Many buyers see the cost of postage as the amount on a stamp, rather than the actual costs involved. This blog post aims to help buyers understand all of the elements of a dispatch.
If you take a glass faced wall clock as an example, we always dispatch them in a custom made box, filled with protective loosefill (polystyrene chips), to ensure the clocks gets to the buyer in one piece.
We charge £6 generally for postage, which on the face of it seems relatively high; until you do the sums:
Postage Costs
Most of our boxed wall clocks weigh between 1.5 and 2.5 kilo’s and get dispatched with Royal Mail First Class delivery, using our PacketPost account. Generally postage costs between £3.44 and £4.37.
If the weight is over three kilo’s, the clocks get dispatch using DHL, who charge us £10 per delivery
Material Costs
All of our custom made boxes cost 87 pence and due to the volumes we need to buy them in, require significant storage accomodation. They may also be with us for up to six months.
Every box requires loosefill, which costs around 50p to fill, dependent upon the size of the clock.
We also use a significant amount of tape, fragile stickers, address labels etc, all of which add up to around 20p
Transaction Charges
Each transaction that goes through PayPal, automatically has 3.4% of the transaction value removed. In the case of £6 postage, that would be 20p being taken for PayPal.
If we offer free postage, eBay also take an additional 10% for final value fees. That means we pay an additional 60p in fees, on top of the PayPal transaction fees. eBay is looking for all sellers to offer free P&P, but based on the costs involved, that will reduce already tight profit margins.
VAT
Out of the £6, VAT registered sellers also collect 72 pence for Her Majestys Revenue and Customs.
Losses/Breakages
Many sellers “Self Insure” for losses and breakages by Royal Mail. They do this because going through each of Royal Mail’s hurdles to claim back the costs involved in breakages and losses, requires a signicant amount of effort and time, which often costs more than the actual product. Sellers generally like to add a small amount to each delivery to cover this self insurance.
The Maths
Postage Charged minus delivery minusVAT minus packaging material costs minus transaction charges minus loss/breakages
£6 – £4.37 – 78p – (78p + 50p + £0.20) – 20p
Based on the maths above, this leads sellers to make a £1.33 loss on each product dispatched. If sellers followed eBay’s request for all items to include P&P this loss would be even greater.
Abviously, postage isn’t the only element in any sale, there is also the margin on the product. However out of this marghin, there is also employee costs, overheads such as office/warehouses/staffing/heating/telephone lines/computers/broadband etc all to pay for.
Buyers, please consider this before asking for free P&P!
