When you operate an ecommerce business, attempting to cover the logistics on your own is no easy task. With so many moving parts, you can easily exhaust yourself.
That’s where 3PLs can step in and help you. Not only can they assist you in avoiding burnout, but they can work to ensure that your supply chain is managed properly, leaving you to focus on other aspects of your business operations.
But the big questions continue to be, “What is the average 3PL cost? And is it worth it?” While it’s impossible to provide an exact number, this article contains the information you need to determine which factors could affect your business the most.
What Is a 3PL?
A 3PL, or third-party logistics company, is an operation that takes on the processes involving another organization’s ecommerce logistics. Ecommerce businesses utilize 3PLs for inventory management, supply chain management, warehousing, distribution, order fulfillment and the like.
Ecommerce business owners generally partner with a 3PL so that they can stay focused on other aspects of the business. However, before you hire a 3PL, it’s important that you consider 3PL costs and whether or not it is monetarily feasible for your business.
How Do 3PL Cost Work?
Each 3PL will work in its own way. However, generally speaking, they all tend to offer many of the same services, including the following:
- Receiving inventory
- Storing inventory
- Picking and packing
- Kitting services
- Assembly services
- Inventory management
- Supply chain distribution
With these services, a 3PL receives your inventory and stores it in warehouses. Then, 3PLs will organize your products. When orders are placed with your ecommerce business, picking lists will be created for the 3PL warehouse employees.
The employees will pick products according to the packing list, and the items will then be packed appropriately. The order details will dictate how they are packed, and a shipping label will be created before being attached to the package.
The package is then transferred to the 3PL’s loading dock, where it will wait to be picked up by the agreed-upon shipping carrier. Then, the shipping carrier will deliver the items to all of your customers. It may seem like a daunting process, but a 3PL can be involved and ease the burden of order fulfillment for your ecommerce business.
What Are Order Fulfillment Costs?
Order fulfillment costs include the total costs for 3PL services while ensuring that your customers’ orders are delivered to them successfully. This includes receiving and storing inventory, as well as processing, picking, packing and shipping orders. These costs will vary from one 3PL to the next as the prices depend on the exact 3PL services you request as well as the agreement that you have with a particular company.
What Does Cost Per Order Mean?
The fulfillment cost per order includes the total costs of all warehousing expenses involved with order fulfillment. This may include receiving, storing, and managing inventory, picking, packing and shipping as well as any potential reverse logistics that involve the handling of returns from customers.
Packaging, either standardized or customized, and kitting are also factors that can affect your total cost per order. Since these factors also vary, the total cost per order will vary based on the products that are ordered and then delivered.
How Much Does Product Fulfillment Cost?
Generally, pick and pack fees will start around $0.20 per pick, with some being as costly as $5 per pick, depending on the product. When determining product fulfillment costs, you need to consider a number of factors.
Before discussing these factors in more detail, keep in mind that they may not all apply to your products or customer orders. Even so, this is good information to have when you are trying to determine average 3PL costs.
How Do You Calculate Fulfillment Cost?
To calculate your total fulfillment cost, you’ll have to consider all expenses involved with order fulfillment, which include the following:
- Warehouse receiving
- Storing and managing inventory
- Picking and packing
- Standard or custom packaging
- Kitting, if applicable
- Label printing and order inserts
- Return management
Factors That Affect Average 3PL Costs
As stated earlier, there are a lot of factors that go into determining the total average 3PL cost. Let’s look more closely at these factors and analyze how they affect total 3PL costs.
Onboarding costs are generally a one-time fee. This is a fee that is charged by 3PLs. It covers the costs of integrating you into their system and their warehouses.
They will have to ensure they have the storage space and labor to properly handle your business requirements. Onboarding costs will typically vary depending on the size of your business and will alleviate any hassles down the road as you utilize their order fulfillment services.
Receiving new products into their warehouse requires labor and this cost is generally calculated hourly. The employees will be handling the product to put it in proper storage, but they also must ensure the proper storage is available.
Storing and Managing Inventory
The amount of storage required will be an additional cost. Whether your products are stored on shelves, in bins, or on pallets, there will be a monthly cost associated with storing and managing your product inventory.
Picking and Packaging
The labor costs required to pick and pack your products are typically calculated over a set period of time and will vary depending on how many products are being picked during that determined timeframe.
Standard or Custom Packaging
Whether you’re using standard or custom packaging, both will come at a cost. Standard packaging, which includes generic boxes, poly mailers and the like will typically be the most cost-effective.
will not always cover the packaging solutions your products or business requires. Custom or branded packaging allows for more variety and is more common for fragile products, businesses looking to use branded packaging, using eco-friendly packaging options and more.
Kitting may not be a factor you need to consider with any or all of your products. Kitting is the process of pre-assembling multiple products and packing them together into a single product.
You may have some products kitted while others can be picked and packed individually. If kitting is a service your business is interested in, then it will be a determining factor in the total 3PL cost.
Label Printing and Order Insert
Another factor that may not be applicable to your products or potentially only some is label printing and order inserts. These are generally only done as requested by the ecommerce business. If this is a need your business has, then there will be a cost per label or insert that will be included in the total 3PL cost.
Return Management Processes
Return management or reverse logistics is the handling of customer returns and these costs are required to cover restocking or disposal fees of the returned products. The best 3PLs will have these processes in place to ensure better customer satisfaction and ease of order fulfillment and returns.
Shipping costs will vary depending on the product weight, dimensions, the destination of the package, the shipping speed required, and even the carrier being used to ship the package.
Common 3PL Pricing Models
There are three most common types of 3PL pricing models.
Total Fulfillment Cost
This model helps to simplify your invoice and reflects the cost of standard, direct-to-consumer total order fulfillment. The charges included in this model are for receiving, storing and shipping inventory.
Your standard picking and packing services will be included in this cost. Custom packaging, kitting and other non-standard services will not be included in this model and will come at an additional cost.
An example of a total fulfillment cost pricing model could be as follows. Receiving is a flat-rate charge of $30 for the first three hours. Storage is charged per bin, per shelf or per pallet, with costs being as follows:
- $10 per bin per month
- $15 per shelf per month
- $30 per pallet per month
Picking and packing fees are included in the total fulfillment cost. They could be free for the first five picks, but then, you will incur a cost of $0.25 per pick. Standard packaging is also included in total fulfillment cost at no additional charge. However, custom packaging would be an additional cost.
Kitting fee costs will vary depending on your needs, but they will generally start around $0.45 per unit or per kit that you require. Shipping costs are generally passed directly from the carrier along to the ecommerce business or client. Those costs will vary depending on the package weight and dimensions as well as the package’s destination and shipping speed.
Fulfillment by Amazon (FBA)
Sellers who use Amazon for their fulfillment services will be using this pricing model. This includes products sold through the Amazon marketplace that are then fulfilled by Amazon.
Amazon takes a percentage of seller fees, which decreases the amount of profit you would see if you were selling products on your own website.
When you use FBA, you will not have the option for branded packages as all packages sent by Amazon will go out in Amazon labeled packaging. This also completely negates your opportunity to interact with the customer as all transactions are handled by and through Amazon.
Amazon will also add on long-term storage fees, this will apply to any products that don’t sell within a specific timeframe. This pricing model is elaborate and can vary greatly depending on factors including product type, product size, seasonality and so much more.
Pick and Pack
The pick and pack pricing model charges for every single product picked during the order fulfillment process. This model tracks and charges for every aspect throughout the package’s fulfillment process.
Since picking fees can range in cost from $0.20 up to $5.00, this model means your costs can quickly add up. If you are continually shipping one product per order. However, this can be cost-effective pricing.
Gain the Flexibility You Need For Your Business
It’s no surprise that the best 3PL companies can help streamline your ecommerce business and provide the flexibility you need to keep your business operating smoothly. The questions start to arise when you try to figure out if the cost is worth it.
Since there are many factors to consider when looking at the average 3PL cost, knowing the details of 3PL services and the requirements of your business are imperative. While 3PL pricing can be confusing, the right company is out there and willing to help you utilize your resources wisely.