, if introduced incorrectly.
This article is more than getting you familiar with the extra fees notion. It is aimed at giving you practical hints on how to make handling fees work for your benefit. We have collected useful insights, use cases, examples from experts to aid you in implementing extra fees in an eCommerce business.
Table of Contents
Defining Handling Fees
Running a business assumes specific expenses. Being a means to reduce them, handling fee is a specific amount charged to an online shopper on top of the order subtotal, product price, taxes, and shipping fees.
What Extra Fees are Handling Fees?
Having understood the notion, the why’s behind handling fees become clear. No business wants their profit to be eaten by postal service or labor. These expenses are not seen upfront right off the bat. But they are unavoidable and must be taken good care of.
The following expenses or their combination are most frequently considered handling expenses and added as handling fees at the checkout, or within the initial product price:
- Cost of labels, boxes, tape, and other materials that are required to ensure safe shipping of an order.
- Fragile orders packaging, or other offset costs related to preparing delicate orders for shipment.
- Employees’ time required to pick and package an order. Or, a separate trip to the post office to drop the parcels off should be considered as a reason for higher handling costs.
- Warehouse storage costs.
- Charges for using foreign currencies that differ from the initial account currencies (less frequently).
A Few Flies in the Ointment
With all the advantages that adding handling fees brings, e-merchants should consider the following negative aspects of displaying handling fees at the checkout, whether on Shopify or elsewhere:
- Checkout abandonment. This is certainly a pain point. Business owners do their best to approximate the checkout process to one step. Any unexpected charges at the checkout increase the chances of cart abandonment. According to the stats provided by Transaction Agency, 60% of e-shoppers will abandon their carts because of unexpected extra costs. Alas! Meanwhile, losing money on each order wouldn’t be viable for businesses that run on razor-thin margins.
- Lower conversion rate. This drawback follows the previous point. If your e-store lookers do not get turned into buyers, then there is no profit.
- Spoiled customer shopping experience. According to Optinomster, 65% of buyers check for price comparisons when shopping. If they find your offer well-priced when compared to the competition, extra charges at the checkout can be disappointing.
Consequently, these disadvantages are substantial and should be carefully considered when developing your handling fee extra charge integration. When done right, and with the solicit support of your Marketing Team, its usage will be of benefit for your business.
Basics of Handling Fees Calculation
Setting up a fair handling fee is critical. If you do not want your customers to take handling fees as a means to gauge them, it’s vital to think through the methodology.
For example, if you’re selling both domestically and internationally, it’s important to find a happy medium for different locales. Let’s assume your handling fee for domestic customers is $5, while you decide to charge international buyers $20 for the same orders. Such practices are commonly considered unfair and can influence your reputation overseas.
Shoppers prefer to buy from an honest seller. Clearly articulate the grounds for such chargers and their reasonability.
Do the Research
To remain competitive with rates charged by other sellers and to add healthy handling charges to your checkout pages, you need to:
- survey the market and see what your same-niche competition or sellers of similar items are charging.
- find ways to save on the shipping costs, charge the going rates, or less, and set the rest as a handling fee. As shipping is a decision-maker for the majority of customers, that’s what they will primarily pay attention to. Thus, offering the cheapest way to ship, or the price that is average or below what is commonly charged by similar items sellers would be your competitive advantage.
- keep domestic and international handling fees on the same level. Clearly, this scenario seems like a never-never land, but don’t mix handling and shipping expenses. That’s another story.
- research the international markets and their characteristic patterns. For instance, for many European countries, there is not even a sales tax at the checkout. It’s an all-inclusive price or no price most of the time.
- stick to the handling fees best practices. There is a perception that the handling fee for an order shall not exceed $5. Evidently, this figure is much generalized, and all depends on a specific business and the products you’re selling, but it would do well to keep the number in mind.
- make sure to clearly label handling fees in your order invoices so that a customer doesn’t think you are overcharging them.
Do the Maths
If you think of how to calculate handling fees, you would need to answer some questions before doing the maths. These questions will aid you to figure out what types of handling expenses your business has and calculate the optimal handling fee you could safely add at the checkout.
1.How many minutes do you or your employee(s) need to prepare an item for shipping?
After you figure it out, follow this formula to make the calculations:
(Time to prepare an order/ 60) * the employee’s hourly rate = handling fee
For example, it takes 5 minutes for a person in charge to pack and order. Their hourly rate is $12 per hour. Then, we get (5/60)*12 = $1.
Please note that even if it’s you who runs the business and prepares the order for shipping, such a fee should be calculated and added too. Your time is valuable, don’t underestimate it.
2.What is the cost of the packing materials?
Do you use recyclable card boxes, biodegradable wrap, or something else? You’ll need to calculate the average cost of such materials for each order. For instance, let’s say we use an average box at $1.50, and $0.50 for a packing wrap per order. Then, the total handling fee for packing materials would be $2 per order.
Thus, in total, the handling fee for labor and material would be $1 (labor) + $2 (material) = $3.
3.Are your sales volumes high?
If you answer ‘yes’ to this question, then you need to follow a different path. Calculating the handling fee per order would be overwhelming for a business that has hundreds of orders to fulfill.
To do the maths in such a case, it is recommended to apply handling fees as a percentage of an order. You might want to set up a price benchmark for orders that take as much time to pick and twice as much material to pack. The figures we calculated earlier could be doubled for such orders. Plus, you can think of adding extra $0.50 for foam peanuts for such orders. Such extra charges could apply to fragile items too.
Can I Avoid Adding Handling Fees?
With regard to the handling fee drawbacks we’ve previously discussed, there are cases when businesses might want to avoid such extra charges displayed at the checkout. As a workaround, you might want to consider:
- Cheaper or minimal packaging. This will reduce your handling expenses. Meanwhile, less-quality packaging materials could leave to the increased order damages, further exchanges, or returns. Negative customer experience would go with that. This is certainly the measure thy cloth ten times type of the decision to make.
- Increasing product cost. This can work for items that are not low-priced. Then, adding handling fees within product price would not be critical and turn heads. Furthermore, it’s much easier to build value in the price for an item a customer is already paying for.
- Boosting shipping rates. Operating costs can be also included within shipping. You might have probably noticed before that some merchants even specify ‘Handling & Shipping Fees’ at the checkout to avoid an extra line with charges on the final destination.
Scenarios for Handling Fees
To have a better understanding of how handling fees could be applied in real life, let’s briefly overview the following use cases and get inspired:
Free Shipping + Handling Fees
As you can see, Frames for Portraits has followed a different path. Knowing how effective free shipping option is, this Shopify-based company has combined it with package and handling fees. In other words, they included the cost of shipping in the available extra charge option.
Market ATUPUERTA offers a service fee to its customers. It’s applied to products that are marked with an ‘M’ and depends on the order total.
StubHub places a message to explain the importance of fees to tickets purchasers:
How to Add a Handling Fee to Shopify Orders?
Natively, Shopify does not allow adding handling fees for merchants who have opted for this CMS. However, there are several workarounds to help you achieve that:
Method 1. Change Flat Rate Shipping Prices
You will need to use carrier calculated shipping rates. Adding a flat $ value on top of the estimated rates at the checkout could be a way out. Thus, the total that includes shipping and handling fees will be displayed to your customer. Please, follow this official web guide by Shopify to aid you in adding handling fee to shipping on Shopify.
Method 2. Add Handling Fee as a Product Variant
This is probably not the most convenient means to set up extra charges on Shopify, but still an option.
For example, if a customer chooses 4 kitchen chairs, the variant drop-down could be +$4. Otherwise, if a customer selects 2 kitchen chairs, the handling fee charge would be half of that, or $2. This method offers adding a Shopify product-specific handling fee. Such a means would work for handling fees that differ depending on a product.
For the official Shopify instructions on this option setup, please refer to this online document.
Method 3. Opt for a Third-Party App on the Shopify App Store
The Shopify app store boasts a pool of solutions with different capabilities to meet business-specific requirements. Thus, the best thing you could do is to opt for a third-party app, which will give you more opportunities to add extra order and product charges more efficiently. Furthermore, it’s an easier way to tweak such charges to appear when specific conditions are met.
Order & Product Fees App by Mageworx
All third-party applications are tailored to meet specific business needs. Without minimizing the significance of similar apps, this solution is a have-it-all. No special technical skills are required to tweak Order & Product Fees. It lets create any nature of additional fees and charges that can be added to a specific product offering.
In comparison with the Shopify’s built-in features, this allows you to create an unlimited number of product and cart fees, including handling fees.
Additionally, you’ll be able to customize the ways options are displayed:
- drop-down menu,
- radio button,
- date, or
- hidden, i.e., without a possibility for a customer to unselect the fee.
Order fees conditions allow displaying/hiding fees on the frontend only when certain conditions are met. Thus, your conditions for handling fees can be based on:
- product type, vendor, weight, price, SKU, title, etc.
- cart subtotal or total quantity of items in the cart.
- segmented list of customers.
- locations, and more.
How to Add the App?
If you’ve decided to add Product & Order Fees to your Shopify-based store, you are welcome to benefit from the assistance of the free installation service we offer. After you install the app, feel free to contact the Support Team at [email protected], and we will install the app gratis. Otherwise, you can tweak it on your own following the recommendations of the user guide.
Why Select this App?
It’s no secret that Shopify is a most user-friendly CMS. To expand its default possibilities, the Order & Product Fees app would be the right choice, because:
- it’s easy to use,
- you get the freedom of extra fees setup,
- it adds more pricing flexibility to your business,
- it brings the opportunity to unobtrusively add handling fees at the checkout,
- Support Team behind the app is stellar,
- it is instantly updated by the company that has been tailoring eCommerce solutions for more than a decade.
Making adjustments to the checkout page always needs a reasonable and balanced approach. Adding a handling fee Shopify is a fine line and no exception. On the one hand, it’s a great means to share your business expenses with customers transparently. On the other hand, such extra fees at the checkout can increase cart abandonment and lower conversion rate.
Armed with insights we’ve just recently shared, handling fees can benefit your business. Don’t forget about one thing, all you do must bring value to your customer. Unless such charges start looking as you intend to rip the buyer off, a customer does not care who gets the excess, the seller, or the carrier. If your shoppers go all the way to the checkout page, they want the product you are selling.