Top-notch order fulfillment is the heart of every successful ecommerce company. Fulfillment cost is also one of the more significant operating expenses. Whether you do your order fulfillment in-house or use a fulfillment company, you may have hidden order fulfillment costs that hurt your bottom line. It’s essential to understand what goes into fulfillment pricing. That way, you can accurately calculate your fulfillment cost per order.
As with any business, you’ll want to check your products first. Start with relevant laws that govern how they move. The ADG Code covers how to secure goods moved by road or rail and identifies dangerous goods. Once you know you can move your goods, it’s time to start to piece out how much that movement will cost.
Four pillars of order fulfillment
Tracking fulfillment costs will help you charge the right amount for products and shipping, protecting your bottom line and margins. Generally speaking, the cost of shipping will be the most considerable portion of fulfillment costs. So, if you offer free shipping or especially fast shipping, you need to account for this in the pricing of your products, deals, and promotions.
Now, let’s look at the four chief areas of fulfillment operations and cost.
Receiving covers bringing inventory into your fulfillment center. If you use a third-party service, the fulfillment company will likely charge intake fees, such as a per-pallet fee for inbound merchandise. Fees cover unloading goods, checking for damage, entering them into your inventory management tools, assembly or kitting requirements, putting products on shelves, and any special storage requirements you have.
If you perform these tasks at your warehouse, you’re facing labor costs and the equipment to scan SKUs, move pallets, and any final assembly or preparations.
Warehousing costs cover the storage of your goods. You’ll need to rent or own the physical storage space and have appropriate shelves and racks to store everything. Storage costs can increase if you have unique requirements, such as working with cold or hazardous products. Temperature-controlled units, for example, not only have high space and electricity demands, but you’ll need sensors and monitoring equipment to reduce any chance of spoilage.
If you outsource, you’re likely facing a monthly fee based on the space you use, metered out per cubic meter. One added benefit of outsourcing is that it ensures other companies need to meet regulatory requirements for storage. A growing concern in this space is lithium batteries, which have guidelines for how they can be installed and used, plus specific export considerations. A third-party logistics company (3PL) can help keep up with the latest regulations.
3. Pick and pack
When you get an order and fill it, you’ve got a few different actions that come with their own costs.
Running your warehouse comes with labor and material costs to have workers pick items off of shelves, verify the right items for each order, and pack them in boxes with enough cushion to avoid damage. This can add up because every order uses tape and boxes, plus you’re printing out receipts and shipping labels.
When you outsource to a 3PL, you’re generally paying a per-order cost. The rate is often a set fee for the initial item and additional costs for every additional item. For example, you may pay A$3 for the first item and A$0.20 for every item after. These costs may or may not cover the materials needed to ship the item, depending on your partner. If they don’t, consider trying to make it possible to ship products in their original packaging to help you save money.
4. Shipping and more
Here’s where your highest costs come into play. Paying a carrier to ship your products to a customer is usually the highest percentage of total fulfillment costs for any product or order. The faster and farther you go, the more expensive it will be. That said, costs here can range greatly depending on where you are, your customers are, carriers, and much more. Here are a few quick tips to try and reduce your shipping costs:
- Work with multiple carriers to price shop
- Try to reach high daily volumes (yourself or with a 3PL) to get a better rate from carriers
- Move warehouses and goods closer to end consumers
- Check dimensional (DIM) weight charges and rates
- Ship full trucks or containers when possible
Bringing goods to the U.S.
The U.S. is a hot eCommerce market for global goods, especially those coming from Australia. The Australian Trade and Investment Commission recommends working with a freight forwarder or importing expert to help you manage goods during transit and final delivery.
One of their most significant benefits is the ability to establish and help monitor appropriate chains of custody, protecting goods as they travel around the world. By working with a partner, you’ll get help with the insurance, taxes, and duties that occur as things travel. To get in the U.S., you’ll want an importer of record to handle our customs’ taxes and fees, plus help ensure everything is labeled correctly at each stage.
The great news is that the U.S. and Australia have a substantial trade history, so permits to export are generally easy to acquire, and most regulations are straightforward. It’s a lot of research around rules and limits, especially in categories like wine, but the opportunity is strong enough to make it worthwhile for many businesses.
Jake Rheude is director of marketing for Red Stag Fulfillment.