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The supply chain is a complex multi-step process that involves many business entities, and it has evolved to become more efficient at managing the flow of goods across borders. The goal of order fulfillment services is to get orders from customers as quickly as possible while minimizing costs incurred in shipping and handling each shipment.
Retailers pay third-party order fulfillment providers a monthly fee depending on the services they employ to fulfill their orders. Receiving of Inventory, storage, pick and pack, and outbound shipment are the four expenses that make up the overall cost payable to your partner fulfillment firm as a retailer.
The cost of these operations on a regular basis is determined by order volume and complexity, as well as product metrics. Additional modifications and services, such as branded packaging and item assembly, might add to your fulfillment costs.
- Receiving inventory pays $25–$45 per hour (or $5–$15 per pallet).
- Monthly storage costs range from $8–$40 per pallet.
- $3–$5 per order for pick and pack
- Shipping on the way out costs varies depending on the size, weight, and location of your goods. This will be your most expensive purchase. Typical fulfillment company discounts range from 10% to 30% off ordinary shipping charges.
A one-time onboarding charge (averages $550), Inbound Transport fees, return handling fees, and Fees for Account Management (averages $50–$1,000 per month) are among the additional expenditures. Additional charges will be incurred for services such as custom packaging and product kitting or assembly.
Rather than hiring a third-party organization to fulfill their orders, some shops choose to do it themselves. This strategy is suitable for startups and small-scale merchants in terms of efficiency and cost-effectiveness.
What Are the Costs of Order Fulfillment?
Although there are four fundamental cost categories that go into fulfillment service pricing (receiving, storage, pick and pack, and shipping), the way each firm sets its costs varies substantially. Some fulfillment partners charge a flat amount for all services, while others charge an itemized and quantified fee for each service.
Because there are no industry-wide guidelines for fulfillment expenses, fulfillment businesses typically tailor their prices to fit the needs of unique merchants. Red Stag Fulfillment, for example, specializes in dealing with high-value merchandise and completing orders weighing 20 pounds or more (think furniture or large electronics).
ShipBob, on the other hand, specializes with items weighing less than 20 pounds and does not have any order minimums (making it great for new, startup, and small businesses).
Whitebox has a completely different model, charging an all-in fulfillment fee that covers every cost center except inventory storage. Its model caters to sellers that are looking for a more dynamic and comprehensive retail partner.
Fees for Standard Fulfillment
Additional expenses, such as onboarding, inbound shipment, return handling, and account administration, may be incurred in addition to the basic fulfillment costs. As previously stated, these fees differ based on your fulfillment partner and contract.
Here’s an example of how five well-known fulfillment providers charge small businesses for their services.
Costs of Fulfillment Compared
Whitebox is said to charge a flat, universal fulfillment price of 10% of the client’s sales, plus a $3,000 onboarding fee, according to reports elsewhere online. These statistics are incorrect, according to the firm, since its fulfillment services are not commission-based, and onboarding is free. Whitebox, on the other hand, has not revealed how it determines its bespoke fulfillment prices.
The normal costs that go into your fulfillment cost, as well as how they’re calculated, are listed below.
Fees for Onboarding
When working with a fulfillment firm for the first time, there is a lot of setup to complete, such as connecting your online shop, setting up storage infrastructure, and training workers to handle your items.
Because this is a time-consuming process for the provider, some organizations charge a one-time onboarding fee to pay it. The fee may vary from $100 to thousands of dollars depending on the size and complexity of your inventory, but small enterprises typically pay approximately $550.
Some fulfillment partners, such as the ones mentioned above, provide service contracts with no upfront costs.
Inbound Transport
To deliver items from your supplier to your fulfillment center, you’ll pay the freight or container shipping fee, which varies based on the amount, size, weight, and origin of your goods.
Many fulfillment partners receive discounted rates that they’ve negotiated with shipping carriers and extend these savings to you. This can help decrease your Inbound Transport costs substantially.
Receiving of Inventory
Receiving your stock entails scheduling shipments, as well as unloading, inspecting, labelling, and sorting your items—all of which take a significant amount of time and effort. As a result, it’s frequently charged by the hour. Unless your service charges a fixed amount per item, expect to spend about $25–$45 every hour it takes to acquire your product. The cost per pallet ranges from $5 to $15.
As long as your shipments meet rigorous standards, Shipmonk and FBA’s pricing schemes don’t charge anything for receiving. Because their receiving procedure does not entail sorting, counting, labeling, tagging, or cross-checking your items against the purchase order, this is possible. You and your suppliers are in charge of these duties.
Storage
Storage costs are calculated mostly depending on the amount of space your goods occupy. You’ll also have to spend more if your things need special security or temperature control. According to a study by FulfillmentCompanies.net, fulfillment partners charge anything from $8 to $40 per pallet per month to keep your products, with the average cost being $14.79 per pallet. Instead of using cubic feet or individual bin occupancy, some firms compute this cost using cubic feet or individual bin occupation.
Due to volume and demand changes, certain suppliers, such as Fulfillment by Amazon (FBA), may dramatically raise their storage prices during peak periods (typically October–December). Although it isn’t a typical occurrence, be sure to check your contract for seasonal inflation.
If your items need specific services such as refrigeration or hazardous handling, expect to pay an additional 73 percent on average in storage charges.
Pick & Pack
Many fulfillment companies charge a fee called “fulfillment costs” for this service. It includes the time it takes to choose things for an order as well as the materials utilized to package them.
Fulfillment firms often charge a fixed per-order cost, generally between $3 and $5. Some suppliers make this cost more affordable by employing a lower base price and adding an item charge for each extra unit in the order. Pick and pack costs are affected by the amount and kind of packing material necessary to properly dispatch your items.
Shipping
When it comes to shipping, fulfillment firms normally give a lot of options, but you can anticipate the related charge to be one of the highest on your monthly invoice.
You have the option of using your own carrier or the company’s recommended provider as a retail partner. Though each option has advantages, it’s crucial to remember that fulfillment companies get huge savings because of the large numbers they ship on a daily basis. If you use the fulfillment company’s carrier, you’ll likely save 10%–30% off your usual prices.
The cost of shipping your orders is determined by their size, weight, and destination.
Returns
Not every fulfillment provider provides this feature, but it is a significant luxury for most sellers.
Charges for processing and restocking will be included by fulfillment suppliers that provide a returns service. The total costs are often about the same as the pick and pack price, plus the cost of return shipping. If a more thorough examination is necessary to establish if returned products fit your store’s requirements, an extra cost will almost certainly be charged.
Fees for Account Management
Some fulfillment companies charge a monthly fee to cover any extra services needed to keep your account running properly. This includes interacting with you and your suppliers, addressing other expenses, and upgrading software, among other things.
The cost varies greatly depending on the size, complexity, and demands of your company, but it often runs from $50 to $1,000 each month. Some companies charge a set monthly fee for account management for the duration of your contract, while others charge $40–$60 per hour for any duties.
Optional & Add-on Fulfillment Costs
Additional fulfillment fees may be incurred depending on your company’s unique demands, such as:
Fulfillment companies may assist you if any of your products need to be assembled or put together into a set ahead of time. They charge between $30 and $50 per hour for these services, which works out to around 50 cents to $1 each kitted unit.
Some fulfillment partners can help you with customer support responsibilities including taking orders and dealing with escalations. The cost of this add-on is partly determined by the fulfillment center’s setup—some have big, dedicated teams of multilingual customer service personnel, whilst others may simply expand their account management employees into customer care.
One of the major benefits of utilizing FBA is that your fulfillment expenses include respectable customer service.
When a large number of orders are fulfilled at once, such as in the event of a successful crowdfunding campaign, the procedure is often priced differently than usual. ShipBob is an example of a firm that specialized in meeting unique fulfillment demands like this, and instead of storage costs, it charges a $1 per-order batch fee.
Your fulfillment partner may assist you in furthering your branding by designing special package components or inserts for your purchases. The cost of this choice is determined by a number of factors, including materials, design work, and quantity.
When bought in quantity, a modest bespoke plastic bag may cost as low as A small custom plastic bag can run you as little as $0.03 per piece when ordered in bulk, while premium packaging sets crafted to promote an extravagant unboxing experience can cost upwards of $30 per order. Plenty of options exist in between those two extremes, such as stickers, printed tissue paper, stylized boxes, and thank-you notes..03 per piece, but luxury packaging sets designed to create an opulent unwrapping experience can cost upwards of $30 per order. Stickers, printed tissue paper, themed boxes, and thank-you letters are just a few of the possibilities available between those two extremes.
When everything is said and done, order volume is one of the most important factors in establishing price. Most fulfillment centers give considerable discounts on their services to businesses that receive huge volumes of orders.
The importance of volume discounts cannot be overstated: According to FulfillmentCompanies.net, more than half of the fulfillment businesses polled provide a 14 percent discount for keeping 250 or more pallets each month.
Fulfillment Contracts & Legal Fees
A fulfillment agreement is a formal contract between you and your fulfillment firm that spells out the essentials, such as price structure and payment terms, as well as less visible but critical features like insurance and responsibility.
You’ll need to study and sign such a contract when you’re finalizing your collaboration with a fulfillment service. It tries to safeguard both parties from future disagreements or challenges by ensuring a thorough grasp of the business relationship. Each contract is unique, however there are a few things to keep in mind:
- Term Length: The shortest period of time during which you agree to pay for and utilize the company’s services.
- Charges: A detailed explanation of how your costs will be computed and how often they will be charged.
- Annual Price Increases: The expected increase in your charges to account for inflation and changes in the provider’s expenditures.
- Error Rates: The amount of precision that your fulfillment supplier guarantees.
- Claims: A description of the system for dealing with losses and damages.
- Insurance: The specifics of the fulfillment company’s, its personnel’, and its shipping partners’ insurance plans as they pertain to your property.
- Arbitration: A clause that specifies how parties’ disagreements will be resolved.
The first page of a 12-page fulfillment contract (Source: FulfillmentCompanies.net)
These contracts are frequently long and complicated. There are a lot of variables to consider, and the stakes of fulfillment partnerships are high—you’re handing your precious product and your customers’ loyalty to a different company.
As a result, many merchants prefer to employ an attorney to analyze the contract with them before signing it. Although the advice you’ll need won’t be substantial, it’s crucial to consider the expense of engaging legal counsel if it’s an amenity you’ll utilize.
Some 3PLs allow customers to trial their services for a limited time before committing to a full-fledged fulfillment arrangement. This allows merchants to ensure that their services and pricing structure are a suitable match for the firm. Red Stag Fulfillment, for example, provides a risk-free 30-day trial and pledges to waive all payments if you aren’t happy with their service.
How to Work Out Your Fulfillment Costs
The only way to know for sure how much you’ll spend to outsource your fulfillment process is to speak with the experts directly. Alternatively, you may locate contact information on the website of any fulfillment center you’re interested in using FulfillmentCompanies.net’s matching tool, which compares your exact requirements to hundreds of prescreened partners. They will be able to offer you with a customized price depending on the specifics of your company.
There are a few crucial criteria to consider when comparing rates (or just reviewing the efficiency of your current fulfillment process). Here’s how to put those figures together:
Total fulfillment expenses during a time period (i.e., one month, quarter, or year) multiplied by the number of orders completed over that time period (i.e., one month, quarter, or year).
Cost as a Percentage of Sales: Total fulfillment expenses for a given time period (i.e., one month, quarter, or year) divided by net sales over the same time period (i.e., one month, quarter, or year) 100
Regardless of how a store operates, fulfillment costs account for a significant amount of their spending. It’s crucial to remember that fulfillment details have an influence on client retention and conversion rates. With firms like Amazon setting high standards for shipment speed and return policy, top-notch fulfillment skills are more important than ever.
If free delivery isn’t available, 68 percent of online customers say they’ll abandon a purchase around half of the time. If the delivery date was unknown, 20% of customers said they would not make an order. (Image courtesy of Digital Commerce 360)
When Is It Cost-Effective to Outsource Fulfillment?
The cost of third-party fulfillment may seem high, especially for startups or small-scale sellers that have never had to worry about things like Fees for Account Management. When considering hiring a third-party fulfillment company to assist your business, keep these details in mind:
- This is something you’ll have to pay someone to do: The fees you pay a fulfillment partner cover the costs of the building, employees, incidentals, and other overhead charges you’d have to pay if you ran your own business. Even if your fulfillment crew is a one-person show (i.e., you), your hourly time is significant and should be taken into account when evaluating costs.
- There are advantages: Fulfillment businesses obtain substantially reduced prices on packaging materials and shipping charges because of the large quantities they purchase and send. Most suppliers pass these savings on to their customers, making partnering with them a worthwhile benefit.
- It’s possible that you’d be better off spending your time elsewhere: Important chores that help you build your company sometimes take a back seat when your daily focus is processing, packaging, and delivering orders. Outsourcing your fulfillment tasks frees up time that may be spent on more lucrative activities.
- Fulfillment services expand easily: third-party suppliers assign resources as required, ensuring that you never pay for employees or space that you don’t need.
Your fulfillment partners can simply and quickly handle changes in order volume as your company expands or during busy seasons. You’ll never be left with insufficient resources to deal with the festive rush, or too much remaining to eat into your earnings thereafter.
Conclusion
Any eCommerce store’s overhead charges include a significant portion of fulfillment costs. The procedure has a significant influence on the customer experience, revenue, and total profit, making it a worthwhile investment.
Partnering with a fulfillment firm is a great way to boost productivity and expand your business. Although the related expenses are precise and sophisticated, the amount of customisation provided by those calculations ensures that you only pay for what you use, which is always to your advantage.
Frequently Asked Questions
What is fulfillment pricing?
Fulfillment pricing is the cost to fulfill an order.
How much do fulfillment centers charge per order?
Fulfillment centers charge a per order fee by weight.
How are fulfillment costs calculated?
Fulfillment costs are calculated in accordance to the weight of your order and the cost per pound. For example, if you put an order with a weight of 3 pounds that is $5 per pound, then fulfillment would be calculated at 6 cents.
