Order Fulfillment Costs and Pricing: Average Costs and Tips for Negotiating Rates

Fulfillment Costs and PricingFulfillment Pricing and Costs: What You’ll Pay for an Outsourced Company

Do you really know how much fulfillment services cost now that you’re starting your own business? Getting products properly delivered to your customers is an essential part of your brand, but cost matters in how much profit you’ll make in your first year. When seeking out fulfillment centers, vetting is essential to make sure you find ones that work at your budget level. Nonetheless, the first question most companies ask is, “how much will fulfillment outsourcing cost”? View the summary slideshow below or keeping reading further down the page to get an even further explanation!

Not all fulfillment warehouses are alike, and some charging more for supposedly superior services may not really live up to the hype. You’ll be glad to know many 3PL warehouses are out there that are very affordable. We can help you find them here at insightQuote.

In many cases, you’re better off going with an outsourced fulfillment company since they’re very budget-friendly and they specialize in this one function – driving down their overall costs. Keep in mind cost still isn’t measured in one lump sum. Costs come from different fulfillment categories that you’ll need to know. And most often, fulfillment services companies charge based upon the services that they perform for you during the month. In this post we will try to address everything that you need to know in order to fully understand fulfillment pricing and costs. Below we will explore:

The Main Types of Fees that Fulfillment Companies Charge

mainfulfillmentcosts

Initial Set-Up Fees

It seems most set-ups for services require a fee, and fulfillment centers are no different. Costs for this range widely, however, so you need to shop carefully. These fees can range in just the hundreds to possibly thousands of dollars. On the low end, they will likely run from $100-$500, although some of the larger companies that focus on more sophisticated integrations may charge thousands to integrate depending upon the difficulty of the integration.

What you pay depends on what you need to get started. The biggest expense comes from connecting your online shopping cart to the warehouse. This requires some technical assistance from IT professionals. Even so, going through an outsourced warehouse typically saves you money than other options.

Receiving Fees and Intake Fees

You can also call this receiving and sorting, which requires you sending your products to the warehouse to maintain order inventory. On average, fees for this run about $15-$35 per pallet. Most fulfillment centers charge on a per unit or hourly basis, though they sometimes add more fees if you need extras like bar code scanning and damage inspection. Some will charge a per order receiving fees (such as $30-50 per order), while others charge per pallet ($5-15) or per item ($.05-$.15) or per box ($1). Making the comparison even more difficult is that some companies don’t charge fulfillment fees, attempting to “streamline” their fee structure. In this case, they may roll the receiving fees into the order fulfillment/pick and pack fees (thereby eliminating the receiving charge but making their fulfillment fees appear higher).

Regardless, they don’t charge extra for other typical receiving tasks like product unloading, inventory data entry, or storage in bins.

Storage Fees – Either Pallet Storage or Cubic Footage Storage

You may have to send thousands of products to the fulfillment center, and they need space to store it there. They charge for this service, and it can run $15-$40 for each pallet. You may also incur extra charges for shelf space if requiring additional storage to accommodate you. Some companies charge storage fees based upon cubic footage used, which accommodate for pick bins better. These fees generally range from $.25-$.45 per cubic foot.

Overall, warehouses figure costs on cubic footage or square footage or pallet storage. Since fees go by a monthly charge, some of this could vary depending on what your inventory is at a given time – which is one of the perks of using a fulfillment service. You only pay for what you use that month – something that you can’t do if you lease or own a space of your own. Leased or owned space is a fixed cost each month, regardless of whether you fully utilize it or not (not to mention that it is an encumbrance).

Remember that more fees could apply if you need storage services like temperature control.

Different Ways Fulfillment Companies Charge for Storage: From Pallets to Bins

Storage in a fulfillment company is important for your company, especially if you need to store inventory there during long-term periods. The reason you may need this now is you’ve likely outgrown the space your startup had in the beginning. Now you need some third-party storage somewhere.

Rather than having to rent out more expensive storage facilities, many fulfillment centers provide the storage for you. This works as double duty in being able to outsource your fulfillment to a third-party warehouse while still providing ample inventory storage space.

However, it’s not a cut and dry process for warehouse storage. Fulfillment centers frequently charge for storage in different ways. It ranges from pallet storage systems to charging by cubic footage, or even square feet.

Other times, it about storage bins or cabinets. What you choose matters based on what type of products you sell. You’ll have to determine different ways fulfillment companies charge for storage to decide what your best storage approach is in the coming year.

Storage by Pallet

A great thing about pallet storage is they’re so easy to assemble in any warehouse setting. They come in different sizes as well, giving you warehouse options on where these fit within the four walls.

It gives you alternatives when you have various-sized products that require more storage space than others.

Even better is pallets don’t take up a lot of floor space, so it leaves room for warehouse employees to move around without obstructions. In many cases, you can assemble pallets based on the width of the warehouse aisles. For instance, you can get narrow or very narrow aisle pallet racks for more efficient utilization of floor space.

Other pallet options include double-deep pallet racks, or pushback racks. Pallet flow racks are also popular, which works on any floor level in warehouses.

Generally, you’ll get charged between $6 to $15 per pallet every month.

The Advantages of Storage by Cubic Foot

One negative with pallet storage is you sometimes get overcharged for what’s known as “dead space.” Storing by cubic foot is preferable for many businesses because it’s so easy to calculate using automated systems.

All that’s necessary is calculating the dimensions of your items by multiplying total units by cubic feet. Then you need a sum for all your SKU’s for an accurate assessment.

Many automated programs do this for you, saving time for your warehouse on calculating what they’ll charge you. Nevertheless, storing by cubic feet still requires extensive management since you’ll need constant updating of product dimensions.

Storage by Square Feet

It’s possible your business sells unique products that are more difficult to store. Larger products fall in this category, and it’s going to require different methods of storage to accommodate.

Storing products by square footage isn’t overly common, yet typically used for bulkier items not normally fitting into pallet or cubic feet storage options.

Choosing your items means you’ll get charged per square foot, which might require a set amount of square footage in your contract.

Storage Cabinets or Bins

You may prefer using cabinets or bins in your fulfillment center for easier accessibility. In many cases, storing products this way enhances security since most cabinets and bins have a lock and key.

Storage cabinets are sometimes more expensive to build and maintain in warehouses because they frequently require refrigeration or electrical components. Because of these features, pricing is going to become a little higher for sake of added protection.

Overall, though, volume is going to determine pricing more than anything. It’s not to say you still can’t find lower rates with the right fulfillment warehouse.

Order Fulfillment Charges, Also Known as Pick and Pack Fees

If terms like “Pick and Pack” still sound arcane, you need to learn some of the terms to understand industry fees. “Pick and pack” is merely another definition for the fulfillment process, or gathering and packaging all your orders.

For outsourced warehouses, fees usually run up to $3 per package, which is usually the standard for a one item order. Generally, you’ll see it structured as a per order fee PLUS a per item fee. In other words, there may be a $2.50 per order fee plus $.50 per item picked. As an example in this case, a two item order would cost $3.50 ($2.50 to pick the order plus two times the $.50 per item fee for a total of $3.50). They frequently charge you via packaging materials used and how many items go into a package. Sometimes weight factors in as well, so expect to pay a little more for heavier products. Some companies include packaging into this cost, while others charge an additional box fee.

General Shipping Charges

Once your item ships out, you’ll finally be able to enjoy the logistics of a quality fulfillment center. The shipping procedure does cost money, yet you could save money going through the warehouse’s account rather than you own. One reason is because warehouses get good rates from most carriers due to aggregate shipping.

While you can save money here, most fulfillment companies give you discounts anyway. It’s all based on the volume of your packages. Overall, you could have extra fees if you insist on shipping through your own company account. In general, for ground shipping, you may be able to receive a 5-10% discount off of published (or more if you have high volume). In the case of express shipments, they’ll likely be able to provide an even higher discount, such as 20-30%. For LTL and truckload shipments, discounts can be sizable.

 

A Detailed Breakdown of All Potential Fulfillment Charges

Below is a listing of all of the potential fees that you will encounter with a fulfillment service:

  1. Set Up Fees – Account Set Up and System Integration
  2. Inbound Shipping – Freight or Container
  3. Receiving
  4. Storage and Warehousing
  5. Pick and Pack and Order Fulfillment
  6. Box Fees – Standard or Custom Packaging
  7. Order Insert Fees & Custom Labeling
  8. Outbound Shipping
  9. Returns Fees
  10. Kitting Fees
  11. Account Management Fees

An Example Fulfillment Proposal to Give You a Feel for a Monthly Bill

Below is a sample fulfillment pricing proposal.

Set Up Fee $500
Inbound Shipping Fee Discount off of negotiated rates with carriers
Receiving Fee $35 per hour OR $450 per container OR $1 per box OR $10 per pallet OR $.25 per item
Storage Fee $10 per pallet or $.35 per cubic foot
Fulfillment Fee $2.50 per order PLUS $.35 per order (discounted for higher volume or orders)
Box Fee $.45 per box (some companies include this in fulfillment fees)
Order Inserts $.10 per insert OR $.05 per label
Outbound Shipping Fee Discount off of negotiated rates with carriers
Returns Fee $3.50 per order PLUS $.50 per item
Kitting Fee $35 per hour or custom quoted rated per order/item based on time study
Account Management Fee $100 per month

Look For These Keys When Comparing Fulfillment Costs and Pricing

One of the most important things for you to research when it comes to choosing a fulfillment company is how their fulfillment pricing and costs and their system works. This way you can choose the best options for your business plan and be able to budget accordingly. The following is a list of helpful fulfillment pricing tips to help you be able to make an informed decision.

1. Make sure there are no hidden fees or confusing charges.

Read through all pricing documentation to verify what fees will apply to you and ensure they are legitimate for the type of business needs you have currently and what needs you will have in the future. Asking questions now can save you from confusion later.

2. Ensure storage and order fulfillment charges match your company needs.

Be sure to check into any limitations regarding storage and order fulfillment to confirm the fulfillment company can handle your expected output and also your inventory needs. Include projections for varying needs throughout the year.

3. Check into fees for returns and international orders.

Verify fulfillment costs for normal customer returns, international orders, and other variables that may be exceptions to the majority of your standard business transactions.

4. Verify shipping options and customization options.

It is important to know in advance if you may need different shipping options for time limitations. Also, customization such as wrapping, custom packing materials, custom packing slips, and extras to be included (catalogs, business flyers, ads, etc.).

A good understanding of pricing structure will help save you from concerns in the future. Analyze current business needs and try to project future business needs to account for possible changes in fulfillment pricing structure based on volume. Feel free to ask our experts for additional guidance and answers.

Fulfillment Costs as a Percentage of Gross Product Sales

Sometimes, we get asked what the average fulfillment costs are as a percentage of gross sales. This is a very difficult question to answer. For example, let’s say that your average fully loaded fulfillment costs are $8 per order. For a product with a gross sales price of $50, the fulfillment costs are a whopping 16% of sales. However, if the gross sales price of the product is $110, then the fulfillment cost is slightly over 7%. Due to the fluctuations in product prices, we would not suggest taking the fulfillment costs as a percentage of gross sales analysis too serious. However, for those of you that are determined to explore this angle, studies have shown that the most efficient companies are operating at between 8-10%, whereas the average seems to be around 10-15%, with the lower end of companies without as much automation operating at around 20% of gross sales.

A Comparison of Costs of In-House Fulfillment Versus Outsourced Fulfillment

In order to truly compare if outsourced fulfillment is the best solution, you’ll have to compare all of the costs of outsourcing with in-house costs. Below is a listing of all of the costs that you should consider if you’re looking at performing fulfillment in-house:

  • Labor (This is the cost of any staff that will be used in the warehouse – including receiving orders, inventory management, order fulfillment and shipping. Even if the business owner is going to be performing these functions, it is important to include them in the overall cost analysis in order to get a fair representation of true in house costs.)
  • Rent (This is the cost of actually renting a warehouse space. While in house operations will allow for greater control over the process, one of the main drawbacks is that your company will be hampered by the fixed cost of leasing a space.)
  • Utilities (Just like owning or renting a personal living space, running a warehouse space will require certain utilities, such as electric and water.)
  • Insurance (If you lease a warehouse space, you’ll be required to obtain insurance for any accidents or catastrophes that occur.)
  • Supplies (This is the cost of any materials needed to run the warehouse, such as shrink wrap, cartons, carton fill, etc.)
  • Shipping (This is the cost of actually shipping your packages or goods, either by small parcel carriers such as FedEx and UPS, or by LTL or Truckload carriers.)
  • Customer Service (Some time will no doubt be needed to answer email and phone calls presented by your customers, and this line item attempts to budget for the expense of managing your customer base.)
  • Management Time (Many companies, when conducting this analysis, forget to factor for this “soft” cost. However, there is usually a good amount of time spent by the owner or other managers in consulting with the warehousing division of the company. These costs can add up quickly, but if unaccounted for, will not adequately reflect the true cost of in house fulfillment.
  • Software (This is the cost of any software needed to perform inventory control and shipping.)

If you want some ideas of what these actual costs will run, take a look at our case study that we performed for a new start-up that was comparing in-house versus outsourcing costs.

2015 Fulfillment Costs and Pricing SurveyFulfillment Costs and Pricing Survey Results

Recently, Intelligent Connections Corp conducted its annual warehousing and fulfillment company survey to uncover information about the average costs and pricing of its database of pre-screened warehousing vendors. Frequently, users of our service and participating vendors alike ask us questions about what warehouses charge on average for their service, as well as what their baseline costs structures average. We were interested in learning more about some of the more common costs and prices with the industry, especially as it pertains to the small to mid-sized fulfillment provider. Each warehouse that participates in our warehousing services platform was sent an email survey with five questions related to costs and pricing. The questions were as follows:

  1. What is your yearly cost per square foot of your warehouse space (triple net) (e.g. $10 per square foot per year)?
  2. What is your starting hourly rate of your warehouse staff (e.g. $8 per hour)?
  3. What is your annual pay for a warehouse management employee (or hourly if applicable)?
  4. For an average customer, what do you charge for pick and pack per order (order fulfillment fees – e.g. $2.50 per order)?
  5. For an average customer, what do you charge for monthly storage (e.g. $10 per pallet per month)?

Before we launch into the results, it’s important to point out some of our assumptions. First, we did not record which answer was associated with a particular warehouse. This was done to allow vendors to confidentially answer questions without fear of providing key information about their specific company. Second, if we found any of the survey answers to fall far outside of the extremes, we did not include the results in the averages outlined below. For example, if someone indicated that they paid $75 per square foot per year for warehouse space and the next highest amount was $18, we did not include the result. Unreasonably high or low answers to our survey questions could have been a result of misunderstandings related to the question. Third, we did not segregate the results by geography. We acknowledge that this definitely has a tendency of skewing some of the results, as we do have vendors that operate in the United States, Canada and Europe. Fourth, in cases where results were given in various formats for a single question, we made our best attempt to compute averages based upon the most common answer type given. As an example, some respondents answered that they pay a warehouse management employee a salary, while others indicated that they paid an hourly salary. Similarly, some respondents provided answers to how much they charge for pick and pack per order as a flat order fee, while others responded that they charge a per order plus a per item fee. Finally, if there were any responses that warranted further explanation, we elaborated on those responses in our discussion below, so that readers of the results can understand the various responses received.

averagefulfillmentrates

What is your yearly cost per square foot of your warehouse space (triple net) (e.g. $10 per square foot per year)?

Average = $9.24

The average yearly cost per square foot of warehouse space across all respondents was $9.24. The median response was $7. The mode of all results (most frequent response) was tied between $5 and $6. The range of the results was 14.5, with responses ranging from $1.5 to $16. A couple of the warehouse respondents reported that they owned the facility outright. While we don’t know which responses were associated with which locations, we do know some respondents indicated that they paid different costs in different areas of the country in cases where they had multiple warehouses facilities, which wouldn’t be a surprise, as some areas are inherently more expensive than others.

What is your starting hourly rate of your warehouse staff (e.g. $8 per hour)?

Average = $11.54

The average starting hourly rate of a warehouse staff member was $11.54. Both the median response and the mode of all results was $10. The range of all results was $13. The lowest rate reported was $8, and the highest rate reported was $21, though at least one respondent reported that they may offer as high as $25 for a starting team member. On multiple occasions, respondents reported that they also offered additional benefits, such as medical and dental benefits.

What is your annual pay for a warehouse management employee (or hourly if applicable)?

Average = $18.04/hour

Average = $32,050/year

For this particular question, as mentioned previously, we had some respondents (21%) report that they pay warehouse management staff on an hourly basis, ranging from $12 to $34 per hour, with an average of $18.04. The average annual pay for warehouse management staff expressed across all respondents on an annual basis was $32,050. The median and mode were both $40,000, with a range of $53,000. The lowest rate reported with $21,000, with the highest reported salary was $74,000.

For an average customer, what do you charge for pick and pack per order (order fulfillment fees – e.g. $2.50 per order)?

Average = $2.84

One of the most common notes from respondents on this particular question was that the order fulfillment fees varied based upon order volume. Therefore, we had to make some assumptions, factoring by averaging in cases where respondents provided ranges. Furthermore, some respondents indicated that the average prices included warehouse provided packaging. Finally, our assumption is that the order fees were for a single item shipped, although some indicated that the order fees presented included up to a few items (2-3). The average pick and pack per order fees was $2.84. The median result was $2.85, with the mode being a tie between $2.5 and $3.5. The range was $5.5, with the low response of $1 and the highest response of $6.5.

For an average customer, what do you charge for monthly storage (e.g. $10 per pallet per month)?

Average = $9.62

The average monthly storage charge of all respondents was $9.62. Both the median and the mode were $10. The range was $24.5, with the lowest response being 3.5 and the highest being $28.