There are a lot of hidden costs that come with shipping an order for your eCommerce business. Packaging, handling and shipping all take up resources and time which can ultimately affect the profitability of your order fulfillment process. In this blog post we–here at Shipmate Fulfilment–will discuss what these costs may be and how you can make order fulfillment as cost-effective as possible!
Most fulfillment centers, third party logistics providers, and large sellers can receive volume discounts that can greatly reduce your shipping costs. The problem many sellers face is that this is often the only cost of order fulfillment they consider when calculating their businesses profitability. Although this is a large portion of the fulfillment cost, it is important to consider the additional costs below.
When most sellers attempt to calculate fulfillment cost the first thing they look at is the shipping label. The postage purchases to fulfill your order is often the largest chunk of your order fulfillment costs. Whether you are doing your own fulfillment or outsourcing fulfillment to one of many fulfillment centers, it is important to know what your postage costs are and if you are receiving any discounts.
When thinking about shipping and order fulfillment, packing materials are one of the larger associated costs aside from the price of postage. Whenever you are sending a package or parcel you use some sort of shipping supplies.
Whether you are using a box, mailer, or tube; these packing materials cost money and can greatly increase your total fulfillment cost. This is especially true if you are buying your shipping supplies at retail prices. A quality shipping box can easily cost a few dollars at a big box store.
If you are running a large successful eCommerce business, you may have access to volume discounts on packaging as well. Boxes and mailers that are purchased in large quantities from a manufacturer with a large cost savings over smaller retail orders.
When most sellers think of shipping supplies they often stop at the outer container. It is also important to consider other materials such as bubble wrap, dunnage, inserts, and even packing tape. Some sellers opt for custom packaging and this can increase fulfillment expenses. These additional materials can further increase the cost of your order fulfillment and can often be overlooked.
Whenever you are talking about order fulfillment, it is hard to ignore returns, loss, and damage. Whenever your parcels get on the back of a carrier’s truck, it is important to assume that a certain percentage of your items will either be damaged in shipping, lost, or returned by the customer. Many shippers do not account for the cost of reshipment for these sorts of situations.
Depending on the types of items you sell, the rate at which damage, loss, or returns can vary. Some items are more prone to damage or breakage, while other items especially fashion goods can have high return rates. It is important to factor in the costs of returning the items to your business as well as any cost of any replacement.
As a side note, some sellers opt to purchase parcel insurance to protect against damage or loss. This can save you in a pinch, but will also contribute to higher order fulfillment costs.
It is easy to quantify the costs associated with shipping labels and materials, however it is much harder to value your time.
Ask yourself, “what is my time worth?”. If you are spending a few hours a day fulfilling orders, you could be spending this time growing your business instead, accommodating your family, or even doing a gig for extra cash.
If you are running order fulfillment in house, the cost of your time is often a significant portion of order fulfillment costs. In order to reduce order fulfillment costs many sellers opt for outsourcing their order fulfillment needs. This option can be costly and will add an additional layer on top of shipping label printing or postage rates that must be considered.
If your ecommerce business considers outsourcing fulfillment to a fulfillment provider you can recapture some of your time and potentially save on postage and materials, however you will now incur a new set of storage fees and fulfillment fees.
Since you are not storing the goods yourself, you will have to pay a monthly fee to your warehouse or fulfillment service called a storage fee. Storage costs are based on how much storage space your business uses and is often based on bin type or per cubic foot utilized. Inventory storage costs are an important part of fulfillment duties.
Most fulfillment companies have a set of receiving or intake fees that can vary based on the labor costs and volume of inbound goods to your fulfillment center.
Fulfillment centers charge an eCommerce business for actions that require labor in their fee structure. Pick and pack fees are some of the most common fees charged by a fulfillment service. Sometimes these fees can go by other names like fulfillment fee, or order selection fee.
The general idea is that you will be charged for the labor costs associated with retrieving your item and the pack costs associated with packaging the order.
Despite these additional order fulfillment fees, utilizing a fulfillment center in many cases can result in a lower average fulfillment cost. However, it is important to know what you are paying for and how this affects your operating costs.
There are a few other hidden costs associated with order fulfillment that I think are important to mention and should be considered whether you’re self-fulfilling or outsourcing your fulfillment.
If you are dropping off parcels at your local post office or UPS store, you will most likely be utilizing gas and putting wear and tear on the vehicle. Depending on the frequency of these trips, the number of parcels transported, and the distance to your destination, you could pay anywhere from a few cents to even a few dollars per package in overlooked fuel costs.
If you are not dropping off your parcels, you may be paying for a pickup from UPS or FedEx. These pickups can be very expensive, especially if you only have a few packages. It is important to keep this in mind when fulfilling orders.
One of the most commonly overlooked hidden costs in order fulfillment is software and equipment costs.
Fulfillment centers and large eCommerce sellers often spend tens of thousands of dollars a year on software and tools that allow them to track inventory, compile orders, forecast sales, and rate-shop across shipping carriers. This software can be a major part of your fulfillment strategy, so it’s important to remember to factor in any software fees or subscriptions into your order fulfillment cost.
Also equipment such as computers, scales, printers, and forklifts can cost a lot of money and should be considered when reflecting on your cost of order fulfillment.
If your business sells kits and bundles such as subscription boxes or gift boxes, you may be enduring costs to assemble the complex order before shipping or at the packing station. If you are doing this in house, you can spend additional time as well as money on labor and material to kit and bundle your shipments.
If you are using a fulfillment center you will most likely incur kitting fees for the assembly of complex shipments like subscription boxes and other additional services you may need.
Another thing to consider when using a fulfillment provider is, if they have any setup fees or ongoing fees such as an account management fee. These are flat fees that some fulfillment companies charge that you may need to factor into your total fulfillment cost to see if there is any cost savings if you outsource fulfillment.
There are a lot of hidden costs that come with shipping an order for your eCommerce business. Packaging, handling, and shipping all take up resources and time which can ultimately affect the profitability of your order fulfillment process.
In this blog post, we discussed what these costs may be and how you can make order fulfillment as cost-effective as possible.
What is your average cost per shipment? Have you looked into lower-cost options to reduce overhead expenses on packaging or other logistics services like Shipmate Fulfilment?
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