Few things are as exciting as shipping your first eCommerce order. Turning your ideas into a physical product and sending it out to customers all over the world feels incredible!
But, shipping eCommerce orders can be tough. Many businesses hire fulfillment centers to help with this. Choosing the right fulfillment center can be overwhelming. Costs vary so much and it’s tough to understand why.
In this article, we’ll demystify the costs of using a fulfillment center for eCommerce. We’ll explain how fulfillment centers price their services and break down the various costs. Then we’ll show you how to estimate the total cost of order fulfillment using quotes and a simple spreadsheet.
How Fulfillment Centers Price Their Services
If you want to compare fulfillment center quotes, you have to understand the general fulfillment pricing model. No two fulfillment centers have identical pricing. In fact, it’s really hard to make an apples to apples comparison.
And even if you could do that, it would still take time to figure out the cost for your particular eCommerce business. There are lots of variables.
There is no one-size-fits-all estimate. Even online fulfillment center price calculators can only give ballpark figures. To understand how order fulfillment costs will look for your business, you have to request personalized quotes from each fulfillment center you are thinking about working with.
Each quote will be structured differently. So you’ll need to compare costs in a spreadsheet in order to understand who is actually offering the best deal.
But even with all the variables and differences between fulfillment centers, they all follow similar logic. Once you understand the logic, then you can understand the quotes.
Basic Formula for Calculating Order Fulfillment Costs
Order fulfillment pricing can be understood with this formula:
Fulfillment Cost = Account & Storage Fees + ((Postage + Supplies + Pick and Pack Fee) * Packages Shipped) + Value-Added Services
Yes, that’s still pretty complex. Don’t worry, we’ll break this down in the next section!
Breaking Down the Costs
Understanding the individual parts of fulfillment costs will help you make better choices. So we’re going to break down the formula from the previous section part by part.
Account & Storage Fees
Account and storage fees are ongoing costs for keeping your inventory at a fulfillment center. Think of it like rent for your products’ storage space. These fees are usually billed monthly. They will change based on how much inventory you have, the amount of storage you need, and the fulfillment center’s policies.
Account fees depend on the fulfillment center. Some charge a minimum amount per month for account maintenance, which might be waived if your order volume is high enough.
Storage costs are often based on cubic footage or the number of pallets stored. Bigger, bulky items cost more than smaller ones. Some fulfillment centers also charge extra for climate-controlled or special handling storage.
Pick & Pack Fees
Pick and pack fees cover the cost of workers getting each item from your inventory, packing them for shipment, and printing and attaching postage labels. In short, these are labor costs. This fee is applied to each order that gets processed.
If you ship many orders, these costs can add up fast. Many fulfillment centers have a pick and pack fee structure like this:
- Pick and pack fee: $2.50
- Per additional item: +$0.15
High-volume businesses might be able to negotiate a lower pick and pack rate.
Postage
Postage costs vary widely based on the size and weight of your items, where they are being shipped, and the speed of shipping. Fulfillment centers often get lower rates with major carriers like USPS, UPS, and FedEx.
Each fulfillment center has different deals. To know what it will cost to ship items, request rate sheets from your fulfillment centers of choice.
The location of your fulfillment center affects postage rates. Shipping to Europe from the US costs more than shipping within the European Union. Following the same logic, shipping from the US west coast to the east coast will cost more than shipping from, say, New York to New Jersey.
Supplies
Basic packaging supplies are usually included in the pick and pack fee. However, specific packaging needs like branded boxes or environmentally-friendly materials might cost extra. Ask for detailed information if you need specialized packaging.
Value-Added Services
Fulfillment centers offer more than just storage and shipping. They can do custom packaging, kitting, product inspections, and return processing. Prices for these services vary a lot, depending on what you need. Still, it’s important to be proactive and gather this information.
Estimating The Total Cost of Order Fulfillment
To figure out the total cost of order fulfillment, gather quotes from fulfillment centers and use a spreadsheet to compare costs. This method helps you decide which fulfillment center fits your needs and budget best.
Creating a spreadsheet for comparison
Start by listing the rows as Account & Storage, Pick & Pack, Postage, Supplies, and Value-Added Services. The columns should list your fulfillment centers of choice.
Begin by writing down your estimated order volume. This helps in making accurate calculations. For Account & Storage fees, plug in your best estimate based on the quotes received. Do the same for Value-Added Services. These might include special packaging, custom labeling, or return processing.
Next, enter the average pick & pack costs and supply costs per order. These are usually straightforward to calculate based on the quotes. If the fulfillment center charges $2.50 for the first item and $0.15 for each additional item, you can estimate these costs based on your average order size.
Postage is more complex because it varies by destination. To estimate this, calculate the weighted average of postage rates for different destinations. For example, if 60% of your orders ship domestically and 40% internationally, use these proportions to weight the respective postage costs. You might need to create a separate tab to organize these postage rates and their corresponding percentages.
By entering these values into your spreadsheet, you can see the total estimated cost for each fulfillment center. This side-by-side comparison will highlight which provider offers the best value for your specific needs.
Comparing costs
Once your spreadsheet is set up, use it to compare costs side by side for each provider. Pay close attention to any significant differences in fees, especially for services that are crucial to your business.
Remember that actual costs may vary based on factors like shipping destination, package weight, or size. Therefore, it’s wise to build in a buffer for unexpected costs. For instance, you might notice that one provider has lower pick & pack fees but higher storage costs.
Additionally, consider the reliability and reputation of the fulfillment centers. Sometimes paying a bit more for better service can save you headaches in the long run. Look at reviews and possibly even reach out to other businesses that use these services for their feedback.
The goal is not to pick the cheapest option. The goal is to pick a company with competitive prices and good service.
Ultimately, you will want to choose a fulfillment center that offers a reasonable cost and reliable service. This balance will hep you keep your operational costs low. But at the same time, you’ll still keep customers happy.
Hidden Costs to Watch Out For
Even after you compare fulfillment center quotes, unexpected costs can creep up. Many eCommerce businesses don’t realize these fees exist until they show up on their invoice.
But you do have power here. If you know about common hidden costs, you can ask the right questions upfront. This can help you avoid unexpected expenses and make a more accurate fulfillment budget. Always request a detailed breakdown of fees before choosing a fulfillment partner.
With that in mind, here are common costs that tend to fly under the radar during the initial quoting process.
1. Long-Term Storage Fees
If your products sit in a fulfillment center for too long, you may get hit with extra storage charges. Many providers charge higher rates for inventory that remains unsold beyond a certain period—usually 30 to 90 days. Be sure to ask about long-term storage policies before signing up.
2. Peak Season Surcharges
During busy shopping seasons like Q4, fulfillment centers often increase their rates. These peak season surcharges apply to pick and pack fees, storage, and even shipping costs. If your business relies on holiday sales, make sure to factor in these extra costs.
3. Special Handling Fees
Does your product require fragile handling, climate-controlled storage, or unique packaging? Many fulfillment centers charge extra for these services. If you sell breakable or perishable goods, make sure you understand the full cost of storage and handling.
4. Return Processing Fees
Handling returns is rarely free. Some fulfillment centers charge per returned package, while others charge a flat monthly fee for reverse logistics. If your return rate is high, these fees can add up quickly.
5. Labeling and Barcoding Costs
Some fulfillment centers require barcodes on all inventory, and if your products don’t arrive pre-labeled, they may charge you a labeling fee. These costs vary, so check if your provider includes barcode labeling in their pick and pack fees.
6. Kitting and Assembly Fees
If your orders require bundling multiple items together or special packaging before shipping, fulfillment centers may charge a kitting or assembly fee. This is common for subscription boxes or multi-piece product sets.
Final Thoughts
Estimating order fulfillment costs for your eCommerce business can be tricky. But understanding how fulfillment centers set prices and using a simple spreadsheet model can help you make a smart decision.
Customers expect smooth, hassle-free delivery. Provide it, and you set yourself up for long-term success. It’s worth investing the time and effort to get it right!
Frequently Asked Questions
What are fulfillment costs in eCommerce?
Fulfillment costs in eCommerce include all expenses related to storing, packing, and shipping products to customers. This usually covers account and storage fees, pick and pack fees, postage, supplies, and any extra services the fulfillment center offers.
How do you calculate fulfillment costs?
To calculate fulfillment costs, use the formula: Fulfillment Cost = Account & Storage Fees + ((Postage + Supplies + Pick and Pack Fee) * Packages Shipped) + Value-Added Services. Get quotes from fulfillment centers and use a spreadsheet to compare costs side by side.
What is a fulfillment fee?
A fulfillment fee is the charge incurred for processing an order. This includes picking items from storage, packing them securely, and attaching shipping labels. Fulfillment fees vary depending on the number of items per order and the complexity of the packaging required.
