Outsourcing fulfillment can get your products properly delivered to your customers but, it means paying a few additional costs too.
Some online retailers use the fulfillment center method in order fulfillment to scale their business or do not want to dropship products anymore. This is a good option for companies that want to keep their overhead manageable but, not for smaller companies or new entrepreneurs who are just starting their online business. Outsourcing fulfillment means paying additional costs. Although there might be volume discounts to minimize the cost and other benefits to it, it would be more worthwhile for growing companies.
If this is the course that you want to pursue in your online business, you should have at least an idea on the following:
How fulfillment centers work
How much they charge
You should understand how fulfillment centers work so you can also determine if their charges are fair and sensible to the current status of your business. To ensure that you find one that is within your budget and meet your expectations, you have to vet fulfillment companies before hiring them.
What are the services offered by fulfillment centers?
Fulfillment centers take care of the warehousing of your products, They also take care of the packaging and shipping of orders to your customers. They are using more advanced and specialized fulfillment services than eCommerce retailers to make product delivery faster and more efficient.
When you work with a fulfillment center, you just ensure that they have sufficient inventory to process orders. They will maintain an inventory of the items in their warehouse database which you can access in real-time. Through the integration of fulfillment center logistics in your storefront, they will be able to process customer orders without you informing them every time you receive customer orders.
Also, if there will be purchase refunds and returns, the fulfillment center will receive the product and inspect its condition. Any sellable items will be put back in the inventory to be sold again to other customers while those that are no longer fit to sell will be disposed of properly. Some fulfillment companies will let you personalize orders by inserting your promotional materials and using your custom packaging.
What are the advantages of using a fulfillment service?
Outsourcing the order fulfillment to a third party can give you the following benefits:
- There will be physical storage for your products so you will not store them at your home anymore.
- Less management and expenses because you don’t have to hire and train new employees.
- You can choose to use fulfillment services only on peak times or store fewer items during the offseason to minimize costs.
- You can have more time to strategize and improve your business as the most time-consuming aspects of your business are being handled by a fulfillment center.
- You can have more money with this arrangement because of the following reasons:
- You don’t have to hire new employees.
- You can benefit from reduced packaging and shipping rates.
- You can serve more customers without worrying about wrong orders and bad customer reviews.
- Shipping is faster and could be done in 1 – 2 days depending on the fulfillment center’s location.
How much does fulfillment costs?
Fulfillment centers have different fulfillment pricing models making their fulfillment fees vary from each other. The order fulfillment fee is what you call the cost associated with every aspect of fulfillment including receiving of products, inventory storage, order processing, shipping, and returns processing. As fulfillment companies have their own set of fees, the cost per order might be higher in one company than others. Therefore, you have to vet your potential fulfillment centers carefully so you can get the best deal for your business.
There is a long list of potential fulfillment charges that you might encounter and this includes:
Inbound shipping. This is the cost of sending your products from the wholesale supplier or manufacturer to the fulfillment center.
Initial Set-Up Fees. Most set-ups for fulfillment services require a fee. The fee depends on what your business needs to get started. It can range from $100 to $500 or higher, depending on the fulfillment company.
Receiving Fees & Intake Fees: The receiving and sorting of the products you sent for warehousing and order inventory can run for $35 – $45 per hour. Fulfillment centers may charge on a per unit or per hour basis. They may also charge extra for damage inspection and bar code scanning per item, per box, or per pallet.
Storage Fees. Fulfillment centers charge storage fees by pallet, bin, cubic footage, or square footage. As this is charge monthly, the fee could vary depending on the size of your inventory at a given time. You will only pay for what you use every month.
Order Insert Fees and Custom Labeling. This is the amount you pay for custom labeling and the insertion of your marketing materials into the package.
Order Fulfillment Fees (Pick and Pack Fees). Fulfillment centers will charge you for the gathering of orders and packing them in one package. This can include the packaging materials used and the number of items that go into the box or pouch. Sometimes they factor in the weight of the products and you can end up paying more. Make sure that you assess this fee calculation when vetting fulfillment centers.
Kitting Fees. This is the cost of assembling, arranging, and packing different products into one package. This can also apply to returned products.
Shipping Fees. One of the biggest fees you’ll encounter regardless if you’re doing self-fulfillment or not. With fulfillment centers, however, you can pay less because they may have good rates from most shipping carriers that they use. They can also give you discounts depending on the volume of your packages.
Returns Fees. This is the rate you pay for the receiving, inspecting, and re-stocking or disposing of returned items.
Account Management Fees: This is the fee added to your monthly invoice for the handling of customer service calls and overall company management being provided by the fulfillment service for your business.
Fulfillment centers charge differently. To find the right one for your business, you have to compare fulfillment costs and pricing as well as how their system works. Make sure that there are no hidden costs and confusing fees. The fulfillment charges should also match your business needs. It is more ideal to use only fulfillment centers when scaling your online business and not when you’re just starting with limited cash to invest in. Dropshipping products is still more practical for a new online business owner. This way, you can avoid shelling out more cash than you can afford at the early stages of your business but still earning profits.