Fulfillment Costs Explained
In an ecommerce supply chain, fulfillment is where the magic happens. The faster orders can be fulfilled and shipped, the happier your customers will be.
But fulfillment comes with a cost, and the process isn’t as simple as picking and packing boxes. Keeping fulfillment costs low while also meeting customer expectations around fast, affordable shipment can seem impossible, but luckily there are several ways to reduce costs while delivering a great customer experience.
This article covers the different line items associated with fulfillment and how to easily calculate fulfillment costs.
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What are order fulfillment costs?
Order fulfillment costs are the total charges & expenses calculated for receiving inventory, storing products, processing orders, picking, packing, and shipping of all orders and inventory. Common retail order fulfillment costs vary by provider, orders placed, pricing models, and any additional services.
What is a 3PL?
A 3PL is a logistics services provider that allows merchants to outsource fulfillment, which includes warehousing, inventory management, and fulfillment. 3PLs take care of all fulfillment-related tasks that can often be too costly and unproductive to manage in-house.
Partnering with a 3PL can help your business save on fulfillment costs and time, freeing up resources to focus instead on product development, marketing, and business growth.
However, not all 3PLs are created equal, especially when it comes to digital fulfillment pricing models and 3PL costs. To help figure out which 3PL is best for your ecommerce business, it’s important to familiarize yourself with the different expenses and pricing models involved. Read on to learn how to calculate fulfillment costs for your ecommerce business.
How to calculate fulfillment cost per order
Fulfillment costs vary depending on what 3PL and distribution center you partner with and their pricing model, but standard pick and pack fees usually start around $0.20 per pick.
Along with pick and pack fees, there are other costs to consider when you look at the entire fulfillment process.
To calculate total fulfillment costs, you’ll need to add up the following expenses:
- Warehouse receiving: Labor costs associated with receiving new inventory, calculated using an hourly rate.
- Storing and managing inventory: A monthly cost, including the amount of pallets, shelves, and bins being used to store items.
- Warehouse picking and packing: Labor costs associated with picking and packing items, calculated by the number of items being picked over time.
- Standard or custom packaging: The price of standard packaging (e.g., generic poly mailers and boxes) or the use of branded packaging (e.g., eco-friendly packaging).
- Kitting (if applicable): Pre-assembly of separate pieces into a single offering or the arrangement of a package a certain way, which is offered as an additional service by most 3PLs.
- Return management and processing: Costs associated with restocking or disposing of returned items.
- Automated shipping: Costs vary based on destination, weight, dimensions, carrier used, shipping speed, etc.
Since there are so many variables associated with fulfillment costs, it’s always best to use fulfillment software that can track the average fulfillment cost per order.
For instance, ShipBob’s fulfillment technology makes it easy to break down fulfillment costs by activity. Through ShipBob’s dashboard, you can get insights into:
- What is my average storage cost per unit?
- What is my average fulfillment cost per order?
- How much are my customers spending by shipping method?
- What is my average shipping cost per shipping method?
- What is the total number of bins/shelves/pallets I’m being charged for?
- What is the average shipping cost by shipping method and order?
With deeper insights into fulfillment performance, you can find ways to optimize fulfillment costs, such as moving inventory into a fulfillment center location closer to your customers.
This inventory allocation method reduces the average shipping zones of shipments by keeping inventory closer to your end customers, therefore reducing shipping costs while speeding up delivery).
Common 3PL pricing models
Not all 3PLs are created equal. Aside from the standard picking and packing model, value-added services and capabilities should be taken into account, such as:
- Fulfillment technology
- Inventory management software
- Customer service
- Data and analytics reporting
- Customization options (e.g., kitting and custom packaging)
- Geographical footprint
- International fulfillmentcapabilities
Though the cheapest 3PL isn’t always the best option, if you’re paying a premium for order fulfillment, the value should be clear.
3PL fulfillment pricing and cost structures can be confusing, and hidden costs add up quickly.
Here is an overview of the common 3PL pricing models.
Total fulfillment cost (ShipBob)
ShipBob’s pricing model is reflective of a total fulfillment cost for standard, direct-to-consumer order fulfillment. Rather than cluttering your invoice with line items or hidden fees, this pricing model simplifies fulfillment costs by only charging for receiving, monthly inventory storage, and shipping. Standard picking and packaging incur no additional costs.
This simple pricing model helps ensure that retailers avoid any hidden fees or surprise costs during the fulfillment process.
“I really like that the pricing structure was simple and there were not any additional add-on charges. I didn’t really have any alternatives I was considering, because ShipBob was the easy choice.”Matt Dryfhout, President & Founder, BAKblade
Fulfillment by Amazon (FBA), the fulfillment service for products that are sold via the Amazon marketplace and fulfilled by Amazon, uses a unique pricing model
Amazon is able to charge discounted fulfillment fees because they also receive a cut of every sale, called the seller fee. Seller fees mean that merchants often take home less profit on each sale than they would by selling on their own website. Sellers also lose the ability to highlight their brand when they ship via FBA — all packages will send in Amazon-branded boxes, and the entire customer experience and communication will take place via Amazon.
Amazon also charges additional long-term storage fees for inventory that doesn’t sell within a certain time period. Amazon FBA costs are complex, varying based on seasonality, the type and size of the item, and a variety of other factors.
Pick and pack
As the name suggests, the pick-and-pack pricing model includes charges for each individual item picked in the process of assembling an order. The pick and pack fee is essentially there for companies to track and charge for every touchpoint in a packages’ fulfillment lifecycle.
Order fulfillment costs with a 3PL & fulfillment center pricing
Below is an example of a common 3PL pricing models and their associated costs.
|Receiving||Flat rate||$25 for the first two hours|
|Storage||Per bin, shelf, and pallet||$40/pallet/month, $10/shelf/month, $5/bin/month|
|Pick and pack fees||Included in total fulfillment cost||Free for the first 4 picks, then $0.20/pick|
|Standard packaging||Included in total fulfillment cost||Free|
|Kitting fees||Per-project basis||Starting at $0.40/unit/kit|
|Shipping||Carrier pricing passed directly on to client||Varies based on destination, weight, dimensions, shipping speed, etc.|
Note: Just like there is no one-size-fits-all fulfillment solution, there is no one pricing model that fits all businesses. Reach out directly to ShipBob team for custom pricing that takes into account your business’s size, needs, and budget.
“When I was shipping orders myself, what I paid per order is the same price now to pick, pack, and ship orders through ShipBob. It’s even much cheaper to ship to certain countries, which used to take ages and often got lost with localized post here.
Now, I have very transparent pricing, and I can easily run and plan my business. I also like that I’m billed right away. My old carrier billed monthly, which would drain a huge sum of Euros from my account at once. My cash flow has improved.”Leonie Lynch, Founder & CEO of Juspy
Common 3PL order fulfillment costs & pricing explained
While there are several different fulfillment pricing models, there are many common costs across 3PLs. Here are some of the expenses you may encounter when working with a 3PL and what to know before you sign an agreement.
When getting started with a new 3PL, you may encounter onboarding costs to get ecommerce fulfillment services up and running. Onboarding is worth the investment since it is designed to help reduce headaches and confusion when getting started with a fulfillment provider.
“We loved our implementation experience, and our [ShipBob] Onboarding Specialist and Account Manager have been so accessible, invested, open, and hands on. They are awesome and on top of it — I’ve known what’s going on every step of the way.”Lindsay Louise, Fulfillment & Retail Manager at Synchro
Inventory receiving costs
Before a 3PL can start processing and fulfilling orders from your online store, they need to receive your inventory first. In inbound and outbound logistics, receiving refers to the acceptance and storage of incoming inventory. Different 3PLs charge for receiving in different ways, including per-unit, per-pallet, flat rates, or per-hour. At ShipBob, we charge a flat $25 fee for the first two hours of receiving and storing inventory.
Inventory storage costs
When you store your inventory at a 3PL’s fulfillment center, you will be charged for storage space. Warehousing fees can range from per-SKU or per-unit storage to a fixed fee for each bin, shelf, or pallet used.
ShipBob charges for ecommerce warehousing on a per-shelf, bin, and pallet basis, so you only pay for the space you use on a monthly basis.
Order pick and pack costs
Some 3PL models include pick and pack pricing. Once your customer places an order, the fulfillment process begins with picking, or collecting each ordered item from its designated storage location using a picking list. Many fulfillment providers charge on a per-pick basis, meaning you pay a fee for each item included in an order.
“There were definitely cost savings in moving to ShipBob as the old 3PL charged us for every pick fee, which added up. ShipBob has a simpler approach to pricing with several picks included instead of charging every little fee, which helped us consolidate our logistics costs considerably.”Torii Rowe, COO & Co-Founder of MANSSION
Other 3PLs like ShipBob don’t charge pick fees for orders under a certain number of items.
Your packaging is often a customer’s first in-person impression of your brand. Some 3PLs will charge for packing materials such as standard boxes, as a separate line item, while others include them as part of their fulfillment services.
At ShipBob, for example, plain, standard packing materials — brown boxes, yellow bubble mailers, white poly bags, packing tape, and airfill — are included at no extra cost. Merchants can use custom branded packing materials at an additional cost.
Some 3PLs offer kitting and assembly services. Kitting refers to any unique accommodations for the way in which items are assembled, arranged, or packed before shipping. Common applications for kitting include assembling multiple SKUs or preparing inventory in a particular way during the packing process. Because this service is so specific to each individual client, kitting fees can vary.
Finally, ecommerce shipping costs: the amount a 3PL charges to ship an order from their fulfillment center to your customer’s doorstep. Many 3PLs have relationships with major shipping carriers that allow them to pass volume discounts onto their clients. Shipping costs take a variety of factors into account, including shipping speed (such as two-day shipping), shipping zones, and dimensional weight.
ShipBob passes the (often discounted) cost of shipping from the carrier on to the client, which helps reduce shipping costs.
“It makes it a lot easier to spend marketing dollars when we know exactly what shipping costs are going to be with ShipBob.”Greg MacDonald, CEO & Founder, Bathorium
ShipBob’s 3PL pricing explained
Since there is no one-size-fits-all fulfillment solution, there is no one pricing model that fits all businesses.
However, that doesn’t mean you should be left in the dark on how much you’ll be paying for fulfillment costs when partnering with a 3PL.
Unlike many 3PLs, ShipBob offers transparent, custom pricing with no hidden fees. Our pricing model is reflective of a total fulfillment cost for direct-to-consumer fulfillment, so you’ll know exactly what your costs will be.
Below is a breakdown of the standard fees.
The cost of inefficient fulfillment
Whether you’re looking to switch from in-house fulfillment to a 3PL, be aware that many traditional 3PLs don’t offer the infrastructure, modern technology, visibility, expertise and customer support needed to build an on-demand logistics strategy.
Without taking the time to choose the fulfilling solution for your needs, there is a lot at risk that can hinder the growth of your business.
“We are willing to pay a premium for a premium product. In our initial call with the new fulfillment network, we were told that our average fulfillment cost would be around $0.15 to $0.20 higher than ShipBob. In actuality, our costs were around 50% higher than that of ShipBob, and the new fulfillment solution was not a superior product in the slightest.
They even overcharged us with billing errors. While many 3PLs utilize a complex pricing model that makes forecasting expenses nearly impossible, ShipBob has a clear pricing model so we know exactly what we’re going to be billed.”Gerard Ecker, Founder & CEO of Ocean & Co.
Here are a few retail supply chainconsiderations to keep in mind.
Inefficiencies and roadblocks
The following manual, outdated processes and limitations can cause you to make common but costly shipping mistakes.
- No bulk discounts: If you’re not shipping millions of packages each year, you don’t have the leverage to negotiate shipping rates with major carriers. Plus, if you’re only working with one carrier, you may be missing out on a strength of another, such as discounted international shipping costs. If you’re just starting out and shipping a low volume, you’ll also be paying commercial prices for packing materials.
- Lack of integrated systems: If your processes aren’t connected to the technologies you already use, you lack automation, data to drive decisions, and transparency for customers. This can slow down and even impair your operations.
- Only shipping from one location: 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.
- Trips to the post office: Making several trips to the post office each week is time-consuming and expensive.
- High overhead: Choosing to invest in the operational infrastructure to fulfill orders yourself is expensive. This set of fulfillment costs includes warehouse space, forklifts and other equipment, warehouse management software, recruiting and labor, workers comp, liability insurance, and other logistics costs — not to mention the time it takes to get this all set up.
Keeping customers waiting for their deliveries
When shipments take too long to reach your customers, you may be jeopardizing future business.
53% of consumers say that speed of delivery is an important factor when it comes to evaluating their online orders. The same study found that more than half of shoppers in the United States have abandoned an order because delivery was too expensive, and a quarter of shoppers have canceled an order because of slow last-mile delivery speeds.
“We partnered with ShipBob to scale up operations in the United States. We’ve seen a reduction of 70% on shipping costs in the US, which helps keep conversions high.”Greg MacDonald, CEO & Founder, Bathorium
Today’s consumers expect Amazon-like service everywhere they shop online. Nobody likes to wait. Slow delivery times can fail to meet customer expectations. When this happens, they are less likely to become repeat customers.
Only focusing on fulfillment
When it comes to growing a successful ecommerce business — time is money. While your to-do list is never-ending, some tasks deserve your time more than others.
Whether you’re making phone calls or emailing back and forth with a traditional 3PL, constantly checking for new orders, or packing your items and driving to the post office to wait in line, you’re missing the opportunity to grow your customer base, develop new products, market your business, and much more.
In other words, you may be losing money by not outsourcing operational tasks to an experienced, affordable 3PL. Outsourcing fulfillment can help you dedicate valuable time to performing what ShipBob client Teri Miyahira calls ‘high dollar tasks.’
“As a business owner, you should always be in the highest dollar activities bucket to best utilize your time and, ultimately, make the most money for your business,” says Teri, whose namesake beauty brand began outsourcing fulfillment to ShipBob in 2016.
“The more time you spend doing high dollar tasks in a given bucket ultimately determines how quickly your company will be able to scale in the long term, especially if you are bootstrapping (like my business) and have zero investment dollars coming in.”
Now that you know more about fulfillment costs and 3PL pricing models, you’re on your way to figuring out which fulfillment strategy is right for your business.
“ShipBob’s advanced software helps us quickly understand shipping costs and how to improve shipping times by being closer to where our customers are.”Andrea Lisbona, Founder & CEO of Touchland
Since there is a ton of information out there, it can be hard to decide what next steps to take. When choosing to outsource supply chain management to a 3PL, make sure you do your research and gain an understanding of potential hidden costs.
“Last July, Prymal reached $40,000 in revenue. After switching to ShipBob just four months later in November, we are reaching $160,000 a month in revenue — that’s 300% growth. We’re also saving $8,000 per month in fulfillment costs.”Courtney Lee, founder of Prymal
If you want to learn more about finding a fulfillment company you can trust to help your business grow, check out our e-guide, “How to Choose a 3PL for Your Ecommerce Business.” This guide covers the right questions to ask a potential 3PL to make sure you’re a mutual fit, which technology and features to look for to achieve faster, more affordable order fulfillment, and much more.
If you have unique needs, such as custom packaging, kitting and bundles, custom packing slips, etc., ShipBob can accommodate your business at an additional cost. Quotes are customized to fit each client’s individual needs.
“We did some market research, and I knew some other brands that used ShipBob. I think the first thing that really came through with ShipBob was that the pricing structure was very easy to understand. The pricing was competitive, but most importantly, the services were excellent. Everything just works.”Sergio Tache, CEO of Dossier
Get a fulfillment quote from ShipBob below and learn if we’re a good fit for your business.
Fulfillment cost FAQs
1. What is 3PL fulfillment?
3PL fulfillment is defined as the outsourcing of fulfillment logistics to an external partner. These processes include inventory management; picking, packing, and shipping orders; and managing returns.
Many ecommerce retailers partner with 3PL to outsource supply chain management that can often be too unproductive, costly, or complex to manage in-house.
If you no longer have the bandwidth or space to fulfill orders yourself, working with a 3PL can help automate shipping and other time-consuming tasks. Freeing up the time taken up by product fulfillment allows you to focus instead on growing your business.
2. What are fulfillment costs?
When you outsource fulfillment, you’ll have to pay fulfillment costs. Fulfillment costs include receiving and storing inventory, standard packaging, picking and packing, and shipping. Other fees might include kitting and returns management.
3. What is a fulfillment system?
A fulfillment system refers to the system that manages the complete process of receiving, processing, packing, warehouse picking, and shipping an order. Online order fulfillment can be done in-house or outsourced to a third-party order fulfillment services provider. A 3PL helps automate the entire process often utilizing proprietary fulfillment software.
A successful order fulfillment strategy is vital for ecommerce businesses to stay competitive and build customer loyalty.
4. What does ‘in fulfillment’ mean on an order?
When an order is ‘in fulfillment,’ it means that an order is processing and is currently being prepared for shipment. The order fulfillment process is not complete until it is delivered to its destination.
5. How much do fulfillment companies charge?
As mentioned above, different 3PLs price their fulfillment services in different ways, including total fulfillment cost, pick-and-pack, and more. Some fulfillment companies charge one overall monthly price, while others charge on a per-touch or per-order basis.
6. How much does ecommerce fulfillment cost?
It varies based on the 3PL you partner with. For general pick and pack fees, it can cost around $.20 per pick. When you partner with ShipBob, your first 4 picks are free.
7. How do I choose the right fulfillment center?
If you’re only shipping from one location, you’re limiting your business’s reach in key markets where your customers reside — and probably paying too much for shipping. When deciding on the right fulfillment center(s), choose a 3PL that operates locations in the United States and internationally.
8. What are fulfillment center costs?
Fulfillment centers usually charge on a per unit or hourly basis. Extra fees are common for services like damage inspection for example.