A Boutique Hub YouTube video (hosted by Sarah) advising boutique owners on whether to include shipping/freight charges in the cost of inventory. Sarah’s clear recommendation: do not add vendor freight/shipping into the per-item cost recorded as cost of goods — keep product cost (what the vendor charged for the item) separate from freight and other overhead. Reasons given: keeps pricing/markup calculations clean, enables vendor and freight comparisons, helps identify cost “leaks,” and avoids overstating year-end inventory values (which can increase taxable inventory). The video uses concrete examples (e.g., $10 vendor cost vs. $39.99 retail; adding $12.50 freight) and ends with calls to follow the Boutique Hub for more tips.
Questions this video answers
$10 (vendor cost example).
$39.99 (example retail).
$12.50 (freight example).
$10,000 and $20,000 (example inventory-value thresholds).
Hey, welcome to the Boutique Hub, the connection point for the global boutique industry. And every tip a boutique owner, a retailer, and an e commerce store must know.
Hey, guys, it's Sarah again with the Boutique Hub. And I'm back today to answer yet again another one of our most frequently asked questions, and that is about how to price your inventory and should you or should you not be adding your shipping or your freight charges into that cost of goods? Well, first I just want to draw your attention to this question. If you were to, say, add that freight what the vendor charges you to bring that back to your warehouse or back to your store, if you were to charge or add that into the cost of your item when you price it, why don't you add in utilities or payroll or advertising expense or subscriptions or fees. Those are all other expenses that it costs you to sell your items. Right. Just like it costs you that freight charge to get it from the vendor to your front door so you can turn around and sell it. Well, you wouldn't do that. So I guess my thing here at the Hub is we always talk and teach about keeping your numbers clean. Knowing your numbers is knowing your business. So when I look at, say, this shirt, I want to know what that actually costs me, not what it cost me, plus this and plus that and plus all these other things. No, I want to know what did the vendor charge me for that item. I want to keep it clean. If they charge me $10 and I choose to retail that at $39.99, that's a good markup, right? I want to know if it's $10 or I don't want to then say, oh, well, look, I think in my computer it says it is $13, and I'm pretty sure about $2.50 of that is freight. So the actual cost of that item and do the math. No, it's best to keep things completely clean. Again, I ask you if you're one that is trying to add in your freight or that shipping charge into your cost when you entered into your point of sale system at the end of the year or at the end of the quarter, whenever you really sit down and analyze your numbers and you look and see how much money you paid out in freight. How do you know? Right? How do you know where is a better place to buy goods from as far as what their freight is? That's a big thing. We want to make sure we're analyzing these things and looking to say, okay, we, we do need to consolidate shipping. If I'm ordering From the West Coast. Maybe you're a store that's more Midwestern or on the East Coast. Maybe you have vendors that can ship to you from the central part of the United States that you need to know and be aware of. And if you have that outlined and you have everything categorized in your bookkeeping system, it's a lot easier to look at that and make good, sound investment decisions on your inventory than it is to just lump all of those numbers together. Yes, we are big about clean books. Knowing your numbers is knowing your business. So what did your item cost you? If it costs you $10 and you're going to turn around and charge 29 or $39 for it, you have a clean idea what your maintained markup is on that product. Right. And over time, with this shirt is something you're going to reorder and say the vendor changes the price of that item, the cost of that item, you can allot for that over time. Right? Keeping that clean, knowing what you actually have invested in the product. Not some sort of a muddy number of freight in there, utilities in there, overhead in there, payroll in there. Nope, it is what is what the cost is. And then we're going to itemize these other expenses separate. So when it comes time to analyzing your numbers, you can take a good hard look at what you're paying out in your overhead, what you're paying out in your payroll and your rent expense, your freight expense, utilities, whatever it is, keep your numbers clean. Inventory should have a true cost and a true cost of exactly what that vendor charged you for the item. Then you should have a freight charge what you're paying, what you're paying out to have those items actually shipped to you. And you will see the difference in vendors, you will see the difference in markets or delivery areas, and then you can make good, sound investment decisions when it comes time to reinvesting in your business with inventory. Where do you want to consolidate ship from? Where can you just buy one or two packs at a time because the freight is not going to eat up your profits? Keeping that separate allows you to identify all those problem areas. We talk a lot about that in the Hub with all of our courses and things, identifying where we have potential leaks in our buckets, where we have some issues that we need to fix. But if we lump all that stuff together, you can't identify the holes in your business. Now, that being said, there's a whole other reason why we're big believers in keeping these things separate. That's because at the end of the Year. A lot of states you pay tax on what inventory you have on hand. So you say this top Maybe is a $10 top and I get six of them, right? So that's a $60 pre pack. Well, say I add $12.50 of that as freight back into that cost. Right? That $60 now turned to $72.50. Well, you think one pre pack is not a big deal, but how many of those pre packs do you get in a year? How many of those pre packs do you have left over at the end of the year? What kind of inventory are we looking to have on hand? Say all those numbers add up to over $10,000, $20,000. I know a lot of stores that have 10 times that amount on inventory at the end of the year, which is fine. But do you want to pay taxes on a portion of that? It actually is freight and not inventory? No, nobody wants to pay taxes on anything more than they actually owe. But if you are one that lumps it all together. When you do an inventory on hand, report that freight is going to show up. And then when you submit that number to your accountant, you potentially are going to be paying a lot more in taxes. So that's my two cents. Why? To keep them separate. Is it a little bit more work? It's just another line entry in your bookkeeping system or in your point of sale system. However, it will pay back in dividends for you to be able to have a clear mind about exactly what you've invested in your inventory, where your expenses are and how you can. How can you reduce some of those expenses, become more streamlined and profitable. But when you mix it all together, it's really hard to pull that stuff apart and make a good sound investment decision. So that's my $0.02 on should we add freight and shipping into the cost of an item when we price it? My thought is no. Know your maintained markup, know what that profit is, know where you're making money. Right? Right. And also a big thing out there is so many different vendors offered different prices at different products. Right. So we want to shop around. We want to know exactly what we're looking for. All right, guys, so continue to check out our videos. We are coming back all the time with answers to our frequently asked questions and subscribe below. Check us out@the botiquehub.com we'll see you later. Bye.
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