Succeeding with your ecommerce business means finding ways to manage your inventory so that you maximize profits, minimize waste, and get packages to your customers in a timely manner.
To help you achieve these goals, you may consider hiring a third-party logistics company (3PL) to assist with your fulfillment service needs. As you interview potential 3PL partners, you may notice a wide difference in the way they price their services.
This leads you to the question: What am I paying for when I use package fulfillment services?
At the most basic, there are five major types of costs that 3PLs factor into their fulfillment pricing: initial set-up fees, receiving and intake fees, storage fees, order fulfillment fees, and general shipping charges.
Initial Set-up Fees
Your initial set-up fees will vary based on what sorts of things you need to get started with your 3PL.
If you need to connect your online shopping cart to the warehouse, you’re going to get charged more because this step requires assistance from IT professionals. For those who already have all the basics in place to transition to a 3PL, such as those who are moving over from another provider, the start-up costs are going to be much lower.
The initial set-up fees you’ll be charged can range from the hundreds of dollars into the thousands depending on what items are included and the individual provider’s prices.
When getting pricing quotes from individual 3PL companies, compare the services you receive with your set-up costs as well as the prices for each line item of those fees.
Receiving & Intake Fees
This type of fee is also called receiving and sorting fees, and covers the costs of the warehouse receiving, inventory counting, inspection, and putting your products on the shelves at the warehouse, among other things.
The way 3PLs charge this fee varies widely, with some charging an hourly rate or a per unit basis. Some charge per order, others per pallet, some by item or box, and still others may charge a per-SKU fee.
Some 3PLs don’t actually charge any explicit receiving fees, instead rolling the receiving fees into the picking and packing fees, causing those fees to appear higher overall. You may find this to be a simpler solution.
Storage Fees
Your storage fees are going to cover the cost of the 3PL actually keeping your products in their warehouses, awaiting shipping.
Most fulfillment service providers charge for this service based on how much storage space you utilize on a monthly basis, and can be calculated by the pallet, by the square foot, or by the cubic foot. How much you actually will be charged per unit for storage depends greatly on the location of your warehouse, their volumes, any special warehousing requirements you may have (such as climate controls), and other factors.
Typically, warehouses select a day each month where they perform a pallet count. The amount of space you are using on this date of the month is how much you get charged in storage fees.
So, if you had a high volume of inventory move out of the warehouse in the weeks prior to the monthly pallet count taking place, your warehousing costs may be lower even though you overall moved more product than in previous months.
Order Fulfillment Fees
These fees also are called pick and pack fees, and they refer to the cost of workers removing specific products from their warehouse shelves and readying them for shipment either to the customer or on to a retailer to be sold.
In some cases, order fulfillment fees are charged on a per-order plus a per-item basis. So, the 3PL will charge you a flat fee for every order fulfilled, then an additional smaller fee for each item picked as part of that order. Some 3PLs may charge you additional for heavier products, and you may also be charged a box fee in addition to the fulfillment fee.
With this portion of the order fulfillment service fees, more than any of the other types of fees, it’s important to get a clear understanding of what your 3PL charges for, how much they charge, and how they calculate any additional fees and costs.
General Shipping Charges
No matter what, your shipping charges are going to be among the largest line items in your overall order fulfillment budget. It’s expensive to get products from one place to another, but working with a 3PL can help bring that cost down.
Many 3PL companies receive reduced rates from shipping companies due to the overall volume of packages they send, and if your 3PL offers you their own shipping rates or shipping rates that are below those you would get working with the shipping company on your own, you can dramatically reduce your costs for this charge. Some also offer discounted shipping rates, either discounts off the published retail rates from a shipper or a cost plus model, which takes the 3PL’s shipping costs and adds a percentage mark-up but is still below retail rates.
However, not all 3PL companies allow their clients to utilize their bulk shipping rates; some do ask their clients to form their own relationships with shippers and get their own rates. Check with your chosen order fulfillment company to see how they handle shipping rates and whether any discounts are available.
Experienced Order Fulfillment Service on the East Coast
For more than 35 years, Cannon Hill Logistics has provided exceptional order fulfillment services for businesses across the globe. Our fulfillment center is located on the East Coast, just a short drive from Baltimore-Washington International Airport and the Port of Baltimore. Let us design a custom solution for your shipping and fulfillment needs – Call today for a quote!
