The following is a breakdown of the general areas of cost a typical business will face when bringing on an order fulfillment service resource. Each company's needs and situation are different, but understanding these costs is vital to making the best business decision possible to position your company for maximum future growth.
Storage (a.k.a. "rent" for your products): Fulfillment centers will charge storage for the space an online retailer’s products take up in the warehouse. This is generally done on a per square foot or per pallet basis.
Inventory Inspection and Receipt: Since most online retailers are having their suppliers ship the products directly to an order fulfillment warehouse, the online retailer is not able to inspect the shipments to make sure the products are the correct quantity and in good condition. A fulfillment center becomes that extra check to make sure the supplier is sending the right products and will report any discrepancies to the client.
Order Charges: Packing orders is the main part of the whole order fulfillment service, although not necessarily the largest cost. These are the labor costs for preparing and boxing up orders. The rates are generally based on a flat per order fee, plus a cost for each additional item included in the order. The more orders a retailer ships with a fulfillment company the lower the per order cost will be for the most part. The order cost is intended to cover the systems and time to receive the order, prep the pick ticket and other paperwork, as well as the time to physically build the carton, locate and pick the items on the order.
Material Costs: Simply stated, material costs include the cost of cartons and packing materials. Most fulfillment centers are buying boxes in bulk so this is one area a 3rd party fulfillment center can help reduce costs.
Shipping Costs: These costs will make up the majority of the expense of getting products to customers. Here's a link to reference useful information on calculating costs for shipping small packages. Many fulfillment operations will allow their customers to ship on their account numbers with FedEx and UPS, thus providing better shipping rates than most customers could negotiate on their own.
Returns: As some products are inevitably returned from a retailer’s customers, the fulfillment center can help inspect items and report to the retailer details on the returns.
Initial Move: There is often an initial inventory move of products from the online retailer to the fulfillment warehouse. This means there are potential costs for the shipping and receipt of the products as they are brought into the fulfillment center.
System Integration: The process for integrating an online retailer’s ecommerce shopping cart software may require some customized programming expense. How orders get communicated to the fulfillment warehouse can happen in a variety of ways (EDI, API, Email, or even fax).
Some fulfillment centers will offer bundled pricing that includes a certain amount of storage space and a certain number of orders shipped in a period of time. Or, the fulfillment charges may be calculated as a percentage of sales. There is nothing wrong with either method of pricing, just be certain the rates accurately reflect your true activity levels.
One-Time Charges | Possible Units of Measure |
Account Set Up | one time charge |
Software Integration | one time charge |
Monthly Charges | Possible Units of Measure |
Monthly Software Charge | fixed charge per month |
Account Management | fixed charge per month |
Activity Based Charges | Possible Units of Measure |
Order Processing | per box charge |
per order charge | |
addt'l charge per piece | |
Packing Materials | per carton |
per envelope | |
box assembly charge | |
Receiving | per piece |
per SKU | |
per carton | |
per pallet | |
per hour | |
Storage | per cubic foot |
per shelf | |
per pallet | |
Shipping | per order handling fee |
surcharge to use your own account | |
SKU Fee | per SKU |
Returns | per order |
per hour | |
Paperwork Preperation Charge | per Interntional Order |
per Freight Order (LTL shipment) | |
Pallet Preparation Charge | per pallet |
Rush Order Surcharge | per order |
Kitting/ Assembly | per item |
per hour | |
per order |
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Kenneth Kowal ecommerce order fulfillment for online retailers.
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