For most on-line sellers, the cost of shipping will be the second largest expense he will have.  Fortunately, sellers have more control over this expense than any other.  This guide is to help.

I will mostly be trying to show you areas to cut your costs in, but I do point out a few expenses that you are better off paying.  It is no good being able to save a dollar if it costs you two to do so.

There are four main costs that must be considered while selling on e-Bay: e-Bay fees, Pay Pal/Credit Card fees, inventory and shipping.  E-Bay fees are proportional to the selling price.  Trying to reduce expenses here would result in a greater loss of profit, so attempting to control these costs is not economical.

Pay Pay/Credit Card fees can only be avoided by accepting checks and money orders, but I don't recommend this as a selling strategy.  Internet customers normally want their items quickly and with as little effort as possible, something that mailing you a check is not conducive to.  If you insist on money orders, then your are incurring a further cost on your customers as well.  Finally, if you don't take credit of some type, then international sales are pretty much excluded altogether.  Now, I am delighted when a customer does pay by check, but I make that their choice, not mine.  The $1.00 you pay for a $20.00 transaction is a small price to pay.

If and how inventory costs can be reduced depends on what it is you sell.  If you sell things on consignment or if you sell used items, then you do indeed have a lot of ways to minimize costs, but that will be outside the scope of this guide.  If you sell new items, then your costs are determined by your source and there is little you can do to adjust them.

Shipping, however, gives you lots of opportunities for saving money or wasting a fortune.  It is more than just the cost of postage: you have the costs of the envelope or box, packaging material (to protect the item), labeling, gas money (usually) and your time.  The rest of the article will focus on how to save money in these areas.  Many of these ideas may only save a few pennies to perhaps a dollar (although international shipping can have big savings) per package, but multiply even 25 cents times the number of sales you have per month and you will see some impressive numbers.

The most obvious shipping cost is the cost of postage.  If you want plain-vanilla shipping service at the lowest price, then the United States Post Office (USPS) is the only way for a US seller to ship.  This is especially true for overseas shipping.  On any given month, 1/3 to 1/2 of my sales are overseas.  I've had several of those customers tell me the reason they chose me over my competition was because of my shipping.  Part of the reason the commercial shippers charge more is that they include services in their price that you have to pay extra for at USPS.  If you want those extra services, then it is worth your while to do comparative shopping with the commercial carriers.  Don't forget to ask about volume discounts.

There is one exception to the general rule that USPS is the least expensive way to go-the post office does not like very large boxes and some boxes may be so big that they won't accept them at all.  Do check commercial carriers for very large boxes (see my comments on USPS balloon rates below for cut offs).  With that being said, the rest of this article will focus on mailing with the USPS.

Recent changes in the way the post office charges customers (1 May 2007) put the focus on economy of space.  You are better off with a small, heavy box than you are with a very large, light one.  Additional surcharges have been applied to large envelopes.  Many people were in a panic over this change, but I feel the impact was not as great as it was made out to be.  In the nearly 800 mailings I've had since the postage changes took effect and when I wrote this article, I've only had 2 whose price was significantly higher as a result of the change.

The two key numbers you, as a shipper, have to remember is 108 inches and 1 cubic foot.  If the girth plus length is greater than 108 inches for Parcel Post, then you have to pay a so called balloon rate.  The girth is the circumference of the box along the smaller sides.  Likewise, if the total volume of a package is greater than 1 cubic foot for Priority Mail, then you have to pay a much higher weight.  I don't know why they had two different standards for the two different classes of mail, but it is important to USE THE RIGHT STANDARD WITH THE RIGHT SERVICE.

The cost of a package based on size can be many time more expensive than the cost based on weight.  I had 1 package whose shipping costs by weight would have only been $20.00, but because of the balloon rate it was over $60.00.  This particular package had two copies of an aircraft, either of which was below the 108 inch limit if packaged separately.  The lesson I learned is that it may be much less expensive for you to mail multiple packages if in doing so will let you avoid the balloon rate.

Another set of magic numbers that should be remembered is 13 oz and 2 lb.  If an item is heavier than 13 ounces, then it is no longer eligible for first class, which means it must be mailed Parcel Post, Priority, Express or Media Mail.  I will get to Media Mail shortly, but for now I want to focus on Parcel Post.  For Parcel Post of 2 lb or less, there is usually only a 10 cent difference in price between it and Priority Mail.  Why is this important?  Because the USPS offers Priority Mailing boxes for FREE!  They are easy to assemble and you can even have them delivered to your house at no charge!  The least expensive box I have been able to buy cost over 30 cents, plus I had to pay to have it delivered (more on this later).  What is more, it was extremely small at 4 in x 4 in x 4 in.  The largest Priority Mail boxes are 12 in x 12 in x 8 in if you need depth, or 13 in x 12 in x 3 in for flatter items.  Comparative boxes I have paid for would cost more than 60 cents plus shipping.  If you have an item or group of items that weight less than 2 lb and can fit in one of these boxes, then you can save over half a dollar in the cost of your box and delight your customer by the faster service for only a dime more!  In the same vein, don't overlook the flat rate Priority envelopes.  It is a decent sized envelope and can carry quite a bit, I've had as much as 3 lb fit in it and only had to pay 1 lb worth of weight.

Media Mail is a cost effective way of mailing anything over 10 oz.  The contents can only consist of bound, printed material (although I've never had a problem with inserting a packing list and business card in with the merchandise).  If the weight is below 10 oz, then first class is faster and usually less expensive.  I'm not making 10 oz a magic number here because most postal employees will be kind enough to tell you when first class is less expensive.

Even with the extra services, USPS is less expensive than commercial shippers for international customers.  If you pay for Priority or Express mail, then the lower price also includes many of the extra services commercial carriers have.  The drawback here is that USPS is slower than commercial carriers and, because each country has its own post office, you do run a greater risk of losing the parcel.  This is especially true during and immediately after Christmas season.  Commercial carriers use their own aircraft and offices in foreign countries, which results in the better delivery system.  I don't feel the added security is worth the price, and most of my customers would prefer lower prices than speedy delivery.  When I figure international postage, I do add an extra $1.00 to the invoice for the extra work in filling out a custom's form.  It effectively acts as self insurance and it has more than covered refunds I made for lost mail.

The best thing USPS did during the 1 May 2007 rate change was restructure their overseas shipping.  Surface is gone, which has sped up mailing.  What used to take a month and a half is now usually done in 2 weeks.  You can send an item 1st Class International for any package under 4 lb.  Priority and Express International now include free insurance for up to $70, and you can purchase additional insurance inexpensively.  Had this been available at the time, nearly all my lost mail refunds would have been covered under this free insurance.  Unlike domestic mail, there are no balloon rates overseas.  And if that was not enough, the best thing USPS has to offer is roughly a 10% discount on Priority and Express International if you pay for postage on-line at their site.  When you pay for your postage on-line, you must fill out the custom's form at the same time.  This is a time consuming process, but it is not much slower than doing it by hand and I feel the discount is well worth the little extra time.  Of course, you can get postage for all your packages on-line, but only international has the discount.

Now that I've talked about how to save money on postage, I am going to cover other shipping costs that you need to consider.  There are a lot of factors besides postage to consider and not all of them make for easy analysis.  These costs include the box or envelope you mail the product in, the packaging material you protect the merchandise with, the labels you place on the box, the packing list and other inserts you include with the purchase, the gas and wear on the car it takes you to drive to the post office and the time you spend making all this happen.  Of these items, the box is the easiest to quantify.

The envelopes and boxes you use cost somebody some money.  The best you can do is have somebody else pay for them.  Reuse boxes that you have lying around.  I do suggest that only quality boxes be used for this purpose, especially if you have a store.  Before I had a store, I would use any box big enough for my products and frequently had to cut it down to size.  While this strategy worked then, when I took my sales to the next level and purchased an e-Bay store, suddenly this was not good enough.  Several customers left feedback complaining about the packaging.  Although none of them gave me a negative or neutral for it, I saw the writing on the wall and corrected that procedure before someone did.  If you try to pass off as a professional e-Bay seller, your customers will expect you to act like one.  On the other hand, if they consider you a professional, then you can charge like a professional.  I add $1 to shipping fees to cover costs of my package and another $1 for the time it takes to package it.

I still use boxes from other merchants, but I am very picky about what shape they are in.  Having the right size is critical.  I know I've said that the size limitations the USPS placed are very lenient, but there is another thing to consider.  The box itself, as well as the packaging material inside, have a weight to them.  I don't know how many times I have been HALF AN OUNCE or less over the next weight category, but I wound up paying a dollar or more for the oversight.  To add insult to injury, it usually happened when I tried to use a free box that was too big rather than a proper sized box I had paid for.  It cost me more than I saved, never a good business practice.  I now weigh boxes carefully before I go to the post office.  If the weight is borderline between two weight categories, then I will cut some off the inside flap for good measure.

For certain merchandise, sending items Priority Mail will not only endear you to your customers but by using the specially made boxes can save you from having to buy your own boxes (see the 13 oz and 2 lb rule above).

While using free packaging is always a good idea, you will most likely not be able to meet all you shipping needs this way.  It is not only a matter of having the right number of boxes, but also the right size.  If you are serious about getting a lot of sales, you will have to purchase boxes and envelopes in large quantities.  Don't go to the retailers, you can buy direct and get the same price they pay for.  You will have to pay shipping, but you can minimize that by buying large quantities at once.  Don't just buy when you run out, see what you go through the fastest and buy multiple bundles of it.  See if any sizes are at least halfway gone and restock on them.  Also, shop around.  Except for the extremely large boxes, most of what I purchase runs between 30 and 70 cents apiece.  That may not be the best price out there, but the competitors I looked into were twice that amount or more.

Packaging material, unlike boxes, you truly can have someone else pay for.  For the products I buy wholesale, they provide me nearly all the packing peanuts or packaging paper I need.  This is because they use bigger boxes than what they need and therefore I can be more economical in packaging.  There are plenty of other sources of free packaging material.  You can use yesterday's newspaper or, if you don't subscribe, offer to recycle your neighbors.  Many organizations send out free periodicals that do just well and supermarkets always have free advertising papers somewhere nearby.  I like newspaper (or similar) the best because it is not as messy as peanuts and I believe it actually weighs less per volume.

The rest of the items I have talked about, labeling, gas, time, etc, are difficult to quantify, and frequently change day to day.  Going to the post office with 20 boxes takes no more gas than if you only have 1 package to drop off.  Once you are there, the time it takes the clerk to process a package may be the same for the 1st as the 20th, but you only have to stand in line once.  My solution to this was to add a surcharge to my shipping costs that arbitrarily cover these expenses.

Calculating the surcharge is simple for domestic.  I begin by figuring out how much it costs to send an item from South Carolina to California (the most expensive domestic rates).  This information is readily available at the post office and at their web site.  I then round up to the next dollar and add a dollar on for good measure.  For parcels, I add an additional $2.00 to cover the cost of the box itself and the extra time it took to package.  Expedited services add another dollar because I guarantee next day drop off at the post office, whereas First Class, Parcel Post and Media Mail have up to three days to be shipped by our policy (generally it is also out the next day, but we need some leeway during the Christmas season).  I then took this charging plan and created a table with different weights on the side and mailing classifications across the top.  I can now weigh the item in question and cross reference it with how it will be mailed for a quick charge.  Those that are interested in seeing it, you can get my contact information on any of my web pages and I will send it to you for free.

Before the May 2007 rate change, there were only 3 international mailing zones and the least expensive one did not cost that much more than the most expensive.  Then, I offered a flat rate for overseas.  Today, there are 10 zones and the price range is incredible.  I no longer offer flat rates, but I take advantage of e-Bay's automatic calculator for foreign buyers.  You simply tell e-Bay how much the item weighs (don't forget to count packaging weight as well) and it can compute the costs based on the country it was purchased in.  Ebay gives you the option to add a handling fee for international, so I add $1 for envelopes and $3 for packages.

One thing e-Bay does not do well yet, although they seem to be working on it, is shipping costs for combined purchases.  This is really where my chart comes in handy.  I can easily estimate the total weight of the sold items and provide a quick answer as to what the correct shipping should be.  Some customers are impatient and pay top dollar before I invoice them, that is just extra income for me.  But they are looking for ways to trim their costs just like you and they will appreciate your bottom dollar.  You may be denying yourself some extra income on this one sale, but I think this is worth it.  Those that buy multiple items from you today are most likely to be your repeat customers and the $3 to $5 you lose today may come back a hundred fold later on.

I have briefly demonstrated my belief that shipping is the only major expense an on-line business will have that can be signifincatly controlled and provided tips and ideas on how to control that expense.  I hope that this work inspires you to look for other ways to trim that part of the budget.