Types of Fulfillment Costs
Fulfillment costs are any fees associated with storing inventory, processing orders, and delivering products to the end consumer. They include reverse logistics (returns processing), restocking fees, pick and pack, kitting, and receiving costs. Furthermore, fulfillment costs vary based on the company and the products being sold. Managing fulfillment in-house can be costly and time-consuming. It is crucial to be completely aware of all costs to maximize profitability and accurately calculate ROI. This article will focus on the ten types of fulfillment costs typically charged when working with a 3PL.
Initial Setup
The first step in working with a 3PL is the initial setup. This includes integrating your point-of-sale systems with their fulfillment software, inventory tracking, and order tracking programs. Most 3PL companies charge a flat fee for this service and provide initial training. Falcon Fulfillment includes a designated account manager to assist with the initial setup and throughout the relationship.
Account Management
The account management fees cover the administrative costs of handling your order fulfillment. This can include customer service fees, technical support, and other ancillary activities to serve your business and clients.
Inbound Shipping
Inbound shipping is the cost of shipping your product to the fulfillment warehouse. Products can ship via land, air, sea, or a combination, depending on the location of the supplier or manufacturer.
Receiving Cost
Receiving costs, also sometimes called intake fees, include every aspect of processing your product when it arrives. 3PL companies charge by the hour or flat rate (by the unit/item quantity). When your shipment arrives at the warehouse, the staff will review your order for accuracy in quantity and check for damages. Lastly, the receiving crew will scan your inventory into the system, so they are available to be sold.
Inventory Storage
Whether you fulfill in-house or you partner with a 3PL, there is a cost associated with storing inventory. Paying for warehouse space is calculated based on the size and quantity of the products being stored. Most fulfillment companies charge additional fees for large, irregular, or bulky items that require special equipment. The benefit of working with a 3PL for your inventory storage needs is that, typically, you have flexibility in how much storage you use. You can scale up or down based on your storage needs for seasonal sales or one-off promotions without being held to a long-term lease.
Pick-n-Pack
Picking and packing orders is another service that many 3PL fulfillment companies provide. After an order is placed, the notification is sent to your fulfillment partner, and a staff member selects the items from inventory storage and packages them for shipping. Typically costs are connected to the type and number of items and whether any special care is required for shipping.
Packaging
Inbound shipping arrives in bulk. Therefore individual products are repackaged for individual resale. The total packaging cost is determined by size, the number of items, box dimensions, dunnage required, and whether standard or custom packaging is used.
Kitting and Item Assembly
Some orders require light assembly or what is known as kitting. Kitting is a process where individual but related products are packaged and shipped together as a single product. This is where a product may contain several components to complete a set. Think about things like furniture or small appliances. While they arrive in a flat shipping box, they must be put together at home to function properly. Another example of things requiring kitting or assembly would be product bundles or subscription boxes.
Outbound Shipping
Outbound shipping is typically one of the highest types of fulfillment costs. Most 3PL companies offer some of the most cost-effective shipping options because they can extend their high-volume discounts to their clients. However, outbound shipping costs constantly fluctuate with fuel costs, seasons, and supply chain delays. Calculating shipping costs is complex. It includes variations based on dimensions, weight, speed of delivery, distance from the distribution center, and special instructions. Partnering with a multi-site 3PL can help minimize shipping costs and maximize shipping speed.
Return Management Costs
Only some fulfillment companies offer a returns management service, but it is a valuable and desirable amenity. Managing your customer’s unwanted or damaged goods requires good customer support. In addition, return management costs handle restocking inventory and adding it back into the inventory management system.
There is not a one size fits all pricing model for order fulfillment. There are several crucial types of fulfillment costs, such as inbound shipping, storage, inventory management, and outbound shipping. No matter how you plan to fulfill orders, these will be costs accrued. Calculating fulfillment costs can be confusing and complex, and not every 3PL is created equal. Falcon Fulfillment offers a high-quality “White-glove Fulfillment” experience. If you want to learn more about our pricing structure and how we can help your business scale, get in touch with one of our agents today.
