If you are an ecommerce brand outsourcing fulfillment, you want to make sure you’re not overpaying for any fulfillment services other than what you need. Particularly in a soft market, with less buyer demand, ecommerce businesses need to cut costs to keep a healthy profit margin.
But as every successful entrepreneur knows, sometimes you must spend money to make money. This is the case when deciding to outsource fulfillment to a 3PL (third-party logistics provider). You often get the service you pay for—hiring a premium 3PL means you won’t suffer lost or damaged products, and you’ll have a higher perfect order rate.
Brands focused on high growth may not know where to cut costs if they’ve partnered with a premium fulfillment provider, but they’re also worried about losing sales volume. Here are some of the best places to cut fulfillment costs to continue meeting your customer’s needs, but not overpaying in a soft market.
How Much Should It Cost to Outsource Fulfillment?
When choosing a fulfillment provider, you want to find a partner who fits your brand needs. Many ecommerce businesses (especially ones first starting out) might choose a 3PL based on low costs. What they don’t realize is that the promise of cost savings can be an illusion.
It’s very common for smaller brands to get lured in by a 3PL with basic services and the lowest cost. But within a year, they realize they’ve outgrown the 3PLs capacity for growth. Or worse yet, the 3PL has poor service, loses products, or other fulfillment issues. In the end, you may pay more money and have more issues to resolve with a basic provider than with a premium 3PL with a higher base rate.
What are Common Fulfillment Fees?
It’s important to understand basic fulfillment costs before you can cut any out.
Here are some of the core costs you might pay a 3PL:
- Onboarding — usually a flat fee so there is not much room to budge on this cost, it likely covers integrating your business and setting up your account with any software or communication tools.
- Receiving — you’ll need to get your products to a new warehouse, which incurs shipping and logistics fees. Ask your new provider if there are any ways to choose a slower shipping service to reduce costs.
- Pick and pack — this is the core competency of a fulfillment provider, so it’s not a cost that can be changed. But you’ll pay more for extra SKUs, so by pairing back the amount of products you offer you might be able to see a price break with this fee.
- Inventory management and storage — you’ll need to pay for your 3PL to store your products, but pallet optimization is a big place you can save money (more described below).
- Shipping — by outsourcing to a 3PL you’ll likely benefit from their bulk volume shipping discounts. If you’re not sure, reach out and ask.
Ultimately you want to work with a fulfillment partner who can help you reduce excess expenses. If your 3PL is truly an extension of your brand, they’ll jump at the chance to optimize your business, in whatever way you need.
Read how Therabody’s business grew after switching 3PLs to a provider with greater scalability.
Ways to Reduce Fulfillment Costs
While many fulfillment fees may seem static and like they cannot be changed, there is usually at least some wiggle room. Ecommerce brands will want to find creative ways to save on costs if their demand dips lower than expected.
Here are six ways to reduce your overall fulfillment costs.1. Reduce pallet storage
A 3PL will store products on pallets within their warehouse or distribution center. Companies are billed for storage based on the number of pallets that are in storage at any given time. Since storage fees can add up quickly, brands can look at reducing their pallet quantity to reduce their overall storage costs.
This is tricky because no one wants low inventory which leads to backorders and stockouts. But by doing a regular inventory audit, you may find that there is 5-20% dead stock that’s does not need to be sitting in the warehouse. Alternatively optimizing how your products are stored on pallets might make a small difference in the number of pallets you ship to your 3PL’s warehouse.
2. Reducing package size.
Many brands choose boxes that are too big for their products and add more packing materials than necessary. This adds costs quickly. Optimize your product packaging by “right sizing” the boxes you use. Use an envelope instead. By having smaller, tighter packaging, you’ll save by buying fewer packing materials. You’ll also save on shipping costs (both because of less weight and lower DIM).
3. Simplifying packaging
Branded boxes are great for aesthetics but hard on your budget. If you really want some branded flair but can’t afford it, there are many packing options you can switch to. Instead of tissue with your logo printed on it, choose a solid brand color. Branded boxes are great, but so is a brown box with branded tape.
Just remember any additional inserts or manual fulfillment processes taken will add costs. If you’re really looking to cut costs, opt for any packaging that will flow through your 3PLs automated fulfillment and packing machines.
4. Phase out value-adds.
If you have premium products, chances are you want to give your customer a premium unboxing experience. That comes with extra labor and attention to how your products are packaged. Maybe you include inserts into each package or have special kitting projects that set your brand apart. In a soft market it’s important to look at these options and decide which are essential to your overall brand.
5. Increase automation
As mentioned above, any manual tasks that are added to your fulfillment flow will cost extra (time and money). Chat with your 3PL about what automation techniques they use most, and how you can incorporate them. Your cost savings may not be realized immediately, but they will eventually.
6. Fulfill orders closer to the customer
If your 3PL has multiple warehouses, hopefully they are already fulfilling orders based on the facility closest to the destination zip code. If this isn’t a default setting, you may need to do a bit of auditing to ensure your inventory on-hand is shipped from an optimized warehouse. This will significantly reduce shipping costs.
If you are looking for a 3PL partner to work with we would love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.
Tags: Fulfillment Costs, warehouse management