June 15, 2023
Partnering with a 3PL company is oftentimes the best option for most fast-growing brands as it enables them to optimise a vital operational element of eCommerce for the benefit of a better-quality fulfilment experience and higher customer satisfaction. Businesses can also make significant time and cost savings when it comes to warehousing, shipping, and inventory management, amongst other things.
As fulfilment is one of the biggest expenses for any eCommerce business, it is understandable that decision-makers want to make savings in this area. Whilst the right 3PL provider can certainly deliver a more cost-effective fulfilment solution, it is important to avoid taking an extreme cost-cutting approach to shopping for a 3PL. Businesses that make this mistake have signed on with a 3PL based on compelling yet unrealistic promises, only to be trapped by a long service agreement that offers little to no value to their business and – in worst cases – damages the customer experience.
With profitability and brand reputation at stake, it is vital to take the time to understand the various costs associated with 3PL fulfilment and weigh them up against the real-world needs of your business to ensure the best value service. In this blog, we will delve into the fulfilment fees you should be aware of when choosing a provider, as well as the pros and cons of fixed and variable pricing models. We will also shed light on how some 3PLs may conceal certain costs, making it challenging for businesses to grasp the full extent of their financial obligations.
Fulfilment costs are broken down into a handful of key service areas:
This encompasses the cost of receiving and storing your inventory in the fulfilment centre. The fee for receiving inventory will vary between 3PL providers, but it is typically charged by the hour, pallet, or as a flat rate. When it comes to storage, factors such as the volume of space utilised, the type of products stored, and the duration of storage will contribute to what you pay monthly. However, storing goods by cubic metre is the most precise and, thus, most cost-effective model, as it is charged based on the air space occupied by your goods. Some 3PLs charge a monthly fee per pallet of goods stored, no matter how much or how little you have on each pallet.
This fee covers picking the goods for each order and packing them ready to be shipped. It typically accounts for the cost of labour and packaging materials. The complexity of the fulfilment process and the number of orders that require fulfilling per month can impact what you are charged for pick and pack. However, it is common for fulfilment centres to charge a fee for picking the first item within an order, plus a smaller additional fee for each additional item. For example, let’s imagine you come across a pick fee of £0.90p for the first item and £0.10p for each additional item. An order containing six SKUs would be charged a pick and pack fee of £1.50. If the order needs to be boxed as it cannot be shipped in the manufacturer’s packaging, then a packaging fee will also be incurred.
Shipping costs are charged by the carriers as opposed to your fulfilment provider, but the 3PL you partner with can still influence what you pay. Some 3PLs retain significant buying power due to the huge order volumes they handle every day, enabling them to negotiate and secure the most competitive shipping rates on services from a wide range of carriers. Any potential savings are then passed on to you and your customers. It is important to bear in mind that certain factors impact shipping costs, including:
Most 3PLs will need to integrate your eCommerce platform with their fulfilment software. This service is typically charged to ensure a quick, easy, and disruption-free process. When shopping around for a 3PL, it is crucial to clarify whether this is a one-time set-up fee or an ongoing integration fee. Pay attention to any potential charges for pre- and post-service launch support – whilst this is essential to ensure success, you don’t want to be paying over the odds for subpar support. That’s why it is important to ask each 3PL provider how they approach customer support, including who your main point of contact will be, how they will communicate with you, what their expected response time is, and how their resolution process works.
You could have customer returns shipped directly back to your company, but you would have to do the legwork of processing them yourself, which means paying more in time, energy, and unnecessary stress. This is particularly true if you tend to receive a lot of returns, as is often the case for fashion brands. Not only can the right 3PL provider take this responsibility off your hands and streamline the process for maximum customer satisfaction, but they can also help you minimise returns in the first place by ensuring the right products reach your customers quickly and in perfect condition. This service incurs additional charges that typically include quality control checks, repackaging, restocking, disposal, and shipping items back to you.
The most reputable 3PLs will act as your “partner in growth” and will, therefore, seek to offer other services that bring added value to your business. These services can include kitting, assembly, gift messaging, and custom packaging, to name a few. Although they often come at an extra cost, they can also elevate your brand and the customer experience, helping to drive revenue through repeat business. In fact, valued-added services could be the differentiator that wins you the edge over your competitors.
Fulfilment pricing models differ between 3PLs, but they typically take a fixed or variable form. Understanding the pros and cons of each pricing model is essential to make the best decision for your business. Before we get into this, it is important to note that there is no one-price-fits-all model – it is a sign of a responsible fulfilment company that you are provided a proposal customised to your unique business needs. This will vary depending on factors such as your monthly order volume, the type of products you sell, and specific 3PL services you require.
In a fixed pricing model, the 3PL charges a predetermined rate for each service, regardless of fluctuations in order volume or activity. Delivery costs can still change depending on the courier and the size and weight of each parcel, but your overall fulfilment costs will remain at the same rate for the duration of your contracted service.
In a variable pricing model, the 3PL charges based on actual usage or activity levels. In other words, what you pay directly relates to the number of orders you require fulfilling that month.
Whether a fixed or variable pricing model is best suited depends on your business needs and what you are seeking from a fulfilment provider. Some 3PLs include fixed and variable fees within a customised proposal to ensure maximum value. This may be combined with price caps, which means that in the case of a variable fee, the cost can fluctuate and decrease but will never exceed the agreed-upon capped price. This provides a degree of certainty no matter how many orders you require fulfilling at any given time.
That said, it is important to remember that comparing price on an item-by-item basis will not give you an accurate picture of your real-world fulfilment costs. Let’s consider this using a pick and pack fee example, where one 3PL offers £0.50p and another offers a fee of £0.90p per order. At face value, this is a notable price difference that will add up after shipping thousands of orders. However, you must consider other factors as part of the cost, including the speed and accuracy of the service.
If the lower cost 3PL has twice the pick and pack error rate, your customer service and returns costs could wipe out any potential savings you make between the pick and pack fees. This doesn’t even account for the potential long-term damage to your brand if even a few customers stop shopping with you because their orders are delayed, or they receive the wrong products. Instead of asking, “How much will this service cost me?”, you should be asking, “What value does this 3PL provider bring to my business?".
Whilst some 3PLs like Zendbox strive to deliver maximum return on investment for their services, others make it nearly impossible for eCommerce brands to understand exactly what they are paying for. Here are some poor practises to be aware of:
When shopping around for a 3PL, it is vital to understand the total cost-benefit ratio of what is being offered. The cheapest solution does not necessarily mean you are making a saving. In fact, it can leave your business vulnerable to a poor service that ends up costing you more in the long run. This highlights the importance of due diligence – don’t be afraid to ask questions and get under the skin of each fulfilment proposal, so you have all the facts you need to make the best decision for your business. As your partner in growth and an extension of your brand, your chosen 3PL should give you maximum return on investment.
If you are looking for the best value fulfilment service for your eCommerce business, get in touch to discuss your requirements and discover how Zendbox can help.
.svg){kind=icon}
