Order fulfillment is usually a deciding factor in the success or failure of your online business. When you provide customer orders on time, at an affordable shipping rate, and in good condition, you’re likely to attract repeat sales from the same person and even get a referral from that customer to their friend.
However, if a customer has to wait longer for their order and keeps getting back-and-forth responses when they end up receiving a product that wasn’t the right fit, that’s the end of it.
Today, we’ll have a behind-the-scenes look at what exactly goes into the order fulfillment costs you get and why making the right choice has a huge impact on your customer experience and profitability.
What Exactly are Fulfillment Costs?
Order fulfillment costs are all the expenses you can expect to pay in order to get a product from the supplier to the consumer. These costs include the addition of the amount you’ll pay for receiving, storage, picking, packing as well as shipping the orders.
If you choose to work with a third-party fulfillment service provider, you can also expect additional fees for processing returns, restocking, setup, and account management.
Fulfillment fees vary based on the following factors:
- If you choose to use your in-house team or an outsourcing company
- The size and weight of your products
- The urgency of the delivery
- The distance of the delivery
The Basic Components of Fulfillment Service Pricing
Even though fulfillment center pricing varies across different providers, most fulfillment centers use activity-based pricing to determine fulfillment costs.
Here is a breakdown of the most common expenses you’ll likely encounter when working with a 3PL.
Setup and onboarding
Setup and onboarding involve setting a meeting with your preferred 3PL and figuring out your fulfillment needs, the volume you expect, and the integration of computer systems to streamline the entire process and suit your business needs.
This fee is usually a one-time payment that can range from $100 to $1000 depending on the complexity of your company.
Inventory receiving
This is where you send your stock to the warehouse and the 3PL counts the products, inspects them for damage, inventory data entry, and labeling if needed.
The price for inventory receiving depends on how your products are delivered to the warehouse.
For instance, mixed cartons have to be sorted while single-variety cartons can be stored as they are. Palletized products are easier to handle compared to non-palletized products. You might incur extra charges for damage inspection and barcode scanning.
A vast majority of fulfillment centers price inventory receiving as follows:
- On a per-unit basis ranging from $5 to $15 per pallet
- On an hourly basis ranging between $20-$50 per hour
- Per order ranging from $25 to $55
- Per piece ranging from $0.05 to $0.20
- Per box prices start from $1
Inventory storage
Storage fees make up a huge part of your order fulfillment costs. This service is usually based on the amount of storage space you utilize on a monthly basis. That means that storage fees could vary depending on the existing inventory.
Therefore, if you use less space in a given month, you end up paying less for storage. This is one of the reasons why using a 3PL service is cheaper than leasing or owning warehouse space at a fixed cost each month.
Storage fees can be based on the following elements:
- Cubic footage ranges between $0.45 and $0.55 per cubic foot each month
- Square footage ranges between $0.75 and $1.15 per square foot monthly
- Pallet storage ranges from $6 to $20 per pallet each month
- Bin storage ranges from $2 to $6 per bin every month
It’s worth noting that more fees apply if your products require special handling services such as temperature control, climate controls, and fragile product handling.
Pick and pack fulfillment
Fulfillment service pricing may also include pick and pack costs. Some fulfillment companies will charge per pick while others will charge for packaging materials including standard boxes. The average pick and pack costs per order is $2.50 while per item is $0.20.
When it comes to custom packaging, you’ll pay extra. Logos can start at $0.03 per piece, and shrink-wrapping services can be $41 per hour or $5.50 per pallet.
Kitting and assembly
Kitting and assembly is an optional service that involves packaging products that arrive from different manufacturers as separate pieces into one unit.
This option will be great if your business has gift sets such as subscription boxes or if you’re in the food, health, beauty, and drink industries.
Pricing depends on the individual business needs but a single kit can range from $0.5 to $1.
Shipping
This is where 3PLs shine because they are able to negotiate better rates with carriers and transfer the cost reduction to their clients. This is what makes 3PLs cheaper than the other eCommerce fulfillment options we discussed earlier.
Shipping costs will be determined based on the dimensional weight of your products, shipping zones, shipping speed, and the mode of shipping.
You’ll also have to consider inbound and outbound shipping costs. Inbound freight costs will be the charges you incur when shipping your products from the manufacturer to the warehouse. Outbound shipping costs are the charges you incur for shipping an order to your customers.
Generally, shipping costs also depend on the nature of your products. For instance, small items such as books with a weight of 1kg and 5cm height will be cheaper than oversized furniture items.
Account management
You should also consider the administrative costs you might incur such as customer service. This service includes communicating with manufacturers and suppliers on your behalf. Answering your questions about inventory, orders as well as shipments. Other 3PLs go as far as answering shipping and order questions to your customers.
The average amount you can pay for account management ranges from $50 to $1000 per month or an hourly rate ranging between $30 and $50.
Return fees
If an order item is broken or wasn’t the right fit for your customers, a 3PL will receive the item back for inspection and handle the returns process for you. Return charges may be higher than actual shipping costs because the process is longer. The average return charge for a single item is $3.60.
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eCommerce Fulfillment and 3PL Pricing Models
To understand what you’ll pay for order fulfillment, you need to know about the fulfillment pricing options available. Your goal is to keep fulfillment costs low and increase your profits.
In-house fulfillment
In-house order fulfillment is when an eCommerce business takes care of its own fulfillment process. Here, you’ll have to consider paying for warehouse space, buying equipment, investing in the right software, paying for insurance, as well as employing, and training staff.
Pros
- You have more control of your product and packaging
- You grow your skill base and get to know what you need for better fulfillment
Cons
- Rapid growth may overwhelm your operations
- Order fulfillment is time-consuming and may distract you from other business operations
Managing fulfillment in-house can be expensive and most business owners opt to focus on minimizing these costs by outsourcing fulfillment. The next fulfillment pricing models are outsourced fulfillment options.
Amazon FBA
Fulfillment by Amazon (FBA) helps Amazon sellers outsource their order fulfillment process to Amazon. Amazon FBA users not only get fulfillment services but also offer fast shipping to their customers and appear in prime listings.
The values used to calculate FBA fulfillment fees depend on the product size tier, unit weight, dimensional weight, and fee category.
Pros
- You’ll get all the benefits of Prime membership including free shipping to your customers
- You’ll gain access to the Buy Box
Cons
- Limited branding opportunities
- Your products may get mixed in with low-quality items from other sellers
Shopify Fulfillment Network
If you run your business through Shopify, the Shopify Fulfillment Network (SFN)
allows you to ship products in bulk to one Shopify warehouse and then distribute your products across a network of fulfillment centers in the United States and Canada.
It works just like Amazon FBA with the notable difference that SFN lets you customize your product’s packaging to market your store. However, Shopify doesn’t disclose the fulfillment fees but it urges users to ask for a custom quote. Shopify also offers an interactive tool where you can estimate the domestic fulfillment rate you’d pay per item on their website.
Pros
- Custom branding options
- Manage everything from one platform
Cons
- Limited to sellers located in the U.S
- Has a minimum of 10 orders per day and a maximum of 10,000 orders per day
Third-party logistics service provider
A third-party logistics (3PL) service provider helps online retailers store stock shipped directly from manufacturers. Once a customer places an order, the product will be automatically shipped from the 3PL warehouse.
Some of the services you can expect from a 3PL service provider include tracking inventory across multiple warehouses, order confirmation, shipping, customization, and returns processing.
Pros
- You gain logistics expertise compared to doing it yourself
- 3PLs protect businesses from supply chain disruptions due to carrier contracts
- Allow for branding and customization of products
Cons
- Massive upfront costs when you include account setup charges, monthly minimum costs, shipping, and warehouse charges
- The different workflows limit your control over product distribution
Fulfillment Cost Calculator
To understand how much it will cost you to fulfill an order, let’s look at four ways to calculate fulfillment costs.
- Total warehouse costs divided by your total orders
- Total warehouse charges divided by your annual boxes when you want to know the fulfillment costs per box
- Total warehouse cost divided by the annual orders shipped
- Total warehouse cost divided by annual sales in dollar amount multiplied by 100 in order to understand your net sales
How to Compare Different 3PL Fulfillment Pricing
There are so many 3PL service providers in the market today that it’s hard to know who will be the best fit for your business.
Different fulfillment service providers offer pricing models that could either be unit-based or model-based. The table below shows the difference between unit-based and model-based pricing per service.
| Fulfillment service | Model-based pricing model | example | Unit-based pricing model | example |
| Inventory receiving | By shipment | $200 per shipment | By unit | $0.05 per unit |
| Inventory storage | By cubic foot | $0.30 per cubic foot | By pallet | $20 per pallet |
| Picking and packing | By order | $2 per order | By unit | $1 per unit |
| Kitting and assembly | By the kit | $0.50 per kit | By the hour | $50 per hour |
| Customer service | Flat rate | $150 per moth | By the hour | $50 per hour |
Now that you have an understanding of the different 3PL pricing models, let’s look at some tips to help you choose the right one for you.
Ensure there are no hidden costs
Ask the 3PL to give you a proposal with all the prices you can expect if you decide to use their services. Verify if these fees apply to your current business needs and your future vision. Be sure to go through their cancellation policy in case it doesn’t meet your expectations down the road and has strings attached.
Request for mock invoices
Confirm whether a 3PL can handle your expected output and inventory needs by using projections and mock invoices from different companies. To make sure you’re making the right comparison, use hypothetical scenarios that would be applicable to your business fulfillment needs.
Ask for contract or volume discounts
3PLs usually offer contract and volume discounts to their customers. Some companies offer yearly contract discounts while others offer multi-year agreements.
Some companies offer discounts at the pick and pack stage while others provide storage discounts. It’s important to know where you’ll be getting potential savings.
How Does NextSmartShip’s Fulfillment Pricing Work?
At NextSmartShip, our pricing structure is clear and easy to understand so that you can easily determine what you’re paying for. We don’t have any order minimums or hidden fees. Here are our terms and conditions.
No minimum order quantity is required to get started with NextSmartShip. You will not incur any onboarding costs because the setup is free. In addition, receiving is also free.
NextSmartShip offers global warehousing with fulfillment centers in the United States, the United Kingdom, Germany, Australia, and China. You’ll receive free storage across the fulfillment centers during the first month.
When it comes to handling fees, NextSmartShip charges $0.99 per order and this figure includes pick and pack services as well as using the standard packing materials. If you’d like customized packaging options such as eco-friendly packages, you’ll get a custom quote based on your specifications.
Shipping costs vary based on your product’s weight and dimensions. The destination and shipping service will also factor in how much you’ll end up paying for shipping. We recommend talking to fulfillment advisors to help you determine the right shipping options for your business.
If you need additional customized services, NextSmartShip will charge according to your needs. When working with NextSmartShip, you’ll be assigned a dedicated accounts manager for one-on-one customer support.
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Optimize Your Fulfillment With NextSmartShip
Whether you’re an eCommerce business looking for the best way to source goods from China and scale your business globally or an online retailer who needs FBA prep services, or you’re crowdfunding a new product idea, NextSmartShip is well-equipped to handle fulfillment for you.
If you’re looking for an all-in-one fulfillment service provider, talk to one of our fulfillment experts today to help you fill the gaps in your fulfillment strategy.
