When to Use
How to know if a 3PL is right for your brand
Things to consider
Obviously, there are pros and cons of a 3PL vs in-house fulfillment. Regardless where your company is in the growth process, the decision to use a 3PL or fulfill in-house can be a huge financial decision.
We've listed some things to consider when making the big decision below. We've also created a free 5 question quiz you can take to determine if a 3PL is what you need here.
Table of Contents
> Average order weight and dimensions
> Willingness to run a warehouse
Is fulfillment overwhelming you? If so, a 3PL may be in the cards. A 3PL like OTW Shipping is designed to take the stress of fulfillment off your hands so you can focus on growing your business. Unfortunately, having a hard time managing fulfillment does not automatically mean you should be outsourcing it. Read on to understand what else you must consider.
Many new brands want to outsource fulfillment right away. You may be starting a side-hustle on top of your full-time job and simply don't have time to manage orders as well. Or you may live in an apartment where there simply isn't room to keep inventory. Everyone's situation is different, so there is no magic number when deciding to outsource fulfillment. However, at a bare minimum, we like to recommend at least 100 orders per month before considering a fulfillment center.
Why 100 orders per month? Simply put, it will be hard to find a 3PL willing to take startups. And even if they do, you will likely be hit with fees and minimums which will drive your fulfillment costs through the roof.
For early-stage companies, we've constructed a complete 3PL pricing guide to help you understand how fulfillment service pricing works and where those fees and minimums can come from. These fees can crush margins and make it difficult for bootstrapped businesses to grow.
So, in the beginning, you may just have to find a way to do 1-3 orders per day until you reach that number. There are certain ways you can make in-house fulfillment easier. For example, skip the trips to the post office. You can have USPS pick up your packages on their daily mail route.
If you have a large product or a high MOQ with your supplier, you may not have enough room in your house or apartment to store all your product. Once again, this doesn't mean you need a 3PL.
High volume vs low volume
If you are doing significant volume, it may be time to lease a small warehouse space if you want to maintain control of your fulfillment. However, if running a warehouse is not in your future, then it is a great time for a 3PL.
If your volume is still relatively low, you just have to get a little more creative. For startups with minimal space available to them, we recommend renting a storage unit and restocking inventory as needed to your home. This can save you lots in expensive storage fees and minimums from a 3PL while you are still gaining traction.
If you live outside the US or the majority of your customers live on the other side of the country, a 3PL may be a great option even if your volume is low. The cost savings from a shorter shipping distance can outweigh any fees and minimums.
High volume vs low volume
If you are doing high volume (closer to 10,000 orders per month), using a fulfillment center with multiple locations can save you considerable cash. That being said, it may still be tough to find a 3PL willing to work with a startup if your volume is low. Luckily, there are still ways you can get to 100 orders per month without using a 3PL in these cases.
International vs domestic
For companies outside the US, you can always focus on your own country first. For example, a UK brand can scale to 100 orders per month in the UK prior to expanding to the US. Order history is the biggest comforter for a 3PL and will help make the process of finding a fulfillment center much easier.
If you are a domestic company, using a platform like Soapbox for shipping discounts can mitigate those shipping costs to farther zones.
Average order weight and dimensions
The weight and dimensions of your orders are actually some of the biggest determinants of whether a 3PL is the right choice for you.
If your orders are under 1 pound, you immediately have access to pretty competitive rates using USPS First Class Commercial shipping rates (Soapbox, Shopify, Shippo, etc.). The difference in rates from Zone 1 to Zone 8 is fairly minimal, so location is not as crucial either. Sure, a fulfillment center will be able to get lower rates using high-volume shipping services like DHL eCommerce or UPS Mail Innovations. However, the cost difference will be less the lighter your product is.
That being said, if your orders are usually over 1 pound, a 3PL can actually be less expensive (even at lower volumes). The heavier your orders are, the more a fulfillment center will be able to save you on shipping. This could result in serious savings up to double-digits per order. This compounds if many of your customers are not near where you are currently shipping from. As orders get heavier, the cost to ship them to further zones increases exponentially.
If your packages are often over 1 cubic foot (or if you only use UPS), you must factor in dimensional weight. If dimensional weight applies to your packages, you must consider the same costs as heavyweight products.
Fulfillment centers often have fairly rigid guidelines and a narrow scope of services they provide to make sure they can run efficiently and keep costs low for their clients. As a result, clients sometimes have to adapt to work with a 3PL based on the services the 3PL offers.
Many fulfillment centers have the ability to perform these services, but depending on the complexity of your fulfillment, you may want to remain in-house to maintain your brand's fulfillment experience.
An incomplete list of things that can make fulfillment more complex:
High # of SKUs
Lot #s/Perishable goods
Do you currently ship internationally? For many brands, international shipping is not realistic because of prohibitive shipping costs. This is a big loss - brands that offer international shipping see a 15% increase in revenue. Fortunately, 3PLs (like OTW Shipping) have much better rates internationally that can provide you access to low-hanging fruit (AKA the potential customers outside the US who already want your product, but couldn't buy it before).
Willingness to run your own warehouse
This is not a huge concern for brands doing a few hundred orders per month. However, it is a huge determinant for many scaling brands figuring out whether they really want to run a warehouse. Truth be told, there is A LOT that goes into managing fulfillment at scale. For many brands, it can essentially become a separate business just operating fulfillment.
Here are just a few things to consider when deciding whether to make the jump into leasing your own warehouse:
Warehouse lease - Warehouse space is expensive and most landlords require at least a 3-year term. If you are a newer company without much credit history, you may also be required to personally guarantee the space or provide an enhanced security deposit.
Software - You'll need a WMS (Warehouse Management System) and other applications to manage your warehouse and team.
Equipment - Racking, shelving, forklift, pallet jacks, pick carts, bins, pack tables, barcode scanners, computers, etc.
Supplies - Packaging, tape, labels, office supplies, etc.
Hiring/Training/Management - Hiring, training, and retaining employees. Managing schedules, no-shows. Creating processes and systems to track KPIs.
Want to know when to use a 3PL? Take our quiz!
If you've gathered anything from this post, it is that there isn't always a simple answer as to when a 3PL makes sense. For companies that have been growing consistently, a 3PL may be a great option. However, just because you can doesn't mean you should. Depending on your business, you may still want to fulfill in-house.
Well, we want to make it easier to make the right decision for your business. Take our 5 question quiz and get some helpful insights on what you should do about your fulfillment and when to use a 3PL.