Fulfillment is where the action takes place in an online supply chain. The sooner you can complete and ship orders, the more satisfied your consumers will be. However, fulfillment comes at a cost, and it is not as easy as choosing and packaging boxes. Maintaining fulfillment center costs as low as possible while fulfilling customer expectations for speedy, economical shipment may appear unattainable, but there are various strategies to save expenses while providing an excellent customer experience.
This article discusses what is fulfillment center pricing, the types of costs that are included in the fulfillment cost how to calculate this cost.
What Do You Know About The Fulfillment Center Cost?
The overall charges and expenses determined for receiving inventory, holding items, processing orders, selecting, packaging, and shipping all orders and inventory are referred to as order fulfillment costs. Common retail order fulfillment costs vary depending on the supplier, the number of orders submitted, the price model, and any added services.
Fulfillment Center Pricing Explained
Whereas many fulfillment price structures exist, certain costs are shared by all 3PLs. Here are some of the costs you may incur while working with a 3PL, as well as what you should know before signing an agreement.
A significant amount of preparation is required when first working with a fulfillment provider, including connecting your online store, constructing storage infrastructure, and training people to handle your items. Because this phase is frequently time-consuming for the provider, some organizations charge a one-time onboarding fee to pay it. The fee ranges from $100 to thousands of dollars depending on the size and complexity of your stock but typically averages approximately $550 for small firms.
However, there are some fulfillment partners that provide service contracts with no initial setup price.
Inbound Shipping Fee
You will pay the freight or container shipping fee from your supplier to your warehouse facility, which varies based on the amount, dimension, weight, and origin of your items. Many fulfillment partners obtain lower prices from shipping carriers and pass these savings on to you. This can significantly reduce your inbound shipping expenses.
Inventory Receiving Fee
Receiving your inventory entails scheduling shipments along with unloading, inspecting, labeling, and categorizing your items, all of which take a significant amount of time and effort. As a result, it is often billed by the hour. Expect to spend between $25 and $45 each hour to get your item, unless your service charges a fixed amount per unit. This costs between $5 and $15 for each pallet.
Shipmonk and FBA pricing structures do not charge for the receipt as long as your shipping adheres to rigorous rules. Companies may do this since their receiving procedure does not entail classifying, tallying, labeling, tagging, or cross-checking your items against the purchase order. These responsibilities belong to you and your suppliers.
Storage costs are generally calculated depending on the amount of space your goods occupy. You will also have to spend more if your things require special security or temperature control. According to a survey, fulfillment partners charge anything from $8 to $40 for each pallet per month to keep your products, with the average cost costing $14.79 for each pallet. Some businesses compute this cost based on cubic feet or individual bin occupancy.
Due to volume and demand changes, certain suppliers will dramatically increase their storage prices during peak periods which are typically from October to December. Although it is not a prevalent aspect, make sure to check your agreement for seasonal fluctuation. If your items require specific services such as refrigeration or hazardous handling, storage prices will often include a 73% charge.
Pick and Pack Fee
Many fulfillment companies charge a fee for this procedure, which includes the work of selecting products for an order as well as the materials needed to package them. Fulfillment firms frequently charge a fixed per-order cost, generally, between $3 and $5. Some suppliers reduce this cost by starting with a lower base price and then adding an item charge for each extra unit in the order. The dimension and kind of packing material necessary to convey your items safely might also add to the pick and pack cost.
Outbound Shipping Fee
Whenever it comes to shipment, fulfillment firms often provide a great deal of flexibility, but you can anticipate the related price to be one of the highest on your payment schedule. As a retail partner, you have the option of using your own carrier or the company’s recommended provider. Though each alternative has advantages, it is vital to remember the huge discounts given by fulfillment providers owing to the enormous volumes that they ship on a daily basis.
If you use the fulfillment company’s carrier, you should expect to save 10% to 30% off your usual costs. The exact cost of delivering your items is determined by their dimension, weight, and destination.
handling your customers’ returned items is a function that not every fulfillment firm provides, but it is a key convenience for most vendors. Costs for handling and refilling will be incorporated by fulfillment suppliers that offer a returns service. The total expenses are generally around the same as the pick and pack phase plus the cost of the return shipment.
If a more thorough examination is necessary to establish whether returned products fit your store’s requirements, you will almost certainly be charged an extra cost.
Account Management Fees
Certain fulfillment companies charge a monthly fee for any additional services required to maintain your account running successfully. This includes interacting with you and your suppliers, dealing with incidents, upgrading software, and other tasks.
The cost varies greatly depending on the dimension, complexity, and demands of your organization, but it often runs from $50 to $1,000 each month. Some companies charge a set monthly fee for account administration for the duration of your contract, while others charge $40 to $60 per hour for any duties required.
Additional fees in this situation are usually the fulfillment contracts and legal fees.
A fulfillment contract is a formal agreement between you and the fulfillment provider to deliver the goods on conditions agreed upon by both parties, including fee structure and payment requirements, but also less significant features like insurance issues and obligations.
These contracts can contain a wide range of topics, and your fulfillment contract should be written in clear, intelligible language. Although you may want legal assistance in designing and finishing a contract, you do not need a degree in law to comprehend it. However, you should be aware of the following critical information:
- Term length: The period of time for which you commit to pay for and use the company’s services.
- Charges: A thorough explanation of how your costs will be calculated and how frequently they will be invoiced.
- Annual price increases: The estimated cost increase to accommodate the growth and variations in the provider’s expenses.
- Error rates: The precision guaranteed by your fulfillment service supplier.
- Claims: An explanation of the procedure for handling losses and damages.
- Insurance: Fulfillment company details to help to choose and sort things faster and simpler.
- Arbitration: A clause explaining how issues between parties will be settled.
There are various factors to think about, and the costs of fulfillment agreements are high, you are turning over your expensive product as well as your customer’s loyalty to another firm.
Therefore, you should hire an attorney to assist them in evaluating the transaction prior to signing. The advice you require should not be lengthy, but it is critical to evaluate the cost of hiring counsel if this is an option you plan to utilize. Who will be liable for legal expenses if goods are destroyed in transit? In that instance, it will be determined who broke the contract first and then a decision depending on the law will be made. Risk management includes legal expenses.
How To Calculate The Fulfillment Center Pricing?
When you want to determine how much it will cost to outsource your process, asking professionals is the best option. You will receive a customized price depending on the specifics of your business. When evaluating rates, there are numerous crucial metrics to examine.
Cost Per Order (CPO)
Total fulfillment expenses for a time period are divided by the number of orders fulfilled during that time period.
Cost As A Percentage Of Sales
The total cost incurred for a certain time period is divided by net sales for the same period.
Despite how a retailer operates, implementation costs are a big component of their costs. It is vital to keep in mind the details of the implementation’s impact on conversion rates and customer retention. With companies like Amazon setting high expectations for delivery timelines and return procedures, being timely is more important than ever.
Fulfillment center cost account for a sizable portion of every e-commerce store’s operating expenses. The process has a significant influence on customer experience, revenue, and ultimate profit, making successful fulfillment an investment worth making. Collaborating with a fulfillment firm is an important step forward in increasing efficiency and generating growth. The accompanying expenses are comprehensive and sophisticated, but the amount of customization provided by those calculations implies you are just paying for what you use, which is always to your advantage.