Outsourcing order fulfillment - How much does order fulfillment cost

Many product based business owners selling online contemplate – when’s the right time to outsource order fulfillment. Common questions:

  • How much will order fulfillment cost?
  • Can I afford it?
  • Is it cheaper to do it myself?

It first starts with some key foundational questions to ask yourself:

  1. Are your products properly priced to be profitable?
  2. If doing order fulfillment yourself, how much more productive could my business be if focused on growing sales and not managing the day to day?
  3. Do you have a proven marketing plan to increase sales?

There are some key metrics to determine when outsourcing order fulfillment makes the most sense:

  • 300% to 400% mark up on products at minimum – if you are selling a product that costs you $7, you have to sell it for $21 to $28. This amount of gross profit will pay for the marketing costs for customer acquisition, overhead/admin costs, etc.  This also gives you room to subsidize the cost of shipping should you want offer a reduced cost or free shipping – especially if you have a low value product that weighs more than 13 oz.
  • Consistent volume of 250 orders or more per month – this really depends on how much mark up you have.  When your order volume jumps to 350+, your sales will begin to outpace your fixed overhead costs.

How much does ecommerce order fulfillment cost?

With order fulfillment companies and outsourcing ecommerce order fulfillment, think in terms of fixed and variable expenses.

  • The fixed expenses happen monthly no matter whether you do zero orders or a 500.  Examples: Account & Inventory Management fee, Storage, Ecommerce Integration, etc
  • Variable expenses only occur when you sell a product. Examples: Order processing fee, pick fee, packaging, etc.

To truly be profitable when outsourcing order fulfillment, the next few sentences are really important to understand:

Example A: 100 orders per month

Fixed Expenses with an order fulfillment company:

  • Account Fee (and Inventory Management): $150
  • Storage: 5 Pallets @ $19.50 = $97.50
  • Ecommerce Integration monthly fee: $150
  • Estimated total monthly fixed cost: $397.50

Variable Expenses:

  • Order Fees: 100 @ $2.00 = $200.00
  • Pick Fee (based on 1 item per order): 100 @ $0.37 = $37.00
  • Shipping Packaging: 100 @ $0.25 = $25.00
  • Estimated total monthly variable cost: $262.00

Your total cost per order in a month (total cost (fixed + variable)/total orders per month): $6.59

Ok – so now let’s compare in Example B, 350 orders per month – IMPORTANT, FOLLOW ME. IT’S WORTH IT

Example B: 350 orders per month

Fixed Expenses (same as Example A):

  • Account Fee (and Inventory Management): $150
  • Storage: 5 Pallets @ $19.50 = $97.50
  • Ecommerce Integration monthly fee: $150
  • Estimated total monthly fixed cost: $397.50

Variable Expenses:

  • Order Fees: 350 @ $2.00 = $700.00
  • Pick Fee (based on 1 item per order): 350 @ $0.37 = $129.50
  • Shipping Packaging: 350 @ $0.25 = $87.50
  • Estimated total monthly variable cost: $917.00

Your total cost per order in a month (total cost (fixed + variable)/total orders per month): $3.75

This is almost half the cost of Example A! In Example B, your variable costs are a bigger percent of your fixed expense. Ultimately, this means higher sales for you. If you had 350 orders per month with an average sale of $35 = $12,250. With 400% markup, you would have $9187.50 in gross profit!

We’ve got a financial model where your customer pays 100% of the fulfillment and shipping costs. Let us show you how to build that out.  Our mission is to help our clients grow and be profitable. If you win, we win.  Contact me for a free financial analysis completing the ‘Free Online Quote’ above.

Eric Brown, CEO

 

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