How much does it cost you to process an order?

[TallTayl]

When in business, everything gets measured. Everything has a cost. Costs can add up quickly and clamp down on cash flow if we’re not careful.

 

Have you ever ever taken the time to consider how much time and money it costs to pick, pack and ship a typical Etsy or phone order? So often we don’t pay ourselves, so it’s not really a big deal in our minds... or is it?  When I broke my knee I had to hire help. If you were to pay someone to do that task for you, how many orders per hour could that person complete, and what is their hourly pay? That figure makes it easier to calculate the cost of each order. Why should someone else get paid and not me? 

 

how much does it cost in boxes, dunnage (packing material), paper, labels, tape, toner/ink? Are you charging enough to cover it all, and leave room for mistakes and waste?

 

as I spent two solid days packing sample size orders that have what amounts to zero profit, it occurred to me that I was working for free. Actually worse, I was paying to ship trial sizes to people, sacrificing my time in exchange for someone to get a sweet deal on sample sizes. I would have given anything to be outside in the sun enjoying my day instead.

 

The lesson was clear. Calculate ALL costs into the basic costs of WS and Retail items to keep the business healthy. Either stop offering that small margin product for sale or raise prices on small items, and/or package small items into bundles that deliver enough profit to make them worthwhile to make and sell. 

 

A side lesson was to figure out the desired minimum order value, and price items to fit into that minimum. This is kind of what movie theaters do with their size and price combinations. They know they want you to spend $X and create the situation where it is your choice to do so. 

 

Has anything similar happened to you with your own business? How did you calculate the costs?

 

 

 

 

[Crafty1_AJ]

I have hired help to make candles.  While waiting for wax to cool to pouring temps, they pack orders.  So it is figured into my costs that way.  We have worked out a fairly efficient system!  No sense standing around twiddling thumbs waiting for wax to cool.  LOL  If they finish packing orders and are still waiting, they clean and tidy up.  Making soap and candles is a messy business.      Or they weigh out hard and soft oils for soap batches.  There's always plenty to do!  They also trim, cap, and label the previous day's candle pours, or package cured soap while waiting.

 

You're absolutely right -- figure in everything.  Our time is our most precious commodity!  One of the ways I increase productivity and lower my costs is by offering small discounts on multiple purchases.  It takes me almost the same time to pack one candle as it does three ... and the fuller the box, the less void fill I have to use.

Edited February 27, 2018 by Crafty1_AJ

[Crafty1_AJ]

I do pick the orders personally.  That's one thing I don't hire out.  It's a quality control / accuracy issue.  I inspect every candle going out for quality.  My picking the orders also avoids sending the paraffin version of coconut when the customer ordered the soy.  It also avoids the "whoops, customer ordered 2 and we only shipped one" scenario.  

[runner14jc]

Great question for discussion TallTayl! I feel like pricing is the area where most business owners, especially handcrafters, struggle. It is a balancing act of taking into account all the costs of products, shipping, packaging, time, labor, and still trying to be fairly and competitively priced for your target market. Part of me wishes that every small business owner could find the time and availability to take some simple business courses to help navigate how to price items. I learned my lesson recently when I accidentally discovered an item that was showing on my Etsy wholesale price sheet that I only intended to have available on my regular Etsy. The wholesale order came through and it would have cost me to accept the order. That situation forced me to take some time out to review everything and go over all of my pricing to ensure that I didn't put myself back in that situation.For me personally, it is easy to get wrapped up in the fun of creating and push aside the business aspect of things. Definitely something to work on.  

[Candybee]

I ship USPS regional and flat rate so I get my boxes free. My shipping materials are packing tape, peanuts, and bubble wrap. I buy only the bubble wrap and packing tape. I save and recycle the peanuts from glass orders in large garbage bags. Its amazing how many peanuts you can collect. Anyway, that helps keep my cost of packing materials down.

 

So it basically costs my time for printing out the packing list from the order, printing the postage, and packing the box. I then have the option of calling the PO to pick up the package or taking it there myself. I usually take it there myself as I tend to have letters going out and want to get them postmarked or have other errands so I drive by the PO anyway.

 

I don't currently do a lot of shipping orders and don't intend to. Its something I loathe intensely because it takes time to pack and ship even a very small order of say a couple soaps. I have sometimes 'thought' about adding a small fee to offset some of the expense but am hesitant to do that on my website until I study it further. Frankly, I think it would hurt more than help. I think the answer lies in taking into account what it costs me to pack and ship and most of that I already account for in my accounting program.

 

[TallTayl]

So, just quickly mentally calculating conservatively for a small order that has no strange things going on (like misprinted postage, guessing the wrong box size, and having to repack in a different box, etc), about 10 minutes to pick, pack, weigh and print the postage. Plus the cost of the tape, dunnage, packing slip, label, ink, basic overhead, a low hourly rate etc., your cost per order processing "starts" at maybe $3 per order. Taking it to the post office, add another $1-2 for time and wear and tear which the IRS calculates about $.50 per mile.

 

When you look at all of the tiny costs that we dismiss for whatever reason, it really highlights how important pricing for profit really is.  This estimate does not even include damage, replaced product, waste, expired product, marketing, sales taxes, use taxes, income taxes, commissions, etc.

[TallTayl]

One more thought: Opportunity Cost.

 

What could we be doing instead of packing and shipping orders. What is that loss of opportunity worth to you?

 

We pay other people to work, why do we not pay ourselves?

[Candybee]

Since you have to ship out the order I try to look at that as the opportunity.

 

I write a thank you for your order note on each packing slip to give it a personal touch.  I also pack my biz card with each order. Sometimes I take the opportunity to increase future sales by also packing a small freebie, a coupon for a future sale, or a flyer or info on new products.  Or maybe switch up and do holiday packaging. This may be in addition to any sales or discounts going on on my website.

 

I don't think about the time I would spend doing something else since it really doesn't make any sense to me. Orders are a part of my biz and the best you can do is streamline what you can and carefully select your packing and packaging materials that not only fit your biz, branding, but also fit your budget.

[bathaway]

I prepack my etsy orders. 95% of my sales come from 2 listings.

80% 1 listing. 15% another listing.

 

I prepack once a month. I ship once a week. I bulked my supplies, 500sq ft of shipping supplies.

same box, same weight. I don't measure. I just print the labels and stick them on.

 

For Canada Post, I pay $4 flat rate to pick up my parcels.

 

my shopify orders are custom so it's a pain packing them. I have 3 box sizes that fits 95% of my orders. That way it's easier to input the shipping dimensions.

 

The BIGGEST cost of an order is customer service. we all had those experiences..

 

 

I think the margins needs to be so high that these tiny costs, isn't important. These cost can x10 and the profit is still great. But i understand high margins is a rare luxury. 

Edited March 7, 2018 by bathaway

[bathaway]

On 3/1/2018 at 12:35 PM, TallTayl said:

One more thought: Opportunity Cost.

 

What could we be doing instead of packing and shipping orders. What is that loss of opportunity worth to you?

 

We pay other people to work, why do we not pay ourselves?

 

I could be getting more sales.

 

packing and shipping doesn't grow the business much. As long as it's done properly in a timely manner.

 

I make 1 product. So I am obsessing on how to shave down seconds. seconds x 1000's = alot of time. 

 

Your injury made you more conscious of your time. It's something we all need. Maybe not an injury but your post helps!