Starting your own pack and ship business can be an interesting business opportunity, combining the independence of being your own boss and the satisfaction of fulfilling a valuable service to your community. This guide aims to help you through this process by providing an overview of the pack and ship business, steps to get started, and answers to common questions.
Pack and ship businesses provide parcel packing, shipping, mailbox rentals, document services, and other support functions for both businesses and households.
Mailbox rentals are a central and steady source of income for pack and ship stores. Further, mailbox rentals are a semi-passive source of income as they require little maintenance or upkeep. Conversely, packing and shipping require more time and effort but are an important source of revenue. Packing and shipping services usually fluctuate based on seasons and consumer needs. For instance, packing services typically peak during the holidays.
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The pack and ship industry has been growing continuously over the years, with no signs of slowing down. The industry’s growth can be attributed to the increase in the number of small businesses and e-commerce growth, leading to an increase in the demand for cost-effective shipping services. The industry’s future looks bright, as consumers are expected to continue to shop online (which also means needing to return items), and many small businesses need to ship items to customers.
The industry has relatively low barriers to entry but is moderately concentrated, with national brands such as the UPS Store, FedEx Office, PostNet, Pak Mail, and iPostal1 dominating. The UPS Store alone holds 49.2% of market share. Independent operations cannot match franchise chains’ efficiencies and brand power, but there are plenty of profitable, independently owned-stores.
Pack and Ship Franchises
A large majority of pack and ship stores in the U.S. are franchised businesses, such as UPS Stores or an authorized ShipCenter store with FedEx. Owners of franchises independently own and operate the business but are bound to the franchise rules and regulations.
The benefit of a franchise is brand recognition, which instantly gives the business notoriety, respect, and consumer trust. So, although owning a franchise doesn’t allow you complete freedom, it gives you a reputation, customers, and business support that you may not have on your own.
Steps To Start A Pack And Ship Business
Step 1: Market Research
Given the time and money investment when starting a new business, assessing the market demand for your pack and ship store is important. So, before taking off on this entrepreneurial journey, market research will help to determine whether there is a need for this service in your local area.
The first step is to evaluate your local area and assess whether there is a demand for a pack and ship store. One way to do this is by examining area demographics. Is the population growing? What is the household income level? Are there many small businesses? Researching the number of businesses in your area, particularly small and medium-sized ones, will provide insights into this profitable segment that is constantly in need of shipping services.
To gauge the potential for success, local economic health and outlook need to be evaluated. Growing economies often result in increased business activity and greater demand for services like pack and ship. Understanding the overall economic climate will give you a better sense of the opportunity for your business. Talk directly to prospective customers like local small business owners to gain deeper insight into the local shipping needs. Ask if they currently utilize a pack and ship provider. What specific services do they use? What frustrates them about existing options? If they use one, what would compel them to switch to a new store? This direct interaction will provide valuable insights into the potential demand for your business in the area.
The next task is to begin assessing the competition. To gather information, drive around potential sites to evaluate competitor pack and ship stores. How many exist already, and where are they located? Search online directories and maps to identify all surrounding options to get a sense of competitor saturation. By understanding your competition and their strengths and weaknesses, you can position your business to meet specific customer needs and stand out in the market.
Not only will this research help you determine the interest of a new pack and ship store, but it can also help in deciding where to set up. By strategically choosing a location close to major customers and/or ample visibility, you increase the chances of attracting customers and generating a steady flow of business.
Step 2: Write a Business Plan
The idea of starting a pack and ship business is an exciting one, but it’s important to ground that excitement in reality. A business plan is not only required by lenders when seeking funding, but it also helps in determining the feasibility of your idea and ensuring long-term success.
A business plan serves as a roadmap for your business, outlining everything from operations to marketing and finances. It helps to define business objectives and strategies, identify target customers, and assess the competition. Most importantly, a business plan allows you to project income and expenses and estimate whether the business is feasible or not. Before starting a business, it is better to know whether the business is feasible so you do not waste time, money, and resources on a venture that is not profitable.
Related: How to write a business plan
Step 3: Source Funding
After verifying that there is a market for your pack and ship business and completing a business plan, the next step is to secure funding to start the business. Finding funding can be one of the most challenging aspects of starting a business, but there are multiple sources to explore.
Self funding: The first source of funding to assess is self-funding. Personal savings or the sale of assets can provide an initial investment to cover startup costs. However, if personal savings aren’t enough to cover expenses, additional outside funding sources will be required.
Traditional financing: Lenders such as banks and credit unions offer traditional financing options such as small business loans. Lenders typically require borrowers to invest at least 15% of their personal funds toward the total cost of the project, have a good credit score, and have sufficient collateral. Banks offering loans will require an in-depth look at the business plan before committing to a lending agreement. If the bank feels the loan is too risky, they may recommend using a Small Business Administration (SBA) loan guarantee.
Friends and family: Friends and family can be an alternative source of funding. While this may be an enticing option, a formal loan agreement should be created. A written agreement can avoid misunderstandings, protect relationships, and ensure both parties have realistic expectations for repayment.
Microloans: If funding needs are low or credit isn’t available through traditional lenders, microloans are an option. Microloans provide small amounts of money to new businesses. Some lenders provide business training in addition to funding, making this option particularly attractive for new business owners.
Step 4: Register the Business
The next step in starting a pack and ship business is to register your business and ensure it is legal. The specific steps and requirements for registration may vary from state to state, but here are some general suggestions to consider:
Business structure: There are four common types of business structures to choose from when registering your pack and ship business:
- Sole proprietorship: This structure is the simplest and most common for small businesses. It offers complete control and ease of startup, but the owner is personally liable for all business debts and obligations.
- General partnership: This structure involves two or more individuals sharing ownership and responsibility for the business. Like a sole proprietorship, partners are personally liable for the business’s debts and obligations.
- Corporation: A corporation is a separate legal entity from its owners (shareholders). It provides limited liability protection, meaning the shareholders are typically not personally liable for the business’s debts and obligations.
- Limited Liability Company (LLC): The LLC structure combines the liability protection advantages of a corporation with the simplicity and flexibility of a sole proprietorship or partnership.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: In addition to registering your business name, you may need to obtain various licenses and permits. The specific licenses and permits will vary depending on your location and the services you provide. Examples of licenses or permits that might be required for a pack and ship business include a business license, sales tax permit, and possibly special permits for shipping hazardous materials. Check with your state and local government agencies to understand the specific licensing requirements for your business.
Step 5: Acquire & Set Up the Store
Once you’ve secured the funding and the business is registered, you need to tackle the next steps of acquiring a location and setting up operations.
First, find a good location. Aim to find a storefront in an area with heavy foot traffic, parking, and visibility. Look for spots near busy retail centers, office buildings, logistics hubs, colleges, and residential neighborhoods to attract walk-in customers.
Once you’ve secured a suitable location, carefully lay out your retail floor space to optimize workflow and customer service. Create clearly designated areas for packing, shipping, pickup, supplies, and mailbox rentals. Make sure to outfit your store with essential equipment such as scales, counters, packing materials, computers, and label printers. Also, install security cameras, alarms, solid locks, and a safe to protect your merchandise, mail, packages, and cash.
Partnering with major shipping carriers is a core part of running a pack and ship business. Set up reseller accounts with carriers like UPS, FedEx, DHL, and USPS. Each of these carriers offers different rates and services, providing options for your customers. Additionally, select point-of-sale (POS) software that integrates with the carriers you work with so you can easily track shipments and update customers about their package status.
Finally, don’t forget about the utilities, internet access, and phone service.
Step 6: Hire Staff
When it comes to hiring employees for your pack and ship business, there are several responsibilities you need to consider as a new employer.
After assessing what roles need to filled, such as a manager, customer service representatives, and shippers/packers, new employers need to be aware of the legal requirements. Here’s a brief overview:
- Obtaining an Employer Identification Number (EIN): An EIN is necessary for tax purposes and to establish your business as an employer.
- Employment eligibility: You must verify that your employees are eligible to work in the United States by completing the Form I-9 and verifying their documentation.
- State reporting: Every state has different reporting requirements that you must fulfill as an employer. These reporting obligations can include new hire reporting and unemployment insurance contributions.
- Worker’s compensation: In most states, worker’s compensation insurance is a requirement to protect your employees in case of work-related injuries or illnesses.
- Labor laws: Familiarize yourself with labor laws that regulate employee wages, working hours, breaks, and other important aspects of employment. These may vary by state, so ensure compliance with the specific regulations in your area.
Step 7: Prepare to Open!
Starting a pack and ship business involves a series of steps, each one building upon the last to ensure a solid foundation. There are a few more steps you may want to consider before you open your doors to customers. Each business will have its own specific needs, so consider these steps as a starting point and customize them to fit your unique situation.
First, business insurance protects you from potential liabilities and risks. Obtain coverage tailored to your specific needs, including general liability insurance and property insurance.
Next, establish proper bookkeeping practices. Set up accounting software like Wave Accounting (FREE) or Quickbooks to handle daily transactions, taxes, and financial statements. This will help you keep track of your financial health and ensure compliance with tax obligations.
Open a business bank account to separate your personal and business finances. This will simplify accounting and facilitate smoother financial operations.
Develop a marketing strategy to reach your customers. This should include creating a memorable logo and an easy-to-navigate website. Consider using social media, local advertising, and direct mail to spread the word.
Joining local business groups such as the Chamber of Commerce can provide valuable networking opportunities and connections to potential customers and partners.
Finally, plan a grand opening that will make a strong first impression in the community. Make sure every detail is in place for a smooth start, from staffing to inventory.
Common Questions When Starting A Pack & Ship Business
How much does it cost to start a pack and ship business?
A pack and ship business has several layers of costs to assess. Some of the main expenses include location costs and employee wages. And, if you decide to go the franchise route, you will have franchise fees to account for.
Taking all these costs into account, the total initial investment for starting a pack and ship business can range from $12,000 to $85,000. However, these figures can vary depending on factors like location, size, and specific needs.
Business registration: Depending on your location and the type of business structure you choose, the cost of business registration can range from $50 to $500.
Location and deposits: Initial deposits typically include the first month’s rent and a security deposit, which can be equivalent to one or two months’ rent. Expect to set aside around $2,000 to $5,000 as a starting point.
Store buildout: Building out the retail space can cost $5,000-$30,000, depending on size and layout.
Equipment and supplies: Essential equipment like shelving, packing materials, scales, scanners, and computers can cost between $5,000 and $15,000.
Insurance: To protect your business, you’ll need insurance coverage. Initially, anticipate spending around $1,000 for general liability and property insurance.
Marketing and advertising: Initial marketing costs can include creating a logo and website, setting up social media accounts, and launching promotional campaigns. While these costs can vary widely, a basic marketing budget could start from a few hundred to several thousand dollars.
Franchise fees: If you decide to go with a pack and ship franchise, you’ll need to pay an initial franchise fee. Franchise fees can vary widely, ranging from a few thousand dollars to tens of thousands of dollars. It’s essential to thoroughly research different franchise options and understand the specific fees associated with each.
In addition to these costs, it’s recommended to have three to six months of operating expenses on hand as a buffer. This can cover rent, utilities, employee salaries, and other ongoing expenses during the initial phase of your business when revenue may be lower.
How profitable is a pack and ship business?
One of the greatest aspects of a pack and ship store is its almost endless money-making opportunities. For example, the store can offer services from mailbox rentals to poster lamination, faxing, passport photos, notary services, and more. Stores can also provide seasonal services, such as gift wrapping and holiday card printing.
The primary source of income comes from packaging items. Customers pay a fee for the store to box, tape, and wrap items for shipping. Packing services have a high-profit margin since all the service costs of the business are time and supplies. Depending on size and breakability, stores may charge anywhere from $5 to over $100 to pack an item.
Pack and ship stores also keep a percentage of shipping costs. A majority of shipping costs go to the shipping company, but the store earns a portion for facilitating the sale. In addition, pack and ship stores generate income from more minor services such as printing, faxing, and retail sales.
Mailbox rentals can be a great revenue center as they cost very little for the business to run and generate consistent monthly income, such as $10 – $50 per box. So, with only 20 mailboxes, the store would generate $200 – $1,000 monthly in mailbox rental fees. Of course, with more mailboxes, you increase your semi-passive income.
The amount of money that each store earns annually depends on customer saturation and customer frequency. For instance, metropolitan locations likely have more consistent daily customers than rural locations. On the other hand, due to necessity, rural areas may have more mailbox rentals than metropolitan locations.
Industry analysis shows the average annual revenue for a pack and ship store is around $300,000. Profit margins in the industry typically range from 5-15%. Using a 10% benchmark, the estimated profit for a store with $300,000 in annual revenue would be $30,000.
To illustrate, a moderately busy 2,500-square-foot retail location may generate about $100,000 in packaging sales, $150,000 in domestic shipping services, and $50,000 in mailbox rentals and other services for a total revenue of $300,000.
Fixed costs like rent, payroll, insurance, and supplies may total around $180,000 annually. Variable costs directly tied to sales volume could be 30% of revenue, adding another $90,000 in expenses.
This results in $30,000 of pre-tax profit from the $300,000 total revenue.
What skills are needed to run a pack and ship business?
Owning any business challenges your strengths and skills and allows for personal growth. As the business grows and evolves, so will you. Nevertheless, starting with some skills helps get your business off the ground and running efficiently.
Interpersonal skills: Working with customers and managing employees is an essential skill for a pack and ship business owner. There are many moving parts to owning this business: sales, operating registers, packing items, sorting incoming inventory and mail, accounting, emailing, and phone calls.
A well-staffed business allows you to assign many store tasks to employees. However, delegating work requires you to have management skills to train and educate employees and oversee each area of your business to ensure that jobs are done correctly and on time. Additionally, the face of the business interacts directly with customers. So, having the interpersonal skills to diffuse conflict, resolve concerns, and meet your customers’ needs is a great way to boost your business.
Store organization: Your pack and ship stores will likely offer several services. For instance, you may have a packing station, printers, shelves of inventory, and customer workstations. All these stations need to be organized and strategically placed to appeal to your customers and allow the store to operate efficiently.
A crowded and disorganized store can negatively affect your marketing efforts, and an unclean environment may drive away your customers. However, a strategically placed sales rack can influence sales.
Marketing and sales: A large portion of the business’s income derives from store sales. Often, the sales are for services, such as packing items for shipping, a large printing job, or notarizing documents. Therefore, knowing how to market and sell your services are essential skills that can improve your store’s revenue.
Advertising is another essential skill in marketing and can be accomplished online through websites and social media accounts or physically through ads and promotions. Although this skill is a helpful one to have, you can also hire a professional to help with your marketing plan.
What is the NAICS code for a pack and ship business?
The NAICS code for a pack and ship business is 561910.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?