eCommerce has so many components that it can be easy to drop the ball. You need to use tools and automations to make your business better—and to make your life a little more sane.
Outsourcing saves so much time. It means you can trust the experts to do what they do best while you get to focus on what you do best. While outsourcing things like your eCommerce fulfillment is a boon to your biz, the downside is that nobody is going to do your fulfillment for free.
In a world where you have to minimize inefficiencies and maximize profit, you have to do fulfillment in a way that’s effective but also affordable. Here’s what you can expect when you outsource to a fulfillment center—and 4 ways to save more money.
A fulfillment center is also called a third-party logistics company (3PL). This is a logistics service that does fulfillment, warehousing, and inventory management on your behalf.
However, fulfillment costs have a very real effect on your bottom line. There’s going to be a cost to move products from your warehouse and to your customers. The 3PL will pass on the costs for receiving, storing, and shipping products directly back to you. Sometimes these fees are charged per hour, by space, or per unit. It all depends on your business model and the 3PL you choose.
Keep in mind that plenty of brands still do fulfillment in-house either because they’re still growing or because it’s too expensive to outsource fulfillment right now. That’s okay! But at a certain point, your business will require outsourcing fulfillment to stay competitive. Fortunately, we think the benefits are worth the costs:
Outsourcing fulfillment is beneficial for your business, but the big downside is that it does come with costs. You need to know how your 3PL prices everything because every provider is different. Although these common fees will give you an idea of what to look out for, your costs will differ based on industry, inventory size, and more. Understand these 8 common fulfillment costs before you hire a 3PL.
Fortunately, you only have to pay a setup fee once. This is a fee to get everything up and running with your supplier, ranging from $100 - $1,000. Generally speaking, the bigger and more complex your business, the higher the initial setup fee will be.
Any time the 3PL receives products from your supplier, it takes the fulfillment center time to add the products to their system, organize them, etc. That's why you'll pay an intake fee every time inventory arrives at the warehouse.
Depending on the 3PL, you might pay this fee by:
You’ll pay a storage fee to hold all of your inventory before shipping it out to the customer. These storage fees are based on how much space you take up in terms of:
There’s obviously an advantage to storing smaller or more collapsible products to get more bang for your buck with a 3PL, so keep that in mind.
Fulfillment fees are also known as pick and pack fees. This fee covers the costs associated with fulfillment workers going through the warehouse, picking up the products, and packaging them for the customer.
Depending on your 3PL, the fulfillment fee will cover the worker’s time for picking and packing. Most 3PLs will include packing materials like boxes, tape, and bubble wrap with this fee, but double-check with your fulfillment center to make sure.
Most fulfillment fees are a flat fee per item or cost a percentage of the items’ retail value. On average, you can expect to pay $0.25 - $3 per item in fulfillment fees.
Fulfillment centers pass on the cost of shipping products to you. But there’s good news: you can take advantage of the 3PL’s shipping volume discounts to save on shipping costs, usually to the tune of 10 - 30% off.
As far as fees, it’s hard to ballpark an average because product sizes and carrier charges differ a lot. You can expect to pay $2 - $25+ on shipping, depending on your 3PL agreement, products, customer addresses, product size and weight, and more.
Sometimes customers will need to return items—it happens! But keep in mind that you’ll have to pay a fee to your fulfillment center to process the return. That’s because the 3PL has to re-process the inventory or dispose of it.
You’ll typically pay for return fees at an hourly rate. It’s common to pay $30 - $50 per hour for fulfillment employees to process your returns.
More complex products might require kitting, or putting your products together into one set. For example, you might need kitting if you’re putting multiple SKUs together in one package as a product bundle.
Kitting fees cover the costs of paying expert workers to assemble your products in a particular way before shipping. Kitting fees are more of a custom job, so make sure you let your 3PL know you need custom kitting. Kitting fees are usually paid per hour, typically around $60/hour.
The last type of fee you might see when you outsource fulfillment is account management fees. This is a flat fee you pay every month for someone to manage your account. It includes things like:
Your fulfillment center will let you know how much account management costs every month and what it includes. You’ll usually see a flat-rate account management fee in the $75 - $200 range every month.
Outsourcing fulfillment saves your business more time and frees you up to focus on more important tasks. But after seeing how much it costs to outsource fulfillment, you might think it’s not worth the effort.
Fortunately, there are several ways you can reduce your fulfillment costs and run a tighter eCommerce business in the process. Follow these 4 tips to reduce how much you spend on fulfillment.
Fulfillment centers are ideal for dropshippers who have high order volumes. This means that, if you play your cards right, you can access bulk discounts that will make fulfillment worth your while.
Basically, the more you order from a fulfillment center, the less you pay in per-unit costs. Volume discounts significantly reduce these costs, too: it’s not uncommon to get a 15% discount for fulfilling bulk inventory. Some 3PLs will even give you a discount on pallet storage and pick and pack fees in exchange for bulk orders.
Want better savings on your fulfillment costs? Negotiate them! Always try to negotiate your fulfillment contract.
You have more bargaining power the longer you’ve been with a fulfillment provider. You can also score better terms if you lock into a longer-term contract, too. Just keep in mind that this will bond you to the fulfillment center for a longer period of time, so think carefully before signing on the dotted line.
Don’t pay for more than you need to. Be on the lookout for these hidden fulfillment costs:
The last way to save money on outsourcing fulfillment is to do the math. This is going to help you find the best 3PL and understand the financial benefits of outsourcing.
This means figuring out:
From here, total everything up to see approximately how much you’ll spend on fulfillment every month.
Of course, it’s hard figuring out exactly who much you’ll spend when you outsource. It depends so much on the fulfillment center, your business, your products, your customers, and more.
Compare the costs of outsourcing to how much it would be for you to do fulfillment internally. If it’s more efficient (or cheaper) to handle orders, storage, and shipping yourself, more power to you. Sometimes the numbers will work out in favor of outsourcing, and other times they won’t. The point is that you should always do the math to see if outsourcing is wise for your eCommerce business.
Customers are shopping online more than ever. But most of them are ignorant of the work it takes to put a product in their hands! As a dropshipper, you’re part of an intricate system that gets products from point A all the way to point Z. Know what to expect from your 3PL if you choose to outsource fulfillment. You can also slash your fulfillment costs with a few smart tricks to see better ROI.
But we know that fulfillment is just one half of the puzzle. Spark Shipping’s system automatically sends orders to your fulfillment center. We’re the only eCommerce automation solution with intelligent order routing, which means you can map your products to multiple vendors as needed.
Ready to save more time? Try Spark Shipping now.