When you are calculating how much money you can make selling specific types of products, you will run into a fascinating riddle very early on. And that riddle is how to incorporate shipping into your cost, your price, and your overhead calculations. You can think that it’s awesome to create something for five dollars and then sell it for $10. The problem is that when you add shipping costs to the overhead value of an item, suddenly it’s much less worth it to a potential consumer, and your profit margin can plummet. What can you do about this?
There are a few different ways to approach this shipping riddle. If you have an e-commerce shop, you can work with an e-commerce fulfillment center to reduce shipping costs. You can figure out how to work backward from LTL freight shipping and handling costs to keep your profit margin. And, you can work extensively with various accounting principles so that your assets, liabilities, and equity makes sense for every single product that you’re selling and shipping.
When you work with an e-commerce company with a fulfillment service, that takes a load off of your mind professionally and financially. As long as you understand the contract that you’re getting into from the beginning, you can set your costs in a way that gives you the maximum profit within your sales goal. If you are trying to fulfill your product shipping needs individually or in your own warehouse, that can turn into a disaster of time, space, and energy.
Understanding Shipping and Handling
When you plan on purchasing something that you see online through various sites or different companies, you can often be quite surprised at what shipping and handling costs are. It is impossible to create a transparent idea of where they come up with these numbers. That’s why many places showcase that shipping and handling are free.
But, in those instances, the cost of shipping and handling are included in the price of the item itself. There is no way to get around this, though many stores use certain products as loss leaders for other things they expect you to purchase.
In the end, if you want to make sense out of selling your items that have to be shipped, you have to use essential accounting principles. If you don’t understand how assets, liabilities, and equity are all related within a business model, then you’re never going to come out ahead with a decent operating income.
You can’t just assume that because you know partial numbers regarding product cost and shipping that it will make sense in the end if you don’t legitimately account for your operating expenses as a whole.