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When to Outsource Order Fulfillment for Ecommerce Sites

Aug 01, 2017

Almost every company using Ecommerce to sell product(s) online will eventually contemplate, when is it time to outsource order fulfillment?  This is usually followed by these frequently asked questions:

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

Well here are some key questions to ask yourself:

  1. Are your products priced to be profitable?
  2. How much more productive could my business be if focus was on marketing & growing sales, versus fulfilling orders in house?
  3. Do you have a proven marketing plan to increase sales?

Here are a few key metrics to help determine whether outsourcing order fulfillment makes 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 order fulfillment cost?

Think in terms of fixed and variable expenses

  • Fixed expenses happen monthly, whether you have 0 or 500 orders.  Things like account & inventory management fees, storage & Ecommerce integration, etc.
  • Variable expenses only occur when the product sells. For example, processing fees or pick & packaging fees.

Let’s look at couple scenerios……..

Example A: 100 orders per month

Fixed Expenses:

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

Variable Expenses:

  • Order Fees: 100 @ $2.00 = $200.00
  • Pick Fees (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

Compared to Example B – 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 Fees (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, the variable costs are a bigger percent of your fixed expense. Ultimately, meaning higher sales. If you had 350 orders per month with an average sale of $35 = $12,250. With a 400% markup, you would have $9187.50 in gross profit!

We offer a financial model that incorporates 100% of fulfillment and shipping cost to the customer. It’s our mission to help clients grow and especially be profitable, if you win, we win!  Let us show you how, click on ‘Free Online Quote’ above for a FREE analysis, and we look forward to hearing from you! 

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“Prompt, courteous service. Warehouse staff is attentive, orders are shipped in a timely manner. Issues are immediately addressed”

“Good service, reliable and flexible. Good communication and systems know how”

“We’ve had a great experience with Fulfilltopia. They’ve been flexible to fit our needs and hhelped us establish a previously non-existent supply chain for our business”

“Prompt, courteous service. Warehouse staff is attentive, orders are shipped in a timely manner. Issues are immediately addressed”

“Good service, reliable and flexible. Good communication and systems know how”

“We’ve had a great experience with Fulfilltopia. They’ve been flexible to fit our needs and hhelped us establish a previously non-existent supply chain for our business”