E-commerce consumers spend $500 billion online each year and this trend continues to grow as the preferred way for consumers to shop. As orders continue to ramp up, e-commerce vendors are finding that they lack space to store their inventory, and the labor and infrastructure involved in continuing to fulfill their orders in-house. With e-commerce vendors expanding at a fast pace during the pandemic, many are partnering with 3PL fulfillment providers, in order to keep growing. When e-commerce businesses weigh the advantages of fulfilling their own orders versus outsourcing their fulfillment, they see how outsourcing to a tech-savvy 3PL (Third-party Logistics) firm such as Phase V Fulfillment, help them reduce labor costs, eliminate warehouse rentals, leverage discounts for packaging supplies, as well as receive deep carrier discounts on shipping rates and more. How do you decide if outsourcing is the best solution for your company? First, you need to find out what your cost per order (CPO) is, then compare that with the costs that fulfillment providers charge to outsource your fulfillment processes.
To arrive at your CPO, add all of your warehousing expenses, i.e.:
This formula only considers the labor involved in your CPO and may only represent 50% of your actual CPO. A better metric that includes facilities expenses, occupancy costs, and packaging supply costs is known as a “fully-loaded cost per order” and is essential for an e-commerce retailer to consider, as it can reveal the hidden costs of in-house fulfillment.
Calculating your fully-loaded fulfillment CPO involves gathering basic statistical and cost data to create a historical comparison. To do this, you’ll need:
Using these calculations to further understand your fulfillment costs, calculate:
Salary and benefits costs for fulfillment director and departmental managers can be allocated or spread over the number of orders.
For outbound shipping costs, you will want to calculate the CPO and cost per box separately from the warehouse costs.
These costs include the employer’s share of payroll taxes and paid benefits, such as medical, retirement, and educational assistance and are excluded from the warehousing costs above. Because employee benefits differ greatly between companies, they can add 15% to 30% additional cost to your CPO. From a fully loaded CPO, you can compare your in-house fulfillment costs to outsourcing your fulfillment operations to a 3PL provider, such as Phase V Fulfillment.
Outsourcing your fulfillment operations to a 3PL can lower your CPO and increase your bottom line by leveraging the technology and the experience of skilled labor to automate and streamline your fulfillment operations, in addition to reducing your overhead for warehouse leases, labor, and maintenance. Because 3PLs order in bulk, your 3PL provider can lower your CPO by offering you savings on packaging and shipping supplies, as well as deep discounts on carrier rates. For a comparison of how a 3PL partner can help move your company forward as you grow by handling your fulfillment operations, you should consider the following fulfillment company fees:
Your 3PL provider fulfillment fees may be a simple calculation of intake, storage, pick & pack, and shipping fees, or they might involve a variety of additional fees, depending on the services provided. From this breakdown, you should be able to see how different variables can affect your fulfillment cost when considering partnering with a fulfillment provider.
Pricing models vary among 3PLs and fulfillment companies. Generally, companies charge a unit-based fee for intake and packaging and charge by the cubic foot for storage. Also, orders are charged:
Some fees are based on units, generally by the pallet, unit, and by the hour. Because pricing models can significantly impact total fulfillment costs, be sure that you understand the fees that apply and the pricing models used to estimate a 3PL’s fulfillment costs.
For a ballpark estimate of your outsourced fulfillment costs, you need to determine how much inventory you want to store and how much storage space you need. Sometimes, these figures are readily available, as a precaution, calculate for 10% more space than you think you need. Then, you will need to know:
Next, add the totals for each line item, such as
When comparing fulfillment costs, add-on fees can be hidden in the fine print, such as long-term storage fees and minimums for the number of orders processed, etc. Ask your 3PL if there are any other fees you need to know about before contracting your outsourced fulfillment to them. At Phase V, we partner with you to offer customized plans that fit your company’s needs with clear pricing so you can make an informed decision. One of the intangibles not factored in here is the increased amount of time you will have to focus on growing your business when you partner with a 3PL. Contact Phase V to discuss how our tech-enabled 3PL services can set your business up for success!
Posted in Tips | Posted on 04/08/2021