Did you ever buy CD's from a Record Club like Columbia House? When you joined they would have a buy 1 and get 11 free or something - but you would have to pay the shipping charges on the 11. That was because shipping was a 'profit center'.
That was a very common practice among mail order houses and probably still is although competition has very likely reduced it somewhat. Companies that charge a fixed flat rate are hoping there will be enough small orders that cost much less to ship than they charge to more than cover the bigger orders where the cost exceeds the charge. Companies that charge by the $ amount you spend know that shipping cost do not rise as a function of price - it costs no more to ship a $60.00 shirt than it does a $10.00 one. They want to profit on shipping. And, why not? It is an investment of their money just like inventory - it is consumed and must be replaced just like inventory so it should make a profit just like inventory.
When I first started selling online about 10 years ago. Shipping and insurance were profit centers for me too. I calculated the postage and packing costs added my markup and that was the price I charged the buyer. I had a u-pic account and bought their parcel insurance at a discount, marked it up and charged the buyer that price. It was still cheaper than postal insurance but I made a profit. It made up about 15% of my total profit for the year
Today shipping is totally an expense...next to inventory purchases it is my biggest expense amounting to 15% of my gross sales. 10% in just postage. I don't even insure packages where I have less than $100 in them and eat the cost when I do because it is never calculated into my price.
That's why in my best years I has $22,000 sales and $8,000 profit then $30,000 sales and $12,000 profit -- that is "tax" profit on my schedule C.
Now if I had twice that sales volume I might make half the profit, but probably not. A lot of that is related to shipping.going from a profit to an expense without being able to raise prices to help cover it.
That was a very common practice among mail order houses and probably still is although competition has very likely reduced it somewhat. Companies that charge a fixed flat rate are hoping there will be enough small orders that cost much less to ship than they charge to more than cover the bigger orders where the cost exceeds the charge. Companies that charge by the $ amount you spend know that shipping cost do not rise as a function of price - it costs no more to ship a $60.00 shirt than it does a $10.00 one. They want to profit on shipping. And, why not? It is an investment of their money just like inventory - it is consumed and must be replaced just like inventory so it should make a profit just like inventory.
When I first started selling online about 10 years ago. Shipping and insurance were profit centers for me too. I calculated the postage and packing costs added my markup and that was the price I charged the buyer. I had a u-pic account and bought their parcel insurance at a discount, marked it up and charged the buyer that price. It was still cheaper than postal insurance but I made a profit. It made up about 15% of my total profit for the year
Today shipping is totally an expense...next to inventory purchases it is my biggest expense amounting to 15% of my gross sales. 10% in just postage. I don't even insure packages where I have less than $100 in them and eat the cost when I do because it is never calculated into my price.
That's why in my best years I has $22,000 sales and $8,000 profit then $30,000 sales and $12,000 profit -- that is "tax" profit on my schedule C.
Now if I had twice that sales volume I might make half the profit, but probably not. A lot of that is related to shipping.going from a profit to an expense without being able to raise prices to help cover it.
