Being a small e-commerce business owner is tough. You need to find ways to save money when possible while balancing all facets of running a company. In theory, DIY-ing everything may seem like the best way to cut costs. However, when you look beyond the surface, there are hidden costs of doing it all yourself.
One common example of this is order fulfillment, which involves storing inventory, retrieving products, packing items, and shipping orders to customers. When you do this in-house, besides paying for shipping, self-fulfillment is free, right? Well, not exactly.
It may seem as though you’re only paying $4.50 or some other flat fee for postage to ship each package, but there are expenses – both direct and indirect – that many merchants do not factor in.
What are the hidden costs of shipping orders yourself?
The cost of packing materials and supplies
When you manage ecommerce fulfillment in-house, there may be a variety of tools and supplies required. Depending on how you pack your products and which carriers and services you use, you may need to purchase any combination of the following:
- Packing tape
- Bubble wrap, packing peanuts, air pillows, and other cushioning products
- Boxes, poly mailers, and envelopes
- Labels and paper
- Printer and ink
- Mail bins
The cost of transportation
Once your orders are ready to be sent to customers, you have to get them to a shipping location. This often takes the form of driving to the post office or UPS Store. By the time you get all the boxes packed into your car, you may still encounter traffic and trouble finding (and possibly having to pay for) a parking spot. These trips add up, as you’re putting more miles on your vehicle, with the costs of gas and general wear and tear.
The cost of inefficiencies
If fulfillment is not your core business, you don’t always know the best practices. When your processes consist of manual, redundant steps, you can make common but costly shipping mistakes. As more orders roll in, you duplicate these inefficiencies.
You also lose additional efficiencies without:
- Bulk discounts: If you’re not shipping millions of packages each year, you don’t have the best rates negotiated with carriers
- Integration with other systems: If your processes aren’t connected to the technologies you already use, you lack speed and automated processes, data to drive decisions, and transparency for customers
- Multiple locations: If you are stuck shipping orders out from a single location, you may have to pay higher postage for packages that travel across multiple shipping zones
The cost of making your customers wait
When you fulfill orders in-house, you typically settle for the lowest shipping rates you can get. Though it may seem like the best option for you, it might not be as favorable for all of your customers. Let’s say you’re based out of New York, and you need to ship a product to a customer who lives in Los Angeles. Unless you opt for expedited shipping, a package takes time to travel thousands of miles.
When shipments take too long to reach your customers, you may be jeopardizing future business. Why is this? Consumers expect Prime-like service today. Nobody likes to wait. Slow delivery times can fail to meet expectations in your customers’ eyes. When this happens, they are less likely to become repeat customers.
The cost of shipping insurance
Not everyone chooses to insure their packages. Depending on the carrier, service, type of item, condition of the package, and shipping destination, you may already be covered against loss or damage if the contents of your package are worth $100 or less. If not, shipping insurance is another cost if you choose to play it safe. Of course, if your package is damaged, lost, or stolen, you still have to file a claim, costing you more time.
The opportunity cost of completing higher-dollar tasks
Running a successful e-commerce business means you have an infinite number of tasks to complete. Opportunity cost refers to the loss of potential gain from other alternatives when one option is chosen.
Every hour you spend checking for new orders, packing your items, driving to the post office, waiting in line, and shipping your products, you’re missing the opportunity to grow your customer base, develop new products, market your business, and much more.
Since time is the new currency of entrepreneurs, you may need to outsource administrative, operational tasks that give you back more time and can be done by someone other than you – especially when they’re not expensive.
Think about how you spend your time and the daily tasks you complete. How much would you pay others to complete these tasks? By writing them out, you quickly identify which tasks are “low-dollar” and “high-dollar” activities. You will find that not all tasks are created equal.
The table below is an example from ShipBob customer Teri Miyahira’s blog post, “Why Moving Away from Self-Fulfillment Was My Smartest Business Decision to Date.” In it, she breaks down the tasks she was completing into categories by dollar amount. While the exact dollar amounts may differ for your business, this exercise helps show the real value of an entrepreneur’s time.
|Warehousing and inventory management||Talking to qualified leads||Negotiating with qualified leads/prospects (especially for b2b)||Creating new products/services|
|Order fulfillment and packaging||Helping an existing client||Creating marketing campaigns||Expanding to new markets/locations|
|Post office and running errands||Drafting emails to leads and customers||Writing sales copy||Negotiating major deals|
|Customer service||Graphics and video editing||Creating split tests||Drafting brand messaging or positioning|
|Organizing, cleaning||Fixing website||Planning a new sales funnel||Final decision in hiring team members|
|Basic market research||Cost analysis||Scouting for new team member talent||Forward vision thinking and long-term goal setting|
|Ordering supplies||Content creation (writing blog posts or on social media)|
Miyahira realized that every hour she spent completing a $10/hour task instead of a $10,000/hour task, she was effectively losing $9,990/hour in revenue-generating activities. In other words, time is money. If you’re spending significant time on the low-dollar tasks, you are stunting or stalling your growth.
When Miyahira found herself swamped by low-dollar activities, she realized she needed to outsource them. To her delight, 3PL companies already handle most of the $10/hour activities. By delegating these, she was able to focus on the higher-dollar tasks to make the best use of her limited time, generate more revenue, and scale her business much quicker.
When you are on a tight budget, doing everything yourself can feel like your only option. While self-fulfillment may seem mostly free, there are several potential hidden costs. Though they may appear to be miniscule, they should not be excluded when calculating the total costs of fulfillment.
Sometimes, these combined costs will actually be more than the cost of outsourced fulfillment. Of course, fulfillment center costs vary across 3PLs, and the best solution for your business will depend on several factors.
Keeping fulfillment in-house makes sense for some merchants (those who personalize every item, need to control exactly how packages are wrapped, and are still small enough that it’s not taking up too much time). But what works early on may become unsustainable as your business grows. A founder’s time is one of the most precious resources. If it’s time to outsource shipping, check out ShipBob.
See if ShipBob is the right fit for you.
- Case Study: How ShipBob Saves I Heart Keenwah Time on Shipping Orders
- The Top 4 Benefits of Working With a Technology-Enabled 3PL for Order Fulfillment
- 3 Common Packing Mistakes Every Business Makes