Fulfillment: Costs and Services at a glance

More and more eCommerce brands are turning to reliable fulfillment. This also raises the question of costs. Fulfillment prices depend on various factors and are often difficult for retailers to estimate. This article provides an overview of the services and tells you what you can expect in terms of fulfillment costs.

You will learn how fulfillment prices are calculated, how you can reduce your order processing costs and how to recognize a good offer for your personal fulfillment package.

Fulfillment means order processing – and this typically begins with the acceptance of an order. In eCommerce, your online store takes care of this step automatically. All processes that follow can be outsourced to a fulfillment provider. These include:

• Picking
• Packing
• Shipping
• Returns management

Of course, this also includes receiving and warehousing, without which all of these steps would not be possible at all.

So what are the advantages of fulfillment? If online stores take on shipping processing themselves, it usually involves a great deal of effort and investment. Companies may need to invest in additional warehouse space, equipment and personnel to keep up with the demands of internal order fulfillment.

This makes in-house fulfillment less cost-effective and less efficient than working with a fulfillment service provider. The reason is that the latter can take advantage of economies of scale and thus optimize costs.

In addition, the merchant does not have to take care of setting up and maintaining the necessary technical equipment. The fulfillment costs are more transparent and easier to manage, as they often consist of a basic fee and additional monthly services. However, it also means that the costs depend on the particular fulfillment services as well as the goods stored.

By outsourcing your logistics processes to an external service provider, you can optimize costs in a variety of areas, depending on the service provided by the partner. What’s more, if you no longer have to worry about warehouse and logistics processes, you’ll have more time to drive forward everything from product development to marketing, all of which are essential for the sustainable growth of a company.

To ensure that retailers can outsource order processing without having to significantly raise their prices in the online store, modular pricing systems are widely used in fulfillment.

Most providers combine a fixed basic fee with variable costs for individual services:

• Basic fee: The flat-rate basic fee is charged monthly and covers the coordination between online merchant and fulfillment center.
• Fulfillment Services: The individual partial services are billed individually – so you only pay for what you actually used in a given month.

Below we take a closer look at the costs for the various services.

The very first step in fulfillment is to move your products from the warehouse or directly from production to your fulfillment provider’s warehouse. This involves shipping costs on the one hand, and receiving costs on the other. After all, your items need to be stored on site and added to inventory so they can be picked quickly and reliably later.

To make sure that all items have survived the transport well and are ready for further shipment, a quick quality check is usually also carried out on this occasion.

This organizational preparatory work is included in the cost of fulfillment. Some providers charge for receiving goods according to the number of items, others according to time, and still others base the costs on the product as, for example, it takes a little longer to store sensitive goods.

In this case, it is best to find out what average number of items is processed per hour. In this way, you can at least roughly estimate the costs you will incur for receiving the goods.

Another important cost factor in e-fulfillment is warehousing. Each item that your service provider stores for you needs its own space and, depending on the product type, often requires special care.

This is especially true for perishable goods such as food, which must be stored in a cool or dark place. But a variety of other items are also sensitive to environmental factors. If, for example, the humidity in the warehouse varies depending on the weather, textiles can become saturated with water. The result? Fluctuating weight, unnecessarily high shipping costs and, in the worst case, damage to the product itself.

Logistics outsourcing can be much cheaper for retailers than setting up their own warehouse. After all, meeting complex conditions, purchasing special technologies for the warehouse and securing the necessary know-how in-house involves high costs.

Fulfillment therefore offers online retailers particularly great potential for optimizing costs and resources.

Pick and pack refers to the two most important services in fulfillment: picking and packing. Using a so-called pick list, the items for an order are retrieved from the warehouse and made ready for shipment. The more items in a shipment, the longer this process takes. For this reason, the cost of this step is calculated based on the individual picks and packs in each billing period:

• Number of Picks: How many items were picked from the warehouse?
• Number of Packs: How many shipments were sent?

There is a basic charge for both picks and packs, which you should examine separately when calculating fulfillment center costs.

If a provider charges a basic flat rate per order, you should ask how many picks this includes and what the price is for additional items per shipment. Also pay attention to the exact wording: Does the provider charge the pick price per item or per stock keeping unit (SKU)?

The SKU refers to a specific stock keeping unit. This can be a single item or a bundle consisting of several items.

For example, let’s say you sell notepads in your online store, both individually and in cheaper economy packs of five. The economy pack in this case can be one SKU or five individual items, making a difference of four picks per pack. For example, if a pick is 80 cents, picking the same shipment costs 80 cents when calculated per SKU, but 4.00 euros when calculated per pick.

The base price for packs usually includes shipping materials and postage, but depending on the offer, it can go far beyond these basics. To give shoppers a memorable unboxing experience, for example, there are custom fulfillment options tailored to your business.

Personalized offers for pick and pack cover, for example:

• Including promotional materials,
• using your personalized packaging materials
• or even adding decorative touches such as wrapping individual products in silk paper.

When outsourcing logistics, it’s also a good idea to hand over returns management to an external service provider. You can decide individually which services your fulfillment partner will provide. These include, for example

• Acceptance of returns
• Quality control and ABC classification
• Documentation by means of visual material
• Processing of the goods or environmentally friendly disposal
• Re-storage
• New shipment

The fulfillment costs result from the respective scope of services.

A reputable fulfillment offer is characterized by the following factors:

• a transparent cost breakdown
• a customized service package that is tailored to your company’s needs

A blanket fulfillment cost definition can therefore not be given. This is also the reason why we can and will always give you a scale for the individual services instead of exact prices. Good fulfillment should never be one-size-fits-all. Otherwise, it doesn’t do justice to your products or your company’s workflow.

When choosing the right fulfillment service provider, you should focus on experience, reliability and service. Don’t cut corners, because working with a low-cost provider can have a negative impact on your business and customer satisfaction.

Before you decide on a provider, you should not only obtain a non-binding offer, but also take the time for an intensive consultation. This will ensure that your fulfillment provider understands your company’s workflows and can help you exactly where you need it.

Outsourcing your own logistics brings numerous advantages. It is important to choose a professional provider. There is no general answer to the question of how high the fulfillment costs will ultimately be. Rather, they depend on the individual scope of services. The fact is, however, that with the right partner at your side, you will not only save time, but also resources, which you can then invest elsewhere in your company.

The cover image is by joyfotoliakid on stock.adobe.com, the other images by Gorodenkoff, fineart-collection and snowing12 (also stock.adobe.com).