It’s estimated that in 2020, two billion people purchased goods or services online and online retail sales passed $2.4 trillion worldwide. And? By 2022 it’s projected that these sales will grow to $5.4 trillion. FedEx alone delivered 6 million packages every day in 2020. Online retail is certainly surging and as a result, eCommerce brands are looking for ways to keep up with demand. As your business expands, you need a partner to get your products to your customers quickly, efficiently, and affordably. One way to keep up with demand is a third-party logistics provider or eCommerce fulfillment partner. But what kinds of costs are associated with working with a fulfillment partner? Here’s what you need to know about eCommerce fulfillment pricing.
About eCommerce Fulfillment PricingWe can look at eCommerce fulfillment pricing in terms of cost per order (CPO). This is the total combined costs of:
- Warehouse expenses
- Cost for receiving, shelving, and storing product
- Picking and packing
- Reverse logistics or returns processing
- Occupancy costs
- Packing materials
Calculating Your eCommerce Fulfillment CPOJust as not every 3PL partner will have the same tools and technology on hand to make the fulfillment process simpler, your CPO will not be the same from one fulfillment center or 3PL to the next. Having a 3PL partner who is a true part of your team, one that works to keep your operational and fulfillment costs low can have a huge impact on your eCommerce fulfillment pricing. Here are four helpful calculations you can use to understand and evaluate your cost per order as you compare potential eCommerce fulfillment partners:
- Total fulfillment center CPO: This is the total costs for your fulfillment center each year divided by your annual number of orders shipped.
- Total fulfillment center cost per order line: This is the total fulfillment center costs divided by the total order lines over the year.
- Total fulfillment center cost per box: This is the total fulfillment center cost divided by the annual number of boxes shipped.
- Total fulfillment center costs as a percentage of total net sales: This is the total of your fulfillment center costs divided by annual net sales, then multiplied times 100.
Strategies to Keep Fulfillment Costs AffordableThere are all kinds of ways to lower your fulfillment costs and make the cost of working with a 3PL provider more profitable for you. This gives you the chance to reinvest in your products and/or your customers and provide an even better shopping experience. For example, if you find ways to decrease the costs of packaging, you can find ways to reinvest and customize the packaging for a more memorable brand interaction. What are some ways that you can cut into your fulfillment pricing?
- Using predictive analytics software and inventory forecasting to maintain the right amount of inventory in the warehouse. Too much inventory and you end up paying for excess warehouse space and run the risk of spoilage if any of your product has a specific shelf life.
- Increase order value with kitting or bundling. The cost of shipping a series of orders can cut into your profits. Bundling helps move out unwanted inventory, adds value for customers, and increases sales while helping to distribute the cost of shipping over a larger number of products. Kitting makes it easier to predict picking and packing times and shipping costs.
- Automating part or all of your supply chain. Not every part of your supply chain or fulfillment process needs to be done by hand. While certain steps may need special attention, many online retailers develop packaging that can be assembled by a machine, or use automation to make picking and packing more accurate and efficient, or implement automation tools to insert promotional material into a package once it’s filled and ready to ship.
- Keep factories, fulfillment centers, packaging manufacturing, and customers nearby. It can be quite expensive to have your products manufactured in one part of the world and your packaging in another, then have them shipped somewhere else entirely for warehousing and fulfillment, then sent over great distances once more to reach your customers. Some retailers have pinpointed where they have the largest customer base and set up their operations in that region to keep shipping efficient and affordable and reduce the overall CPO.
- Offer free shipping to increase sales. It might seem counterintuitive at first to relieve customers of the responsibility of shipping costs, but 93 percent of customers are actually more likely to buy a product online if their shipping is free. With more sales come more profits, which can help allay the costs of eCommerce fulfillment.