When it comes to the e-commerce supply chain, fulfillment is where the magic happens.
The quicker you can fulfill and ship orders, the happier your customers will be.
However, fulfillment comes at a price, and it isn’t as easy as packing boxes.
Keeping fulfillment costs less while making customers happy with fast and economical shipment may look difficult.
However, there are many ways to cut expenses while giving an amazing customer experience.
This article discusses the various fulfillment line items and how to calculate fulfillment costs easily.
Breakdown of fulfillment costs
Order fulfillment costs include all the charges associated with getting a product from the supplier and sending it to the consumer.
These expenses include the amount you will give for receiving, storing, picking, packaging, and shipping the orders.
Additional fees for processing returns, restocking, setup, and account administration might be expected.
However, this depends on your choice of engaging with a third-party fulfillment service provider.
The following criteria can influence your fulfillment fees:
- If you choose to use your team or an outsourcing service
- The size and weight of your products
- The urgency and distance of the delivery
Current trends and projections show that e-commerce businesses will continue to rise, with zero signs of slowing anytime soon.
Online shopping gives convenient benefits for both consumers and e-commerce businesses.
Customers can easily buy the products, while businesses may avoid the fulfillment costs associated with running a retail shop.
Hence, Fulfillment expenses are becoming an increasingly important aspect for e-commerce enterprises.
Customers place orders, and somewhere on the earth, either a human or a machine must fulfill those orders.
Some businesses may benefit from outsourcing, while others rely on a fulfillment partner to make sure their expenses remain under control.
Smaller businesses may take advantage of in-house order fulfillment when they are small, but increasing in-house fulfillment as the business grows might be very difficult.
Outsourcing fulfillment also brings some additional costs, but volume discounts and other benefits make it advantageous for businesses today.
Fulfillment and 3PL expenses are a part of a firm’s bottom line, regardless of how an e-commerce business chooses to fulfill its orders.
Fulfillment fees cover the costs of receiving and keeping products, as well as processing orders from handling to shipment.
These fees may vary depending on the products included, the order processing speed, and other considerations.
Hence, let’s dive into our explanation of fulfillment expenses as they apply to third-party fulfillment logistics providers.
Whether a company decides to manage its fulfillment operations or outsource it to a third party, the entire fulfillment cost for a product or order consists of various expenses.
Any specific item’s fulfillment cost may include some or all of the following fees:
1-Setup fees:
This is a one-time payment that depends on the type of business you are doing and the volume you plan to fulfill.
Some businesses provide a flat fee. However, some calculate the setup fee on the type of merchandise they must work with, as well as other factors ranging from intake to delivery.
2-Intake fees:
Your inventory is handled by the same business that performs your fulfillment.
Hence, the fee for intake and delivery comprises all the processes and services provided by a fulfillment Center to accept and deal with your inventory.
The majority of these fees are payable by the hour or per piece, such as a set rate for each pallet or bin.
3-Storage fees:
Warehousing prices differ. It all depends on the product, equipment, time, or space required for receiving it, storing it, and preparing it for shipping.
Fulfillment centers employ a variety of ways to store and transfer items.
You may be charged a price per pallet stored or a storage fee depending on the total amount of space required by your goods.
4-Pick and pack fees:
Pick and pack costs include the cost of retrieving a product from storage and packaging it for delivery.
The costs for this vary. Some businesses provide bulk shipping discounts for many items, although some might additionally charge a small order fee.
5-Shipping fees:
The expense of shipping a product to the customer after it has left the fulfillment center is commonly referred to as fulfillment shipping costs.
Most fulfillment centers will take care of this for you. However, some e-commerce businesses prefer using their carrier.
6-Kitting fees:
Kitting costs cover the cost of assembling items prior to fulfillment. These charges may also apply to returned items, as detailed further below.
7-Return fees:
The return cost covers receiving and dealing with rejected products if the product is damaged or does not work for any reason.
These charges cover the costs of processing the item, assembling it, and screening returned items for flaws.
8-Account management fees:
The account administration cost is often applied to the monthly bill. It is used to handle administrative costs such as managing calls from clients or additional tasks related to order fulfillment.
Fulfillment charges may be a basic estimate of input, storage spaces, pick and pack, and shipping expenses.
However, they might also include a number of different charges according to the services supplied, relying on the agreement that an e-commerce company agrees to with a fulfillment service.
This charge analysis makes it simple to observe how various circumstances, like a large volume of returns, can affect a business’s fulfillment expenses.
How to calculate fulfillment costs
If you would like a rough estimate of fulfillment costs, you’ll have to execute some mathematics.
Calculate the quantity of goods you’re planning to store at the fulfillment center in addition to the amount of space that will be needed.
Assuming you have accurate data, constantly presume you’ll need 10% more room than you think.
You must be conscious of the following:
- Your fulfillment provider’s charges
- The number of pallets, orders, and units per order for the time period (week, etc.)
Then, calculate the total fees for each line item, such as:
- (5 pallets) x (storage fee per pallet)
- (10 orders per month) x (pick and pack fee per unit)
Finally, sum the amounts for every single item. This statistic depicts the total expense of fulfillment for the duration of the period. The more accurate and precise your estimate.
Some fulfillment companies give fulfillment cost calculators to customers. This can assist them in precisely calculating fulfillment costs according to their rates.
Fulfilment Service also provides a detailed explanation of how to determine fulfillment expenses.
It is important to compare the expenses of handling fulfillment in-house against outsourcing to a 3PL.
While outsourcing is not the ideal answer for every organization, some discover that it is an affordable option that enables them to meet the needs of their consumers more effectively.
Fulfillment and 3PL pricing models
A 3PL (third-party logistics provider) allows merchants to outsource fulfillment. This includes warehousing, inventory management, and other fulfillment tasks.
3PLs handle all fulfillment-related duties that often happen to be too costly and inefficient to handle in-house.
Collaborating with a 3PL may assist your company in saving money and time on fulfillment.
This will help you save your resources and use them to focus on the creation of products, advertising, and business growth.
However, not all third-party logistics providers are made equal, particularly when it comes to digital fulfillment pricing structures and third-party charges.
It’s critical to understand the different costs and price models involved in order to determine which 3PL is appropriate for your online firm.
Keep reading to find out how to assess fulfillment costs for your e-commerce firm.
Pricing structures vary between 3PLs and fulfillment companies.
Some businesses might charge you a unit charge for processing and packaging while at the same time charging you by the cubic foot for storage.
Models based on individual items
- By the cubic foot (for inventory storage)
- By the order (for pick pack costs)
- By the shipment (receiving costs)
- By the kit (for kitting costs)
- Flat rate for customer support costs
Unit-based models
- By the pallet
- By the unit
- By the hour
The storage of inventory prices determined by cubic feet, for example, could be $0.30 per cubic foot per month.
However, the unit-based price by the pallet could be $20 per pallet per month. Hence, the fulfillment center price model greatly affects the total costs.
Businesses need to know what fees are applicable and what fulfillment services pricing structures are employed.
In this way, they can accurately forecast their fulfillment expenses.
Conclusion:
In conclusion, we can see a clear trend of consumers purchasing from the internet in greater numbers.
However, the majority of them are uninformed of the effort required to put a good in their hands!
As a drop shipper, you are a part of a complex system that delivers items from point A to point Z. Suppose you choose to outsource fulfillment; know what to anticipate from your 3PL.
You can also reduce your fulfillment expenses with a few clever ways that will boost your return on investment.
You can also choose Globallyfulfill to help you grab your fulfillment in the most economical way possible.
