WSW - E-commerce Fundamentals - Shipping
===
[00:00:00]
Dan DeLong: Welcome to another Workshop Wednesday brought to you by schoolbookkeeping. com, where it's casual conversations for serious workflows. And we are continuing our... It's not a never ending saga. We're coming into this. We're coming in for a landing here. I was actually thinking about, what was that Muppets [00:01:00] show?
It was it was a veterinary hospital, right? Wait. Do you remember that? Do you remember that?
Rachel Dauchy: No, I loved the Muppets, but I
Dan DeLong: don't know what that is. It was like pigs in space. And then they had a take on they had take on general hospital called veterinary hospital.
Rachel Dauchy: Oh, I vaguely, I remember that, but I did love pigs in space, but yeah, I don't,
Dan DeLong: I don't know.
But I, when I was listening to the podcast and editing I was, the never ending saga reminded me of that because they would always say, Welcome to Veterinary Hospital, the never ending story of a cat who's gone to the dogs. Gone to the dogs. Remember it
Rachel Dauchy: now? Kinda. I remember the Swedish chef, and I remember Beaker, and I loved
Dan DeLong: Beaker.
The Swedish chef was the only one with real human hands. Yes. Real,
Rachel Dauchy: we've diverted a little bit. That was a real [00:02:00] TV .
Dan DeLong: We've diverted a little bit talking about the Muppets. What was your favorite Muppet? If you're watching on the Facebook or YouTube channels, what was your favorite Muppet?
And do you remember Veterinary Hospital .
Rachel Dauchy: You know what? I just have to tell you one super quick thing though about the Muppet Show and then we can move on. When my daughter was born, okay, I used to love The Muppet Show. It was my favorite show I remember. Oh yeah. Sunday night. Yeah. And I was at Costco one time and they had the whole thing on DVD.
And I thought, oh, I'm going to buy this because I'm going to get this for my daughter, Maren. Even though she was just born, how new moms are so crazy. Well, when she was maybe two or three, I, we started watching it. And I was like, what the heck? This is too wildly inappropriate for kids.
And then I asked my mom, I said, mom, what is going on with this? And she said, oh yeah, this is like an adult program. It was on at primetime TV. Well, I don't remember that because I must've been really small, [00:03:00] but. It was not really for kids, but in my mind, I remember loving it as a kid, but simpler times.
Dan DeLong: You also look at some of the Looney Tunes, Bugs Bunny jokes were geared towards adults more so than kids. But kids got the whole, slapstick humor out of Looney Tunes. But anyway, so we are continuing our... Saga of e commerce fundamentals. And today we're going to be talking about shipping and fulfillment.
So brace yourselves for a lot of ship jokes, right? Cause we're going to get our ship together and we've got to ship a ton of things to talk about when it comes to shipping and fulfillment. So let's first start by talking about you, Rachel. What is shipping? And fulfillment, like when you think of shipping, what does it mean to you and what does it mean to an e commerce business?
Rachel Dauchy: My first thought goes to, [00:04:00] if you've got an e commerce business then you have to figure out a way to get your, get the product to the customer that's buying it. So it all depends on where that product is coming from and where it needs to be shipped.
Dan DeLong: So now we've got this as opposed to a point of sale location or retail store where you have a centralized location where customers are coming to you, e commerce is as that other element of customer doesn't have to go anywhere and they just get it shown up at their door.
And I was actually thinking a little bit before we, we started here thinking about like how shipping. Getting your product getting a product from an online space to, to your door has evolved over, over time, right? Like we talked last week about, the marketplace juggernaut of Amazon and how they've Change the game when it comes to those [00:05:00] things.
But I think going back even further, I think eBay was where shipping has had taken a whole different level. Cause eBay. Started off and I think it still is as a, as an auction site, where people could go in and they could put a biz, like I'll pay this much for that.
And then they turned into more of , a marketplace platform where if you want to avoid the whole. auctioning thing, then you could just buy it now if you want, right? And so they would have a buy it now price versus skip the auction and go right for that sort of thing.
But shipping always plays a big role in, in an eBay listing, like who pays for it, right? And people would mark their price really, really low, like they're buying it now. But, They would mark up the shipping tremendously, right? You remember those, that, that whole kind of it was almost like a bait and switch type of, you can buy this for six bucks.[00:06:00]
You're going to pay 99 for shipping. Yeah. And then Amazon, I think has done something that nobody else could do. They have convinced the world that it's okay to pay for free shipping.
Rachel Dauchy: Amazon has completely changed the game. Our world is before Amazon or I guess when Amazon still sold books and then after that.
So it's like we measure our time in before we knew what Amazon Prime could do and then after, right?
Dan DeLong: Yeah. And so like the whole concept when Amazon Prime was their big thing to that they were activating. And now it's just commonplace, like you don't even have to market the whole Amazon prime thing, but their big selling feature was free to a shipping on prime listings.
Right? But then, when you think about it, it's people will [00:07:00] justify, well, I'll just do it on Amazon because I get free shipping. It's well, no. Yeah. There is no such thing as free shipping, right?
Rachel Dauchy: You are still paying for Amazon Prime. You are paying for free shipping.
I do remember though, gosh, even maybe 10 years ago, I still had some friends that opted not to get Amazon Prime because They didn't want that instant gratification of, Oh, I'm just going to order it on Amazon and have it here tomorrow. Now, of course, we know Amazon Prime that they have same day delivery.
It really depends on your physical location and where their distribution center is. That's really, really important. But I still had a handful of people that I knew that didn't have Amazon Prime. But, now the culture has shifted so much that I feel like everybody has Amazon Prime.
Not only that, everybody uses it in such a way where, my mom and stepdad, they'll come visit, but [00:08:00] they'll send some stuff ahead on Amazon Prime and vice versa. It's just made everything gift giving, at Christmas time, it's made everything. So much easier and more streamlined that they've really taken over Everything you really can't even compete with amazon prime.
Dan DeLong: Yes. You cannot out amazon amazon, right? so We'll talk a little bit more and we'll bring amazon into the mix when we talk about fulfillment, but so that's really the whole idea of what is shipping and fulfillment is making a decision from a business perspective of how you're getting your physical products that have been ordered online.
To your customer, right? So the first decision as a business owner is who is doing the shipping, right? So is that something that is being self fulfilled or is it something that you're gonna Outsource and do for some somebody else and that's going to bring in a [00:09:00] new topic that we want to Define is a third party logistics.
What is that? What define that for for those who don't know what 3pl is?
Rachel Dauchy: What everybody doesn't know what that is. No, i'm just kidding. Yeah, so like you said there is the option of fulfilling your own Inventory items and setting them out yourself. So that would be if I've got a warehouse right here then my items would be in there or some other large space where the things were stored and then I would go in there and I would ship them myself.
But if a third party logistics, which there's all kinds of different third party logistics, but let's just say for the sake, you're, all of your things are packaged up and boxed up and ready to go and all they're doing is sending them. And I say that because 3PL, they can package and label and do all kinds of things for [00:10:00] your products.
But let's just say I'm buying a whole bunch of products to sell and I have them at this third party logistics. When an order comes in, let's say for instance, I'm a Shopify seller. And I'm using a 3PL, they will get the order, they will box it up, and package it up, and send it out to the destination that is listed on the order.
Instead of me doing it, I have sourced that out to a third party logistics who will handle The shipping of my items
Dan DeLong: And what is the advantage of a third party logistics company? In a business Versus I think it ultimately comes back to what we were talking about last week about online You know online shopping cart versus a marketplace the advantage or benefits is going to be very similar When it comes to, do I decide to use third party logistics to to pick, pack, and ship my items once the order comes in, or do I [00:11:00] decide to do that myself?
Is that what your experience has been?
Rachel Dauchy: Yes. It's, I would use a 3PL, number one, because it just saves time. And so I don't have to pick, pack, and ship everything myself, and arrange for a UPS pickup, or drop it off, and, So it's just more streamlined to have somebody else do it. I have a Shopify store myself.
I personally pack and ship my own stuff. Actually, I have my, another family member that the stuff is located there and he's packing and shipping all of my stuff, but so technically I'm sending it, but if I did have a 3PL, the time would be placed on them, so I don't have to do all that work printing out the shipping labels and figuring out all the things and then dropping off the packages.
I wouldn't, or if you have a larger operation you'd have Somebody could, UPS come and pick everything up at your [00:12:00] location, but yeah, I don't have to deal with that. I've outsourced that out to a company that does that specifically.
Dan DeLong: Somebody asked me a question. Whoop! Sorry, I came in late.
3PL is like a Shipstation, right?
Rachel Dauchy: Well, I... I guess I'm not really sure, because I consider ShipStation just a shipping app that I could use here at my house. For instance... Yeah for my Shopify store, if I wanted to use ShipStation as my shipping solution, that would mean that I subscribe to ShipStation and I give ShipStation money, let's say I give them 1, 000 and then I buy all my shipping labels from ShipStation at a more discounted rate is really the benefit of using something like ShipStation.
And then ShipStation will also sync into your inventory software if you're using an external [00:13:00] inventory app. So that way it can know when items are shipped and so on and so forth for inventory allocation. So I wouldn't necessarily call that a 3PL. 3PL is more of a physical location. I have a client, they sell hair care products and they have a 3PL in Kansas.
So their products come over from overseas, everything gets shipped to Kansas where it's all boxed up and it is stored and then all of their e comm orders from many different channels come into that 3PL and then the 3PL ships them out from that central location. So that's. Because from my experience, I consider that more of a 3PL.
And in my work experience in the past I'm from Los Angeles. There is a ton of 3PLs in Los Angeles. Fulfillment houses where that product stays there. [00:14:00] So that's more of a traditional
Dan DeLong: 3PL. Yeah, now that third party logistics 3PL provider may use something like ShipStation, right? Yeah. To help them fulfill the orders, right?
So ShipStation, to your point, is more like a tool for shipping, right? And to help with that. Because they're... This adds shipping and fulfillment right adds a big level of workflows into in into the mix because you've got the order right and then you've got to One you've got to calculate the shipping or something needs to calculate what that shipping cost is because as we've determined There is no free shipping.
Someone is paying for free shipping, right? Whether that is the customer as far as a requirement of a, of an order threshold so that you can take that cost of fulfilling the product as part of your, out of your gross [00:15:00] profit because you've made that decision that you can do that, or you're going to add it, add that cost to it.
So we need to know. Where is it going, where is it coming from, where is it going to, and how much is that going to cost, and things like ship station or whatever you are using to calculate, point A to point B and getting it to them, they may have a community Bargaining chip, right?
Like we're like chip station. That's a chip station has so many people, so they could, they can negotiate lower rates, right? And then there's this whole idea of pirate ship. Have you heard of this
Rachel Dauchy: thing?
Dan DeLong: No, I've never heard of that one. So they they're with just the U S postal service, right?
You just pay and a lot of Etsy people will use, we'll use this, you just pay whatever it is with. U. S. P. S. Whatever it takes to ship whatever it is and then they make their money. Because they're [00:16:00] bringing a whole bunch of people to USPS, so they, they get their, they get a small cut of the shipping costs but it's a whole, it's very convenient, right?
It's a super convenient way to, do those one off shipments and those types of things For the crafty people of the world, of the Etsy's world, or the people that are doing it themselves, right? And don't really
Rachel Dauchy: Yes, but that's only, but that's only convenient if you have a post office by you that has a self service drop off.
If you have one where you have to wait in line Forget about it, because there are some, there are somewhere, oh, they'll pick it up. Okay, good. Yeah. You can schedule a pickup. Yeah. So this whole thing is it's such a game because shipping is so expensive. Number one. And there's so much complexity to it from.
Maybe a smaller business that has their own UPS account, right? So business account. So there would be the first level would be, Oh, I'm just gonna get a retail priced UPS [00:17:00] shipping sticker, right? Then I could get a business UPS account that shaves off. A little bit, gives you a little bit of a discount, then, you can get into the real heavy duty ship station and easy ship and those that not only do they integrate everything, but like you said, They have that bargaining tool.
Shopify also has its own Shopify shipping. So in, within Shopify, it's all their ability to negotiate better shipping fees. Now, if you compared them all side by side, the differences are very slim, when you're talking about, saving 10 cents here on your margin or 15 cents there, it's really a big deal because.
Shipping your product out is really cost to get sold. And so it really factors into your gross profit. So you really want to make sure that you're getting the best deal you can. So I have some really high volume [00:18:00] sellers that they use something like ShipStation and, they pay.
thousands and thousands a month, but their cost per shipping cost per unit is low because they're able to buy that in bulk. So the more that's really the rule of thumb is the more you can buy in bulk and that's what these apps allow you to do. the Better value you get for the price of shipping. So if you're shipping one or two things, and you're Dropping it off and like I used to do that I used to send stuff on poshmark and self, you know sell things here and there I would just drop it off myself.
I would sometimes have two three things going out in one day And that's why I said the self service thing at the post office. I would just, go drop them off myself. And I would see other sellers dropping off their stuff too. And you may be not Poshmark, but eBay, Etsy, whatever. , but not only does it give you the discount, [00:19:00] but get the convenience.
of, you print out your own shipping labels and then you can either have it pick up or you can drop
Dan DeLong: off. Yes. So at what point does a business like where's the tipping point of, okay, self fulfillment, I'm doing all this stuff myself, what are, whether I have a person that's doing it in house or I'm doing it myself or wherever, where does a business decide?
Hey, I want to outsource all this, right? Because this is all, this is more than one person can do, or it's just a little bit more complicated. I just want to outsource it to a third party logistics provider. When is that? What do you see that is there a rule of thumb when it comes to deciding, okay, I want to, or do they start from the beginning and say, I'm not going to get my thumb in in shipping at all?
Rachel Dauchy: Yeah, that's a really good question. I don't even really know because. I have clients [00:20:00] that were most of my people are e commerce, but they do all kinds of different combinations of stuff. I have somebody that is just starting out, but they're starting out with a fulfillment house. I have other people that are higher volume, but they package everything up and ship it out themselves.
They hire people to do it. So they ha it really just depends on their physical location. If they have the room and the space to do it, maybe they'll hire employees. For shipping and receiving in house or if they need, if they don't have the time or the energy and they have the resources to do it, maybe they will outsource that.
I know that in California, in my previous life, we used fulfillment houses that did a lot of printing. So if you have, customized packages, that needs to be done at a fulfillment house, if that's the way that you're going from the beginning, or, I don't know, there's people that always keep it in house.
It really, I think, just depends on [00:21:00] The way that the business owner wants to structure their business. If they're a large enough operation, in my opinion, that would need to go to a third party logistics. If they're fulfilling chain stores. And by that I mean, grocery or... Or CVS or, any kind of like chain store across the country, club stores like Costco or whatever.
But if they're really just sending out to residences and that kind of thing, that can be done from just
Dan DeLong: in house. Yeah like most most questions, or most answers to these questions, it depends.
Rachel Dauchy: Yeah, I know, and I hate answering that way. I feel really bad. But it really... That's why I always boil it down to, you really just have to ask your client the questions of how are they doing things, and what is their setup, like what's going on [00:22:00] with their operation, and how does it work, because the more information you can find out from them, Then if you're a trusted advisor in this space like I am, then you're not just doing the books for them.
They'll ask you questions about, what do you think about using something like ShipStation versus just the regular post office? And, what do you think I don't have the time and, do you think that something like F3PL might work for me? And then, I could ask them some more questions about their setup and then, say, yes, that sounds like.
You were just you can save time because you can't do all things as a business owner So it really just helps to get as much information as you can and then if you've got the know how of all these moving pieces, then you can speak to them more accurately.
Dan DeLong: Now, the biggest 3PL that exists is Amazon, right?
Because you have this luxury or an option with them of, [00:23:00] Fulfilled by Amazon. They've actually made their own acronym. That's now part of the e commerce vernacular called FBA Right, which is fulfilled by Amazon, right? They give a they give an option right to hey Give us all your stuff if you want and we'll do the fulfillment right and you can do this with the amazon listings, but also could you do it?
If you're selling on Shopify, have it fulfilled by Amazon?
Rachel Dauchy: Oh, I don't know that. I honestly, I don't know. I didn't, I don't think so, but somebody can correct me if I'm wrong. None of my clients have ever brought that up to me. But maybe. I want to say no, but I could
Dan DeLong: be wrong.
Well, I think you're wrong. Oh, okay.
Rachel Dauchy: Yeah, correct me, because I don't know. All my people that sell on Amazon FBA are, it's all
Dan DeLong: on the Amazon channel. Yeah, my, my, my education client, right? The guy that does everything and then tells me about it later. That's the way that he had his business set up.
He had the Shopify [00:24:00] store for his own website, and then he had his Amazon listings and he shipped everything to Amazon and, straight off the boat from China. Amazon's fulfillment centers. So he got an order on Shopify. And then he sent it over to Amazon for fulfillment.
Rachel Dauchy: Oh, okay. Well, good.
That's good to know. I know. I didn't know that. So I
Dan DeLong: will definitely. The problem is, and he doesn't do that anymore because he learned. Good Lord. They charge storage fees. They charge everything, right? All those fees that are part of the. The fulfillment process of a third party logistics of we're going to store your stuff.
We're going to pack your stuff We're going to ship your stuff. We're going to send your stuff. We're going to receive your stuff back because that's another aspect of returns we have which we haven't even talked about And we're going to track and we're going to we're going to track that The tracking information, we're going to communicate with the customer.
All the, all of that process is done by [00:25:00] them. They take a fee almost every time along the way, if there's ever an opportunity for Amazon to collect a fee.
Rachel Dauchy: Yeah that's really expensive and Amazon is already really expensive and oh, and by the way, I had an FBA client who they there's all kinds of limits and rules and regulations and they wouldn't let them, even though there was a demand for more orders. In other words, my client was. I forgot what it was.
It was something that they sold on Amazon, but it was like a little novelty item, and it was the there was demand for it, but FBA was capping them, saying, no, we won't take any more of this product. We don't have room. It was frustrating because she wanted to give them more and they said, nope, this is it.
So it's, it, whereas if you went to some other fulfillment house, there maybe wouldn't be those same type of [00:26:00] limits. And then you could, sell at a higher volume. I'd never heard of that. I thought that was weird.
Dan DeLong: Yeah. So yeah, so that's a possibility now. Another aspect of a little nuance of all of this is because we talked about sales tax implications is that you have to have a physical presence versus an economic presence in order to collect sales tax in where your inventory is physically located is one of those aspects of it.
presence. And if you are using a third party logistics provider, not just Amazon, they're more famous for it because Amazon has cornered the market on convenience and efficiency, right? So like they have, they can put, they can see where your orders are coming from and move your stuff closer to that, that they have more they reduce the shipping time, right?
[00:27:00] Cause it, you could see, it's so funny. Like you have, you do five orders a day or something on Amazon and you get five packages or sometimes they'll put. Stuff in the same box and then deliver it like they, they know that, you're getting so much stuff in the, throw it in the same box and then that lowers their costs, right?
But they may be, they they may move your inventory to another state without your knowledge or your third party logistically your example of all their, all the haircare products went to Kansas. Were they physically located in Kansas or
Rachel Dauchy: just their inventory? Just their inventory So they have economic nexus in Kansas and we file a sales tax return for Kansas So where they are physically located we have to do a sales tax return for their and because they're on a regular platform They're not on amazon.
So the sales tax liability falls on them So we track it and we file it but if you're even if you're fulfilled by amazon And your inventory is in [00:28:00] whatever state, you're still under the umbrella of Amazon, so they're a facilitator, so you don't have to deal with the sales tax, so it just goes in and out.
That's another thing, is even though you're forking over all that money to them and let's say you're only selling on Amazon, then they're dealing with your sales tax, you don't have to worry about it at all. So they could schlep it all over the country, it really doesn't matter, you don't have to...
Know where it's physically located because now and that with that guy's situation that he's selling on Shopify and on it, but it's fulfilled by Amazon the Shopify sales the Shopify totals and new Shopify reports. That's his sales tax liability But the actual Amazon sales are not so you have to keep track and pull those reports accurately or use an app in Shopify To make sure that you're tracking your sales tax
Dan DeLong: Pay on his case.
He was he was [00:29:00] based out of washington state Amazon had all his inventory in california. So technically if he gets a sale on his shopify store for somebody in calif not even in california, but
Rachel Dauchy: Anywhere that's going either washington or california or would have to turn That, stay on in Shopify and make sure that for a Washington address or a California address, he has to collect sales tax for those because that's where his inventory physically is because for the shopper.
By the way, thank you for saying Washington correctly because I grew up in Washington and some people say Washington and I just think that's totally wrong.
Dan DeLong: I'm in I'm in the Delaware Valley of Pennsylvania where people call the stuff that comes out of the faucet, Wooder.
Rachel Dauchy: Wooder yeah.
I lived in New Jersey for five years, and people say that there, too. Wooder. Yeah. Yeah. And they don't say it like, [00:30:00] Brooklyn or Long Island Wooder. They don't say it like that. They say, Wooder. Yeah. It's very interesting.
Dan DeLong: Or in New England, where they would add an extra R when there isn't one, like, Datar.
Rachel Dauchy: Oh, yeah, you're right. They do that. Yeah. Oh, that's so weird.
Dan DeLong: Yeah. They do that. We are getting really sidetracked here.
Rachel Dauchy: Susan said not. I don't know. Maybe they, maybe we're wrong. Maybe we're making things up. I swear though, when I lived in New Jersey, I adopted that aspect.
Dan DeLong: So shipping the components of shipping, right? Like you've got this tracking, right? Like you have to figure out how much it's going to cost. And then you have a tracking information, tracking information. So now you're tracking that that shipment. There's also a component of when you can actually collect funds with [00:31:00] regards to whether it's been shipped or not.
I don't remember if that is still the case. Is that is that a Shopify thing? Shopify handles all that? Do they not pay out? Unless it's been shipped? Or does that, is that no longer a
Rachel Dauchy: thing? That's a really good question because I just got an order on my...
Not my toy Shopify store, but on my net deposited Shopify store. Cause my regular website is on Shopify as well. And I sell accounting merch. bookkeeping and accounting merch that is, some of the stuff is my merch and some of it is from leading lady Kelly G. and Kristen niece Seraldo, and just, shameless plug there, I have merch, and some of, I had an order the other day, and It still hasn't come through Cinder, and I think it's because it hasn't shipped yet.
So I think that, yes, it has to ship before you can collect the
Dan DeLong: funds. Yeah, so that adds another component [00:32:00] like maybe you add that to the equation of the depends of whether I choose a third party logistics because I work for, or I still do, I'm on the board of a non profit, and They have merchandise for sale.
But it's very few and far between. We had went around and around do we have a storage facility? Do we keep it at somebody's house and then do they do the fulfillment or do we use a 3PL that's sympathetic to our cause and maybe could donate some space, for that sort of thing.
And we've tried all sorts of different things and in those aspects of, okay, the inconvenience of having somebody get an order, get an order, go to a storage facility, figure out the packing and the shipping, and then drop it off at a shipping location was a entered into the equation of whether or not we were going to do, you know, one thing over the other.
Now you've got this whole idea of of [00:33:00] tracking, you've got a tracking number, you've got to communicate that to the customer, make sure, and then you make sure it's delivered. And then there could be problems in the delivery, damaged in shipping or, something along those lines, all of those things now enter into the.
enter into the equation, which then could lead to returns, right? Oh, they bought something online.
Rachel Dauchy: It's really a pain. Why are we doing this? No, I'm just kidding. It's a lot, but the thing is when you have this streamlined, in my opinion, you're using something like Shopify. It just makes all of those potential headaches a lot easier.
But yeah, you're right. So my brother fulfills my toy store, which is two hands, one mind. That's my main Shopify store. All of this stuff is at, in his garage, he fulfills everything. But he has to have an understanding of what the items are. So you have to make sure that your fulfiller knows what, to pick.
And so [00:34:00] when you're using a professional fulfillment house, they have, if you've ever gone into one, I have. They're incredible. And it's amazing. There's usually not mistakes with that kind of thing. But yeah, of course there always can be, and then there's returns, and there's breakage, and there's things like that.
But the tracking of that is... is definitely more streamlined than Shopify, but I do, there's all kinds of risk that, that is involved with sending items out to your customers.
Dan DeLong: Now, the last topic that we want to talk about is, And you alluded to it a little earlier, is the shipping accounting, right?
Like where does shipping show up on, on your profit and loss? Now you boldly said, shipping is a cost of goods sold. That's a, that's, is that a, Yeah so it's, Just a common thought?
Rachel Dauchy: Yeah, like in [00:35:00] the e commerce rule, yes. But so the way that it works is a little tricky. Okay, let's think about it this way.
I'll give you an example. Okay, i, you always have to make sure that you're charging your client enough to cover your shipping. But guess what? The shipping can be variable, right? So let's say I'm shipping out a hundred dollars worth of goods and I'm using not ShipStation, but let's say I'm using Shopify shipping.
So in Shopify, my I have to charge my customer up front for shipping, so I have to put in my shipping settings. I'm either going to use the default shipping settings, or I'm going to calculate by weight, or I'm going to calculate by shipping destination. There's all kinds of different ways. Or then you can have shipping tiers.
X amount over, amount over, let's say you want to do an amount, like if they buy over a hundred dollars, shipping is free or and then, but if they buy, zero to a hundred dollars, it's based on whatever. I know it's super [00:36:00] complex but my point is, is that let's say the shipping amount that you ended up charging them was 8 so that the total of was 100 plus 8 shipping plus tax, right?
Okay, so you're shipping income. Which goes into a line on the P& L for that transaction is 8. But let's say then the shipping label that you turned around and bought to send that shipment out is 9. Well, then you've just lost a dollar, right? So there's always a tricky game. You want to make sure that you have the shipping label that you're buying is less than 8.
So that way you're recouping and then, making a profit on the shipping. So anyway, that 8 that you're charging them is shipping income. And that's how it's reported in Shopify. When you use any kind of a connector tool. It's gonna separate out that shipping income. So that's shipping income [00:37:00] that goes along with your revenue.
Then you have the cost of that shipping label, which then add them all up. That's It's the cost of your freight out, right? So that is also in your above the line in your calculation of gross profit. So I have people that have all different kinds of shipping. They have shipping for, let's say they're just shipping office related stuff back and forth between different locations.
Well, that's just office expenses shipping. So that usually goes further down the panel. But if they're shipping out product. Then that is calculated into their cost of goods sold. Hopefully that wasn't too complex, but
Dan DeLong: when but That made sense. It is the shipping of products to customers That ideally would be a above the line or in the line.
You're talking about is the gross profit so that is yeah and my cost of
Rachel Dauchy: goods sold my new [00:38:00] any new Clients that come to me That's always goofed up. Shipping is all over the place. It's split up into all different things. It's never right. But but I think it's because they get confused when you're looking at your platform and it can be confusing but what I was saying about the 7 and 8 is just that it's always a, it's always tricky because you want to make sure that you're charging your transaction, the transaction for your customer that you want to charge them enough for shipping to cover the cost of your shipping label is really what you
Dan DeLong: want to do.
Now what about packaging, like the boxes and the, and the tape and those packing materials, where does that go? Is that part of the cost of goods sold? Yeah, definitely. Or is that more of an
Rachel Dauchy: ordinary expense? No, it's still considered a cost to get sold, and by the way, Etsy, if you're selling on Etsy, then you're [00:39:00] purchasing all those things from Etsy Shipping materials packing stuff all that, they'll charge you for that, and I put that also, you can opt to buy all that stuff from Etsy.
I, and , Etsy has its own shipping too, you can buy the labels directly from Etsy. Those I always include in cost of goods sold. So it really, just depending on the platform, they all have their own individual little ways that they do it. But I always factor that in to
Dan DeLong: cost of goods sold.
Alright, so now the one last aspect is getting the goods to me. That shipping, is that part of? Cost of goods sold or is that part of the Landed cost would you figure that in as far as the cost of goods of the item?
Rachel Dauchy: Oh, you mean that was in freight? Yeah yeah, that's all cost of goods sold freight in and freight out.
Although I do like to see that Separated out right? Yeah. Yeah So [00:40:00] that yeah, I do because I think it's important to see that but yeah so that's all part of your and depending if you're using some kind of accounting or inventory app with complex accounting ability, then you can allocate landed costs to the balance sheet and so on and so forth.
And, you're expensing that little bit of cost of goods sold. As it's getting sold, but it's still cost of goods
Dan DeLong: sold So so the three aspects here the income that you're charging a customer should be an income account the The outgo of you shipping to a customer would be a cost of goods sold in your opinion and as well as the cost of getting that shipping into My fulfillment center wherever that happens to be that could be All at once, or you, if you can spread it out amongst the individual widgets for the cost of goods sold to be recognized there and then material packing material would also be [00:41:00] a cost of goods sold as well.
So all of that to say, wow, that's complicated. Yeah. And again, you have that choice of okay, well, I can have all of that offloaded to somebody else. So they handle all that stuff or I do it myself and in the grand scheme of things there is a control aspect versus Responsibility aspect that you're gonna have that trade off somewhere in between right?
Rachel Dauchy: Yeah And oh PS there are some fulfillment houses now three PLS that are they'll take a low amount of things It used to be that you know It would only make sense if you gave them pallets and pallets of stuff. But now, that I've done some research and I've found some places that they'll take a couple of boxes of stuff, right?
That, they're, you can, basically, now anybody can open up an e commerce store. [00:42:00] Anybody. There's no more barrier to entry, and that's really Shopify's mantra. They want to remove that barrier of entry. So now you can have a store up and running in a day or two, and then if you want to use a 3PL, you don't have to have You know, a whole truck full of pallets, you can just have a little amount of things and they'll fulfill it for you.
So I wish I had some of the names of those places, but I came across a couple of them that, it's really cool, like they'll take small volume of stuff and they'll send it for you. It's I'll send you some, a couple of those places. I'll have to look them back up. I think I have a couple book, bookmarked, but I'll send them your way.
But there's all, but it's really cool. You can, you don't have to be a high volume seller now to use any kind of 3PL.
Dan DeLong: So this leads nicely into next week's topic, which is e commerce accounting, right? Which is, we'll talk a little bit about, how this is how this is going to play out.
[00:43:00] On whatever General Ledger software that you are using, we are going to be primarily focused on QuickBooks and QuickBooks Online because that's what Rachel uses. So we'll be talking about those things next week and we appreciate Rachel for joining us again, guiding us through The shipload of things that, that we had to talk about today.
Gotta get one more pun in there before we before we tail off here, but appreciate everybody for joining us and we'll see you next week on the Workshop Wednesday.
