You’re a business owner and you’ve been successful so far. Your company has progressed from a few orders per month to at least 5-10 a day. Everything is great... except your margins are getting killed by shipping costs and you’re spending more time packing orders than you are driving sales for your product.
Now, you’re looking into a 3PL (Third-Party Logistics) company to get discounted shipping rates and more time to focus on your product. You search for a fulfillment center near you and you’re bombarded with terms and fees like pick & pack, receiving, storage, and more! What does it all mean? How are you supposed to determine if a 3pl is right for you? Do you simply look for the cheapest fulfillment services or is there a difference in service? That’s the purpose of our Beginner’s Guide to Fulfillment Pricing. Each week, we will explain a different 3pl fee and what it means for your business, so you can feel confident when negotiating your rates. As we explain each fee, we will update this post with links to each post!
Order Fulfillment Services
Order Fulfillment Process
1. Connect your e-commerce platforms to the 3PL’s software.
Any good 3PL will have software that contains an Order Management System (OMS) for you to track your orders, manage your inventory levels and incoming shipments, and communicate with customer service. If you sell on multiple platforms, your 3PL should be able to handle what is known as multi-channel fulfillment to track all your orders in one place. This is all done through API integrations. It is important to check to make sure a 3PL can integrate with all of your platforms (Shopify, Amazon, eBay, etc.). Once you’re connected, your warehouse will be able to see and fulfill your orders in real time.
Account/Maintenance Fees - To cover the time and costs of maintaining your account on the system, many 3PLs will have recurring monthly fees. These fees can kill a startup with low monthly order quantities before it even gets going.
Setup Fees - One-time fees that cover the labor associated with initially integrating your sales channels with their system.
2. Send your inventory to the 3PL warehouse.
Once your e-commerce store is integrated with the 3PL, you can send your inventory to the warehouse. Depending on the volume of the product you are sending, you may need to use freight shipping. These shipments can be LTL (Less-Than-Truckload) or FTL (Full Truckload). Almost all 3PLs will require your inventory to be palletized with a bill of lading and SKU labeled-containers to allow for easier unloading (normally no Mixed-SKU boxes are allowed). Additionally, many 3PLs require UPC codes on products to help with inventory management. Once the 3PL receives and unloads your shipment, they proceed to process your items for storage. This process can include verifying SKU quantities and checking for product damage, depending on the 3PL. After processing, the SKU is assigned a location in the warehouse and stored.
Inbound Shipping Fees - Many 3PLs have strict packaging requirements for inbound shipments. Inbound shipment fees usually occur when you fail to meet these requirements and can range from a small slap on the wrist to a complete denial of your shipment which is sent back to you at your expense.
Receiving Fees - Receiving is a crucial part of the process. Beware of any company that claims free receiving - that cost is usually wrapped into their pick & pack fee.
Storage Fees - Each SKU needs to be stored separately for efficient and accurate picking. So, the more SKUs you have, the higher storage costs you should expect.
3. Orders come in and the 3PL picks, packs, and ships the order to your customer.
After your inventory has been processed, you're ready to transfer your fulfillment services over to your fulfillment company. The next time you receive an order, it will go directly to your 3PL's software. The center will then print the label, pick the correct items for the order, pack them into the necessary packaging, and put them in a carrier-specific container. At the end of the day, the orders will be picked up by the specified mail carriers and begin their final journey to your customer.
Pick & Pack Fees - The process of picking units from storage and packing them when an order comes in. This is the main fulfillment fee and there are many different ways the fee is priced. These ways can include a flat fee for the first item with an additional item fee, a flat order fee, or a flat fee per item.
Packaging Fees - Either your 3PL will include packaging in the cost of fulfillment, or they will charge based on the cost of the packaging. The bigger the box, the more expensive it is. Most poly mailers and boxes will run you between $0.10 and $0.75 with standard product sizes.
Dunnage Fees - This refers to any material that is put inside a package to protect the product (i.e. Kraft paper, Bubble wrap). Almost every 3PL includes this in the packaging/fulfillment cost.
Shipping Fees - 3PLs get huge volume discounts on shipping. They are able to let you use their rates and pass these discounts on to you. This helps offset the costs of using a fulfillment center. Make sure to ask which carriers a 3PL uses, because some may not use the carriers you plan on using for your product.
Returns Fees - This process can be a real hassle. You must communicate with your 3PL ahead of time to put procedures in place to determine whether a return needs to be returned to inventory, sent back to you, or thrown away. Because the process is so time-intensive, returns are usually somewhat expensive.
Insert Fees - Usually considered the marketing or promotional material that can be added into packages to encourage incentives to repeat purchases.
Kitting Fees - If you sell multiple units in a custom set that is packaged and sold as one item, or if the product uses custom packaging that needs to be assembled.
Obviously there are lots of costs associated with a fulfillment center. The important thing to note is that each 3PL will have its own custom pricing model so it's important to do your research. However, price is not everything. You get what you pay for - especially in the ecommerce fulfillment industry. Make sure to find a company that gives you transparent rates upfront and that you feel comfortable with in your communication. You need a fulfillment company who you can trust with your product more than anything.