What is Order Fulfillment?
An order fulfillment provider (3PL) will store goods in a large facility or warehouse until a customer purchases one of your products for sale on your ecommerce store. Once orders are received, the order fulfillment provider will pick the items from their warehouse shelves, pack them into a shipping container and then prepare orders for pickup from shipping carriers, such as FedEx and UPS. Order fulfillment providers predominately work with ecommerce sellers and ship small parcels direct to consumers.
Fulfillment partners can be a great resource for ecommerce sellers. They can provide quick, efficient delivery of your products and have established relationships with other supply vendors that can help you save money on shipping and packing supplies. The key is to create a partnership with a 3PL built on trust. After all, they are handling the delivery of your products. You want someone who is competent and transparent about their process, particularly their fees.
What are Fulfillment Fees?
An order fulfillment fee is the cost associated with a particular service that relates to the order fulfillment process. This typically includes receiving, inventory storage, order processing (pick/pack) and returns processing. Other fees may also apply.
Cost per order, or cost per purchase, is an important term to understand. Basically, it is the total fee to be paid for all services associated with fulfilling a single order. The cost per order should factor in both variable costs, such as pick and pack, as well as fixed costs, such as inventory storage and account management fees.
Be Aware of “Sneaky” Fees
Be aware of “sneaky” fees when evaluating a fulfillment service provider. Tricky fees include any fee that is either difficult to understand, is listed in the fine print or different than what was initially advertised.
As an ecommerce seller, figuring out your total cost per order is absolutely necessary when evaluating fulfillment partners because each 3PL companies has a different fee structure. A common example relates to minimums that are often imposed by order fulfillment centers. The company may advertise a low pick/pack rate. But although that rate is agreed upon on doing a certain volume of orders each month, if you don’t hit that volume you will be charged an expensive minimum monthly fee.
Another example is when fulfillment companies charge a “long-term storage fee” if your merchandise sits in their warehouse for an extended time. This can be a costly partnership if that 3PL offers a low storage rate for many of your products but adds the long-term storage fee clause. You will end up receiving a substantially more expensive invoice that will increase your cost per order. Because of the varying fulfillment pricing models out there, and because of these “sneaky” fees that can be added on, it is important to get a firm handle on the total cost per order.
Before you sign up with a third-party fulfillment (3PL) partner, be sure you understand their pricing structure and normal business process with ecommerce business similar to yours. This will help you understand not only their pricing structure but their experience in general with the delivery of products that you sell.
If you are not clear or comfortable with the information they provide, keep asking questions. After all, this will be an important partner in your ecommerce business. At the end of the day, you only want to pay for fees that you absolutely need and can afford in order to remain in business.
