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I've quit including UPS in eBay's shipping calculator because it undercharges by about $2. I like to give the buyers a few choices, for example: USPS Priority, Parcel Post, UPS.

If I add $2 as a handling fee, then the buyers are seriously overcharged if they choose USPS. There is no way to charge separate handling fees.
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I like to use PM and love the free supplies

You've got my interest!!! What is "PM" and what free supplies do you get from them?

I have a question about shipping....i.e. I put a pair of shoes on auction for $8.99 with postage of $5.71 using the EBAY calculator (I chose the zipcode from a city/town as far away from me as possible and did not add handling fee)

Another posting in the same area has a pair of shoes that are identical to mine but has a fixed postage of $3.75....after deducting the Ebay posting fee ($.70, plus the gallary fee $.35, the final selling fee, and possibly the Paypal fee, how can this person ship something so cheaply?

What am I doing wrong!

TENNISNTRAINS - another former sd lister
PM is Priority Mail. You can get boxes and envelopes for free either at the post office or on their website. I do this and it saves a ton of money.

I don't add in my fees to my shipping costs. I add them into the item cost. I concider it part of the cost of that item. So I don't list items lower than what it cost me or else I will be losing money. Not good business.

I don't think it's a good idea to add in the fees to the shipping costs. It's not part of shipping and I believe is against eBay policy to add to the shipping amount. (I could be wrong on that part.)

I don't know why their shipping was lower than yours. Perhaps they aren't shipping Priority. Perhaps they didn't do any shipping cost research and will lose money. I wouldn't worry about it too much.
It's not part of shipping and I believe is against eBay policy to add to the shipping amount

You are allowed to add it in as a handling fee, eBay provides a space for that on their SYI form.

You are NOT allowed to charge a special fee just for Paypal. You have to charge everyone, no matter how they pay you. For example, you can't say, "If paying by Paypal, add 50 cents".

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