Making Sense of Fulfillment Costs: Are You Paying Too Much or Just Enough?
You can’t run an e-commerce store without thinking about fulfillment. Read on to know if you’re paying too much or just enough for your fulfillment costs.
But with the growth comes a demand to have everything as soon as we input out credit card info. Even Amazon, who leads the way in e-commerce sales, finds that 60% of their customers want their orders faster.
While speed is a factor, you have a business to run and you need to worry about your costs too. Are you paying too much for your fulfillment costs? Is there a way you can provide excellent service and save money?
In this guide, we go over the answers to these questions and more so you’re sure you’re getting the best prices.
Order Fulfillment Vs. Drop Shipping
Whether you’re new to e-commerce or an established shop, you need to know if you’re using the best order fulfillment process for your business. The two most-used processes are drop shipping and third-party order fulfillment.
In theory, drop shipping saves you time and money but the reality is, it comes with big drawbacks. The drop shipping supplier handles all the warehousing and shipping. These costs aren’t free; you’re paying for them one way or another.
One of the biggest disadvantages to drop shipping is that you have little to no control over the quality of the products. You upload a product to your site, a customer clicks to order it, and a drop shipping supplier picks and ships it.
In other words, the product never touches your hand unless you order sample products. Even in that case, you have no proof that every order or batch is alike.
Many suppliers are overseas, which leads to logistics issues. The lead time on a product can be months after the product gets ordered. The return process is often a nightmare.
When you use a 3rd party order fulfillment, you partner with a company that specializes in getting your product out of the warehouse and into the hands of your customer as seamless as possible.
You buy your products and an order fulfillment company does the rest. They’ll store your goods, handle the picking, packaging, and shipping elements. They use your branding and are in constant communication with you.
All you do is focus on sales and providing excellent customer service. Now doesn’t that sound like the kind of brand that puts their customers first?
What You Pay for With an Order Fulfillment Service
Reputable order fulfillment companies work with you to keep your costs down. They’re transparent in their fulfillment services pricing so you know what you’re paying for.
Most fulfillment services use activity-based pricing. This means they charge you for what they actually do for you on a per activity basis. The four fees you’ll see outside of the initial set-up fees are:
- For any receiving Fees
- Storage fees
- For the actual order fulfillment (“Pick and Pack” fees)
- Shipping costs
The initial set-up fee varies by company. Some charge as little as $100 while bigger companies can charge as much as $500. When it comes to set-up fees, there is no right or wrong, it’s up to you to determine what you’re comfortable spending.
Breaking Down Fulfillment Costs
It’s not enough to know what their charges are, you need to know how if you’re paying too much with your current fulfillment service.
Receiving and intake fees cover the process of your inventory arriving and getting sorted at the warehouse. The average cost among companies that charge by the hour is anywhere from $20-$45.
Some charge per unit based on the order, pallet, piece, or box. The average cost per inventory intake is:
- Per order: $30-$50
- Per pallet: $5-$15
- Per piece: $.05-$.15
- Per box: $1
If the company you’re working with now doesn’t seem to charge you for receiving or intake, they may roll them into the storage or fulfillment fees. Read over your invoice to determine how you’re getting charged for this activity. You may be able to compare your costs if they’re bundled into other charges below.
Like receiving fees, fulfillment services charge you storage fees based on pallet, cubic or square footage of space, or bin storage. The average costs of these fees are:
- Pallet: $6-$20 per month
- Per cubic foot of space: $.25-$.55 per month
- Per square foot of space: $.50 to $2.00 per month
- Per bin: $1.00 to $2.50 per month
Some companies only charge you for the storage space you use. In other words, if you run out of a product and you don’t have a shipment coming for two months, you won’t get charged for those two months.
You may also pay a little more for temperature control, food grade, or hazardous material storage. Those special charges are in your contract.
Order Fulfillment / Pick and Pack Fees
Order fulfillment and pick and pack mean the same thing. It’s the process of finding your product and packaging customers’ orders.
It’s very common that you see these fees as a combination of a per order fee plus a per item fee. For example, a 3rd party order fulfillment service may charge you $2.50 or less – $2.00 for the order and $.25 per item.
So, if a customer orders three items from you, you’ll see a charge for $2.75 for that order. $2.00 for the order and three items at $.75 each.
Some companies include the cost of packing materials in this cost. Others may charge a small box and packing material fee. You may also pay more if the order goes over a certain weight.
Shipping charges have to get broken down into general terms because there are too many factors to make it a standardized fee range. This includes location, speed of delivery, and weight.
Large fulfillment companies get discounts from shippers. Most of these companies pass these discounts down to you. Keep in mind, not all do.
Others may insist you use your own shipping account. There are still others who give you the choice of using their shipping company or your own.
E-commerce is a cut-throat business, which is why you have to stand out in the crowded marketplace. You know the importance of having strong order fulfillment to maintain a high level of customer satisfaction. But you also can’t afford to pay too much in fulfillment costs.
If you suspect you’re paying too much, it’s time to look at other options. Fulfulltopia might be your answer for staying ahead of your competitors. We’re the order fulfillment experts that can help you reach your sales goals and improve customer retention.