Sir Richard Branson once said that waiting for business opportunities is like waiting for a city bus. If you pay attention, multiple opportunities will come along.
However, once you have launched a business, you only have a few opportunities to run it efficiently and correctly. For example, Nestlé has been closing one manufacturing plant a month since 2016 to save over $2.5 billion in factory inefficiencies.
And to run a business efficiently, you must have a non-myopic and total view of your logistical supply chain.
Understanding the totality of your logistics and supply chain system is vital when it comes to calculating fulfillment costs via third party operators. Incredibly, over 6% of businesses do not have a total operational view of their logistical supply chains.
And because most 21st century businesses compartmentalize and outsource various aspects of their business models, like inventory storage, warehouse fees, shipping, and delivery, they may not fully appreciate their fulfillment costs until it’s too late.
So why is it important?
If you don’t know or fully understand your fulfillment costs relative to your delivery statistics, then you won’t fully understand your profit margins. So, you need to know how to calculate your fulfillment costs for FBA and a 3PL.
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Before we get into fulfillment costs and calculations for FBA and a 3PL in-depth, let’s more closely explore the scope of the problem.
Fulfillment Cost Definition
When it comes to determining business prosperity, there is an extremely fine line between order and chaos relative to logistics. Whether a sole proprietorship or global corporate behemoth, no business can prosper without a logistics mandate relative to a product order and delivery plan for its consumer demographic.
What does the term logistics mean? Logistics is a term that refers to the transport of information or goods from one location to another. It can be a complex and coordinated operation. In addition to the transporting of things, logistics can also include inventory, supplies, packaging, and warehousing of goods.
A company that uses third-party vendors, or 3PL, can just worry about conceptualization and manufacturing of the service or product.
Then, the company can just let third party vendors worry about delivery and fulfillment pricing.
But this is not a good business strategy.
Fulfillment costs, also known as fulfillment pricing, are the various 3PL business costs related to the receipt and storage of products, the processing of orders, and the shipping and handling of those orders at the logistics and delivery end of a supply chain.
The Importance of Fulfillment Pricing Models
Fulfillment service prices can vary according to orders, the types of products involved, processing logistics and speed, and numerous other factors.
If you don’t have fulfillment pricing models, then you may not have a full grasp of your profit margins.
Do you run a business that outsources fulfillment costs? Even if you do, you should also calculate fulfillment costs for your own books and negotiate costs when applicable.
Before calculating fulfillment costs for FBA and 3PL more efficiently to protect your business’ profit margins, let’s explore the average baseline metrics for calculating fulfillment costs.
Average Fulfillment Cost Metrics
Before you can develop a reliable fulfillment cost calculator for your business needs, you must understand what metrics third-party vendors use when calculating fulfillment costs.
There is nothing wrong with outsourcing your ecommerce fulfillment pricing needs. The only wrong thing you can do relative to fulfillment pricing services is to not maintain a situational awareness view of your complete supply chain.
So, here are some metrics that go into developing various fulfillment costs.
Chances are good that the third-party vendor handling your fulfillment cost per order is probably also handling your inventory.
Intake costs are basically the processing costs to receive, handle, and formally process your inventory. Your intake costs could be charged on a per-item, hourly, or flat fee basis.
This is a one-time perfunctory fee calculated on the type of business services or product you offer.
A setup fee may be calculated based on the amount of order volume your business is expecting to fulfill as well.
Your storage costs, relative to fulfillment costs, can vary on the type of item processed, the time and storage costs required to process it, and the time needed to process the product for final shipping.
Pick and Pack Costs
A 3PL vendor charges pick and pack fees to cover picking up the item from inventory storage and then packaging it for delivery.
Account Management Costs
Third-party vendor account management costs are usually related to dealing with consumer service calls, administrative and office services, monthly invoice generation, and other various incidental costs.
Average Fulfillment Costs
The number of fulfillment costs that a third-party vendor may charge you depends on the services rendered and the operational needs of your business.
Depending on your business model and needs, you may pay anywhere between $3 and $5 per service or product relative to business needs.
It doesn’t sound like a lot, does it? Depending on the numbers of orders you ship on a daily, weekly, or monthly basis, fulfillment costs of $3 to $5 per order can become extensive.
Keep in mind that third-party logistics vendors will have various customized or hidden fees in their fulfillment pricing models. In other words, you may pay an accumulation of various fulfillment fees, not just one.
Don’t leave it to your third-party vendors to calculate your various cost of fulfillment services, without your input.
Related: Hacks For Saving On Shipping Costs
Calculating Fulfillments Costs for FBA
FBA is an acronym that stands for Fulfillment by Amazon. Your business sends its products to Amazon. Amazon stores the products in their warehouses.
If a consumer orders your product, then Amazon picks it, handles and packs it, ships it, and then tracks it for your business.
Amazon charges an inventory placement fee. This fee allows you to warehouse all of your products in one Amazon warehouse instead of many warehouses.
Amazon charges as much as $2.40 per cubic foot per item. Additionally, these fees are charged to you biweekly.
When it comes to processing order returns, Amazon will charge you 20% of the cost, fulfillment fee, and any referral fee.
Amazon’s long-term storage fees can really eat into your bottom line. Long-term fees can cost as much as $3.45 per cubic foot per item every 6-months or $6.90 per cubic foot every year.
This is just a sampling of the various fulfillment fees you may be charged. The average FBA fulfillment fee starts at $2.41 per product item.
Calculating Fulfillments Costs for 3PL
A 3PL, or third party logistics, refers to a third-party vendor or company whose services are used to outsource elements of its manufacturing or supply chain system.
A 3PL is a company that would be much smaller than a giant like Amazon, so it may charge for every minute of service, hidden costs, or arbitrarily roll costs together.
Many 3PLs may wait until the last moment to send you your fulfillment cost invoice to ensure payment without service review.
A 3PL setup fee may be free or cost as much as $1,000.
Warehousing and storage fees could be calculated according to storage volume space, square meter, square footage, or per pallet.
A 3PL could charge your business anywhere from $0.10 to $2, or more, for pick and pack services
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