Online retailers often face high fulfillment costs, especially eCommerce companies that must consider shipping, inventory, storage, packaging, and returns expenses. While keeping these costs low is important, it’s also crucial not to sacrifice product quality and the customer experience in the process.
Outsourcing fulfillment to a third-party logistics provider (3PL) is a strategic move that can have significant financial implications for a company. In this article, we’ll explore what goes into fulfillment costs and provide recommendations for reducing costs without sacrificing quality.
What are Fulfillment Costs – Average Order Fulfillment Costs for Planning and Budgeting?
Fulfillment costs in fulfillment centers are the total charges incurred when processing a product from receipt to distribution. The cost of fulfillment services can vary significantly among different providers. This can be influenced by a range of factors, such as:
- The pricing model used by the provider
- The volume of orders being handled
- Any volume discounts offered
- The fee structure for different services
- And whether specialist fulfillment services are required
Businesses must compare prices and services from multiple providers and carefully evaluate their specific needs and requirements.
The Most Common Types of Fulfillment Services Pricing
We’ve broken down the factors influencing eCommerce fulfillment pricing in the UK.
Initial Set-Up Fees
Fulfillment service providers charge this fee to cover the costs associated with onboarding a new client. It includes integrating systems, setting up inventory management, and configuring the necessary software.
Receiving fees are levied for accepting and processing incoming inventory from suppliers. This includes checking the quantity and condition of received items, updating inventory records, and placing the items in the designated storage area.
Storage fees are charged for keeping your products within the fulfillment center. This fee is often based on the volume or space your inventory occupies over a specific duration, usually monthly.
Fulfillment or “Pick and Pack” Fees
This fee encompasses the costs of picking items from the warehouse shelves, packing them securely, and preparing them for shipment. Some businesses will charge you for picking and packing each item individually. Others will bundle all services together under a single fulfillment cost.
Shipping fees are the costs associated with transporting your products from the fulfillment centers to the end customer. This includes carrier charges, packaging materials, and any additional shipping-related expenses.
Returns fees are charged for processing returned items. This includes inspecting returned products, updating inventory records, and, if necessary, restocking the items. Returns are a standard part of eCommerce, and understanding the associated fees helps you factor in the cost of handling product returns.
Other Miscellaneous Fees
This category encompasses any additional charges not covered by the above categories. These could include technology fees, account management fees, or other specific charges unique to the fulfillment service.
Seven Hidden Fulfillment Costs and How to Avoid Them
Let’s explore the seven hidden fulfillment costs and strategies to avoid them.
Estimate the price of a typical order
It’s crucial to accurately estimate the cost of fulfilling a typical order. Consider all aspects, including picking and packing, shipping, and any applicable fees. This estimation helps you set product prices that cover fulfillment costs while remaining competitive in the market.
Use customer data to figure out real-world shipping costs
Leverage customer data to understand the geographical distribution of your customer base. This enables you to estimate shipping costs more accurately based on real-world delivery destinations. Utilising this data ensures that your shipping fees reflect the expenses incurred.
Be realistic about how many warehouses you will use
Carefully assess your business needs and distribution strategy to determine the optimal number of warehouses. While having multiple warehouses can reduce shipping times, balancing this against the increased operational costs is essential. Being realistic about your warehouse requirements helps you find the right balance between speed and cost-effectiveness.
Weigh extra inventory costs against shipping from too many warehouses
Excess inventory incurs additional costs, such as storage fees. Compare these costs against the advantages of shipping from multiple warehouses. Striking the right balance ensures the avoidance of unnecessary expenses and guarantees that your fulfillment strategy is both efficient and cost-effective.
Compare apples to apples for service levels
When evaluating fulfillment service providers, ensure a fair comparison by looking at similar service levels. Some providers offer seemingly lower fees, but it’s essential to consider the entire package, including the quality of service, reliability, and hidden costs. A comprehensive comparison ensures you choose a provider that aligns with your business needs.
Ask about penalties and unclear fees
Be proactive in seeking information about potential penalties and fees that might take time to be apparent. Understanding the terms and conditions of your agreement helps you avoid unforeseen charges. Asking detailed questions about fees ensures transparency and a clear understanding of your financial commitments.
Eliminate inventory shrinkage
Inventory shrinkage, caused by theft, damage, or mismanagement, can significantly impact your bottom line. Implementing robust inventory management practices, including regular audits and security measures, helps minimise shrinkage and ensures that your fulfillment costs are not inflated due to preventable losses.
Long-Term Benefits and Return on Investment
Although the initial expenses of outsourcing fulfillment can be significant, the long-term financial benefit of working with a 3PL can frequently result in substantial cost savings and increased business performance.
Cost Savings and Efficiency Gains
The ongoing cost savings achieved through outsourcing fulfillment operations can be substantial. By leveraging the expertise and resources of a 3PL, businesses can streamline their supply chain processes, reduce operational costs, and enhance overall efficiency. This efficiency gain not only contributes to financial savings but also positions the business for sustained growth and competitiveness in the market.
Enhanced Customer Experience and Brand Consistency
Outsourcing fulfillment to a reputable 3PL can positively impact customer experience. Timely and accurate order fulfillment and effective inventory management contribute to customer satisfaction and loyalty. Moreover, a reliable 3PL can help maintain brand consistency by ensuring that products reach customers in the expected condition and packaging, reinforcing the brand’s image and reliability in the eyes of consumers.
Scalability and Futureproofing
One of the key advantages of working with a 3PL is the scalability it provides. As businesses grow or experience fluctuations in demand, a flexible 3PL can adapt its services accordingly. This scalability supports current business needs and futureproofs operations against uncertainties. Outsourcing fulfillment allows businesses to navigate market changes, new opportunities, and challenges more effectively without significant internal adjustments.
Partner with I-Fulfilment: The All-In-One eCommerce Fulfillment Solution
Regarding fulfillment pricing models and 3PL costs, not all 3PLs are created equal. Understanding the various expenses and pricing models involved is critical to determining which 3PL is best for your eCommerce business.
Fulfillment costs are a significant part of the overhead expenses for an eCommerce business. The fulfillment process can impact customer experience, sales, and profit, so it is important to invest in effective fulfillment.
Partnering with a fulfillment company like I-Fulfilment can maximise efficiency and drive growth. The associated costs can be detailed and complex, but the level of personalisation provided by these calculations means that you only pay for what you’ll use, which can benefit your business.
Learn more about how I-Fulfilment can assist you in cutting costs and expanding your business.