How do you know when you need help with order fulfillment? It’s not an easy call. But deciding when to outsource order fulfillment is absolutely critical if you want to grow your business and keep it running efficiently.
As your business scales, shipping physical products becomes increasingly difficult. So does handling the logistics in-house. This can quickly become overwhelming and expensive.
Order fulfillment partners can help streamline operations, reduce costs, and improve customer satisfaction. Knowing the signs that indicate the need for outsourced order fulfillment will help you make an informed decision when the time comes.
6 Signs Your Business Needs to Outsource Fulfillment
Outsourcing fulfillment can significantly benefit your business. But knowing when it’s time to do this isn’t easy.
Below, you will find a list of signs that your business needs to outsource fulfillment. If you say “yes” to any of these, it’s probably time.
#1: Your customer base is growing faster than you can keep up.
As your order volume increases, it becomes harder and harder to keep up with demand. But once you are set up with an order fulfillment partner, a surge in the size of your customer base doesn’t have to mean hours spent packing boxes in your home office.
Order fulfillment companies can easily handle large volumes of orders. That way, they all go out in the mail on time and to the right address, keeping your customers happy and loyal.
#2: You are unable to quickly and accurately ship orders to customers.
If you can’t ship orders out on-time or to the right address, then you need help. If you even suspect that your order fulfillment process is becoming slow or inaccurate, it’s time to consider outsourcing.
Delays and mistakes can frustrate customers and damage your reputation. Fulfillment companies specialize in quick and precise order processing, helping you maintain high service standards and customer satisfaction.
#3: Your staff are overworked.
When your employees are overwhelmed with fulfillment tasks, their productivity in other areas can suffer. This overload can lead to burnout and decreased morale.
Outsourcing fulfillment can free up your team to focus on core business activities, improving overall efficiency and job satisfaction.
#4: Your business feels overly complicated.
As your business grows, it becomes more complex. This increased complexity can weigh heavily on your mind and you may feel like you can never reach the end of your to-do list!
There are a lot of aspects of in-house fulfillment that can be hard to manage. If you have a lot of SKUs, ship internationally, or have special packaging requirements, this can all add to the complexity.
A dedicated fulfillment partner can handle these complexities for you. That way, you can concentrate once again on strategic growth and business development.
#5: Shipping costs are adding up.
Postage and supplies are expensive. Shipping costs can eat into your profits, especially in eCommerce.
Fulfillment companies almost always get bulk shipping discounts because of the sheer order volume they handle. The same is true of supplies like boxes and other packing materials.
But fulfillment companies are also very competitive, and cannot simply pocket the savings for themselves. They often split the difference with their clients.
By outsourcing, you can take advantage of these cost savings, improving your bottom line and offering competitive shipping rates to your customers.
#6: You are running out of storage space.
If you run out of space to store your own items, you need help. Storing products in-house can clutter your workspace and limit your operational capacity. When you outsource to an order fulfillment center, they handle the inventory management for you and that can free up a lot of space.
How Order Fulfillment Services Are Priced
Order fulfillment pricing can seem complicated. That’s because order fulfillment services are priced based on several factors.
These factors include account or storage fees, the number of packages shipped, postage, supplies, and pick and pack fees. Understanding how fulfillment pricing works will help you estimate fulfillment costs and decide whether or not outsourcing fulfillment is financially sensible.
Order fulfillment pricing can generally be understood by using the following formula:
Fulfillment Cost = Account/Storage Fees + (Packages Shipped * (Postage + Supplies + Pick and Pack Fee))
In the following sections, we break this down further.
#1: Account/Storage Fees
Account and storage fees are the baseline costs for holding your inventory. These fees cover the space your products occupy in the fulfillment center. They vary based primarily on the amount of space required. However, for some special cases like hazardous or refrigerated materials, there may be additional upcharges.
#2: Packages Shipped
When it comes to calculating order fulfillment costs, the number of packages shipped is the most important factor. The more you ship, the more postage and supplies you need. Plus, fulfillment centers charge a fee for each package they handle. So as they handle more packages, you pay more of these fees as well.
In short, the more you ship, the more you pay.
#3: Postage
Postage costs are the fees associated with shipping your items to customers. Fulfillment centers often negotiate bulk postage rates, which can be significantly lower than standard retail rates.
Like with retail postage, the most important factors here are the size and weight of the package to be shipped, as well as the destination.
Heavy and large items shipped long distances cost more. Smaller, lighter items shipped short distances cost less.
#4: Supplies
Supplies costs cover the materials needed for packing and shipping, such as boxes, bubble wrap, and tape. Basic materials are typically included in the pick and pack fee (discussed below), but special packaging requirements may incur additional charges.
#5: Pick and Pack Fee
The pick and pack fee is the cost of retrieving items from storage, packing them, and preparing them for shipment. This fee covers labor and basic materials for each order processed. Think of this as the cost to have a human being put your items into a box and get them in the mail on your behalf.
How Outsourcing Fulfillment Can Save You Money
Saving time and running your business more efficiently are good enough reasons to outsource fulfillment on their own. However, outsourcing fulfillment can – in some scenarios – save your business a lot of money.
These cost savings come from bulk postage rates, reduced supply costs, and better labor allocation. Understanding where these cost savings come from is worth it, since they can help you see whether or not outsourcing fulfillment will be financially beneficial rather than merely an operational necessity.
#1: Fulfillment centers get bulk discounts on postage and supplies.
Fulfillment centers usually have lower postage rates because they ship so many packages. Carriers are more willing to cut them a price break. The same principle applies to supplies, which are purchased in massive bulk quantities.
Because the fulfillment industry is competitive, these savings are passed on to you, which can reduce your shipping and material expenses. Over time, these savings can really add up!
#2: Order fulfillment companies have staff that dedicate 100% of their time to shipping.
Outsourcing fulfillment allows you to reallocate labor to more valuable tasks. Employees can focus on revenue-generating activities instead of packing and shipping orders. This improved labor efficiency can lead to higher productivity and profitability.
#3: You can cut down on training and overtime costs related to shipping.
Fulfillment centers handle all aspects of order processing, reducing the need for overtime and extensive training. That means if you or your staff are doing overtime shipping packages, you can stop!
Cutting down on overtime, or even time spent training employees on how to ship, can save a lot of money. This isn’t just because it helps keep wages in check, but it also helps smooth out your workflows.
#4: You no longer have to purchase your own supplies.
Outsourcing eliminates the need for purchasing packing supplies like bubble wrap, boxes, and tape. These costs are largely covered by the fulfillment center and included in the pick and pack fee. This reduces your overall expenses and simplifies budgeting.
#5: You may be able to reduce storage costs.
Storing inventory in a fulfillment center can be more cost-effective than renting additional space. You avoid the expense of storage units and the hassle of managing inventory on-site. This can free up valuable workspace and reduce overall costs.
#6: Order fulfillment partners are generally more efficient.
Outsourcing streamlines your operations, making them more efficient. With professionals handling fulfillment, you reduce errors and improve workflow. This allows you to focus on core business activities instead of shipping.
#7: More consistent shipping experiences can reduce customer turnover.
According to eCommerce delivery platform, FarEye, 85% of customers will not shop again with retailers after negative shipping experiences. This is really bad, since acquiring new customers is far more expensive than retaining them.
Fulfillment centers ensure faster, more reliable shipping, improving customer satisfaction and retention. This reduces refund requests and increases repeat business.
#8: More consistent shipping experiences can improve customer retention.
Reliable fulfillment improves customer satisfaction, leading to higher retention rates. Happy customers are more likely to make repeat purchases and recommend your store to others, boosting your revenue and growing your customer base.
How to Choose an Order Fulfillment Company
Deciding to outsource fulfillment is one thing. Choosing the right company is another.
In order to pick the right one, you will need to consider a number of factors. Among them, include your average item weight and size, shipping volume, number of SKUs, and the location of your customer base. You will also need to make sure that any fulfillment company you choose to work with provides good quality service.
Here is a quick guide to help you make the right choice.
#1: Consider the weight and size of your items.
The weight and size of your products significantly impact shipping costs and handling requirements. Select a fulfillment company with experience in your industry.
For example, if you sell small, lightweight items, choose a provider experienced in handling such products. Likewise, if your items are large and heavy, find a partner experienced in managing big and bulky shipments. That way, you can choose a fulfillment partner that provides cost-effective shipping tailored to your needs.
#2: Estimate shipping volume.
Understanding your shipping volume helps in selecting a fulfillment partner that can scale with your business. If you have a low order volume, choose a company with no minimum requirements, allowing you to pay only for the services you need.
For businesses with high order volumes, select a provider capable of managing huge quantities of orders. That way, you can rest easy knowing they can handle your peak times and have capacity for future growth.
#3: Count the number of SKUs you plan to ship.
The number of SKUs you have affects the complexity of inventory management. Choose a fulfillment company capable of handling your SKU count efficiently. If you have a high number of SKUs, find a provider with a flexible system that can manage diverse inventory without additional costs.
This ensures accurate order fulfillment and streamlined operations, preventing issues such as stockouts or mispicks.
#4: Consider where your customers are located.
Customer location is very important when choosing a fulfillment company. Make sure you choose a fulfillment company that has a location which can cost-efficiently ship to most of your customers within a short period of time. This will have a dramatic impact on postage costs, which is almost certainly going to make up the largest percentage of overall shipping costs.
#5: Carefully vet fulfillment centers for service quality and fit.
Vetting fulfillment centers ensures you choose the right partner. Start by researching online reviews on platforms like Google and Trustpilot to make sure their client base is happy.
Request quotes to understand their pricing structure. Make sure they are good communicators and that you feel like you can trust them. Check for hidden fees or long-term contracts that may not suit your business.
Finally, test their software for ease of use and functionality. Software is going to be the primary way you interact with the company, so make sure you like what you see.
Final Thoughts
Deciding to work with an order fulfillment partner for the first time can be scary. But once you start shipping a lot of orders on a regular basis, it’s something you will want to think about.
The right order fulfillment company can really help you streamline operations and save money. That can put your company on the path to long-term growth for years to come.
Frequently Asked Questions
Why is order fulfillment important?
Well-managed order fulfillment means that customers will receive their products on time and in good condition. This directly impacts customer satisfaction and brand reputation, not to mention customer retention. Efficient order fulfillment can reduce operational costs, minimize errors, and improve inventory management, leading to better overall business performance and profitability.
Should I use a fulfillment company?
Using a fulfillment company can streamline operations, reduce shipping costs, and improve delivery times. Outsourcing fulfillment allows businesses to focus on core activities like marketing and product development.
