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How to calculate your holiday fulfillment costs in advance

The holidays may seem far away, but for eCommerce sellers, they’re right around the corner. Most sellers have to get inventory into their fulfillment networks now to be included in fourth-quarter shipments. This is non-negotiable, as the holiday season makes up a large percentage of eCommerce yearly sales.

In the U.S., the 2020 holiday season accounted for $789.4 billion of a total $4 trillion in sales. That means one-fifth of the year’s total retail sales occurred between November 1 and December 25. For most eCommerce stores, having logistics, funds, and inventory in place for the holidays is crucial.

An important step is planning for increases in shipping costs. Every logistics provider, from the USPS to Amazon FBA, introduces extra fees and higher costs for the fourth quarter. Anticipating and budgeting for these expenses will allow you to maintain sales throughout the holiday period without losing money.

Why do fulfillment costs increase during the holidays?

Increased sales mean increased packages in the mail. That produces an overwhelming amount of extra work for logistics providers. For example, in the 2020 period – with pandemic delays – shipping carriers ran months behind, with some customers reporting Christmas cards received in February.

Although contending with extenuating circumstances, it’s still representative of the massive increase in demand for carrier capacity due to straining factors:

  • 20% of total sales happen in a two-month period
  • People ship products to friends and family themselves
  • Increases in small post such as letters and cards slow the mail down as well

As a result, carriers increase rates for the holiday season. Most also increase fees annually. For example, USPS raises fees every year as part of its Delivering for America program. You should expect and plan for this if you want to estimate costs, revenue, and profits reliably.

2021 Holiday price hikes by carrier

You have to be diligent when estimating how much you’ll spend on fulfillment during the holidays. Some of the U.S.’s largest carriers have already introduced their holiday price increases.

USPS

USPS ups holiday rates every year, usually in mid- to late August. The hike normally extends from October 18 to December 27. In most cases, it also reflects a 6%–13.5% increase over standard rates for the year.

 

In addition, USPS employs a yearly rate raise, which generally aligns with the holiday period. Therefore, some of the holiday prices will not go down.

UPS

UPS raises rates based on shipping volume and total volume over normal usage per shipper. Its 2021 holiday increases cover packages from most destinations, oversized packages, and specific rates depending on volume.

For example, additional handling charges double after October 3, as do those for oversized packages. Post increases are charged based on February volume. For example, with Ground Residential, you pay $1.15 per package at 110% of February volume. If you have 500% of February volume, you pay $5.15 per package. For most sellers, it’s more cost effective to source an alternative carrier to handle at least some of the volume.

FedEx

FedEx introduced peak surcharges in January 2021, and those remain in place throughout the holiday season. However, FedEx may choose to increase them further. These charges include a notable $30 surcharge on all oversized packages.

In addition, you will see $0.30 to $6 surcharges on all other packages during peak periods. This can amount to as much as a 40% increase in total costs depending on what you ship.

FBA

Fulfillment by Amazon always implements a price hike in the second half of the year. Additionally, if you don’t have stock in by the end of June, it gets difficult to get into FBA. Amazon also uses a more complex system to calculate increases. You’ll have to check your product category, size, and weight to determine total costs.

You’ll also pay higher FBA storage fees, with some sellers reporting a 300%–400% increase in costs for warehousing.

Calculating total holiday fulfillment costs

Total fulfillment costs include direct costs (pick and pack, packaging, labels, carrier fees, etc.) as well as indirect costs (warehouse storage, management, returns, time spent on pick and pack, etc.). Generally, your calculations should include:

  • Packaging cost: Physical packaging + label + printer.
  • Labor: Total costs of direct and indirect labor for the period, divided by the total number of orders fulfilled in that time. Keep in mind that seasonal labor during the holidays costs more than labor throughout the year. Expect a 10%–30% boost in wages as well as increases in training costs, employee acquisition, and management.
  • Occupancy or warehousing costs: Lease, utilities, amortization, rental per cubic foot, etc., divided by the total products sold in the period. You can be more precise by calculating throughput and allocating time spent in the warehouse and storage space required.
  • Infrastructure costs: Total cost of software, management time, and inventory checks, divided by the total number of orders fulfilled in the period.
  • Courier costs: Total courier costs divided by the number of orders fulfilled in the period OR total courier costs per item. Choose the latter if you want to calculate how much it costs to fulfill a specific item.
  • Returns and customer service: Total returns and customer service costs over the period, divided by all units sold OR total returns for the Product Type over the period.

To be as accurate as possible, use last year’s data for these calculations. If you don’t have those numbers, you can try a simpler, but less reliable calculation.

So, an example of fulfillment cost product equation should look something like this:

  • Packaging costs + Labor + Occupancy + Infrastructure + $4.38 USPS shipping + Returns and shipping costs = Cost per product

Product by product calculations are only useful when determining if a specific item is worth maintaining in your inventory over the holiday period. Even if you break even, chances are you’re also driving other sales, so the answer is yes. If you’re losing money, that’s a harder decision.

If you want to calculate the same based on full inventory, take out specific shipping costs and replace them with your average for the period. If you don’t yet know what those numbers should be, calculate estimated sales and apply the higher shipping percentages to them.

For example, USPS adds an average 9% increase across all packages – however, you might fall into a higher bracket, so it’s important to check.

Affordable holiday deliveries with Deliverr

Deliverr only increases prices by $0.23 during the holidays. This is one of the most competitive rates available.

Plus, if you use Deliverr, which has a flat rate and transparent pricing structure, calculations are much simpler.

Most third-party logistics offer shipping cost calculators as well. For example, you can use the Deliverr fulfillment cost calculator to find your exact pricing from Deliverr for different products, which is a flat rate for all inclusive fulfillment.

Fulfillment is one of the largest expenses in eCommerce. Calculating those costs is important at any time of the year, but especially so during the holidays, when most carriers increase prices by 5% or more. To take advantage of Deliverr’s competitive pricing, create your free Deliverr account today.

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