Fulfillment costs vary depending on whether you perform your own fulfillment in-house or outsource your fulfillment to a 3PL provider. To determine your in-house fulfillment costs, you’ll need to determine your cost per order (CPO) to do your own order fulfillment. A CPO includes the sum total of direct and indirect labor costs, packing and shipping supplies, shipping costs, and warehouse expenses.
To create a historical comparison, you need to input some statistical data, including:
• Annual net sales (sales minus the cost of goods sold) amount
• Annual orders shipped
• Total order lines
• Annual boxes shipped
And your expenses:
• Total direct labor amount
• Total indirect labor amount
• Total occupancy cost for warehouses leases, utility costs, equipment, and technology
• Total packing supply amount
• Total warehouse amount
Then calculate your CPO to determine fulfillment costs
• Total warehouse cost per order
• Total warehouse cost per order line
• Total warehouse cost per box
Shipping costs are calculated separately from warehouse costs
• Shipping cost per order: total outbound shipping costs divided by the total order
• Shipping cost per box: total outbound shipping costs divided by total boxes
There are other things to consider that aren’t included in the above calculations, such as the salary and benefits costs for the fulfillment team. These costs can be spread out over several orders – employer’s share of payroll taxes and paid benefits such as medical, retirement, and educational assistance aren’t included in CPO calculations either. In order to find out the cost to outsource your fulfillment operations to a 3PL provider, you need to find out the fees various 3PL providers charge to determine their rates.
These may include:
• Setup fees – A one-time payment charged as a flat rate or based on the type and quantity of your inventory.
• Intake fees – Cover all receiving and processing of your inventory, charged by the hour or as a flat fee, on a per-item or per-unit basis, for each pallet or bin you onboard.
• Storage fees – Include the time, space, and equipment needed to receive, catalog, and store your inventory until they are sent to a pick & pack station for shipping. Could be a per pallet charge or be based on the total amount of space your inventory occupies.
• Pick and pack fees – Cover retrieving items from storage and packaging them to ship. Bulk rates for shipping multiple items may be available, and some may charge a small order fee.
• Shipping fees – Cover shipping items to your customer.
• Kitting fees – The process of kitting involves combining individual items into a single package before shipping them out. Single items may not be subject to these fees, but they may apply to returned items.
• Return fees – Cover receiving damaged items and items for returns and/or exchange, plus disassembling and inspecting returned items.
• Account management fees – Cover administrative costs, customer service department labor, and other incidentals associated with fulfilling your orders.
Fulfillment companies’ pricing models vary from one 3PL to another
Most often, companies charge a unit-based fee for intake and packaging and charge by the cubic foot for storage. Orders are charged:
• Per item for pick & pack
• By the shipment for receiving
• By the kit for kitting
• A flat rate for customer service
Some fees are based on units – by the pallet and by the hour. Pricing models can significantly impact your fulfillment costs so make sure you understand the fee pricing models used to estimate a 3PL’s fulfillment costs.
Calculating fulfillment costs
To estimate your outsourced fulfillment costs, determine how much inventory you need to store and how much storage space you need. Sometimes, these figures are readily available but if they are not, err on the side of caution by calculating 10% more space than you think you need. Then, determine rates for items and units in a line-item breakdown: how many pallets you will send, how many orders and units per order for a certain period (usually a month). Then, add the totals for each line item, such as,
• (5 pallets) x (storage fee per pallet)
• (10 orders per month) x (pick & pack fee per unit)
• Add the totals for each line item to get a sum total for outsourced fulfillment costs
If you have questions about fulfillment costs for your business, reach out to Phase V’s team of experts today for a free quote.