For a growing eCommerce business, one of the first questions about outsourcing fulfilment is usually a simple one:

How much will a 3PL cost?

Unfortunately, there is rarely a single useful answer.

Third-party logistics pricing depends on what you sell, how much stock you hold, how your orders are structured, where your customers are located and what you expect your fulfilment partner to manage.

More importantly, comparing a 3PL quote with your current courier bill does not tell you whether outsourcing will cost more or less.

To understand the real cost, you need to look at the entire fulfilment operation.

What are you actually paying for today?

When fulfilment is handled internally, many of its costs disappear into other parts of the business.

You may be paying for warehouse or office space, staff, casual labour, shelving, packaging, software and equipment without categorising any of those expenses as “fulfilment”.

Then there is the time involved.

Someone needs to receive stock, count it, put it away, process orders, pick products, pack cartons, print labels, organise collections, answer delivery questions and manage returns.

When order numbers are small, that can be manageable.

As the business grows, however, fulfilment can quietly become an increasingly large internal operation.

That is why the right comparison is not:

What does a 3PL charge per order?

It is:

What does it currently cost us to receive, store, fulfil and dispatch every order ourselves?

The main costs within a 3PL service

Every provider structures pricing differently, but most fulfilment arrangements include some combination of the following.

1. Receiving stock

When new inventory reaches the warehouse, it needs to be checked, receipted and entered into the inventory system.

The complexity can vary enormously.

A shipment containing ten cartons of one SKU is very different from a container containing hundreds of individual product lines that need to be counted, checked and allocated to locations.

Good inbound management matters because inventory accuracy begins before the first customer order is picked.

2. Storage

Storage costs generally reflect the amount and type of warehouse space your inventory occupies.

Products may be stored by pallet, carton, shelf, bin or another appropriate location depending on the operation.

This is one reason businesses should avoid comparing warehouse pricing without considering their stock profile.

A fast-moving product range with relatively little inventory may have very different requirements from a business holding bulky or highly seasonal stock.

3. Pick and pack

This is the part of 3PL pricing most eCommerce businesses focus on.

When an order arrives, the warehouse team needs to locate the correct inventory, pick the items, verify the order and pack it for dispatch.

The number of products within each order matters.

A business averaging one item per order will have a different fulfilment profile from one regularly shipping four, five or six different SKUs in the same carton.

Bundles, promotional inserts, gift wrapping and customised packaging can also affect the work involved.

4. Packaging

Boxes, satchels, labels, protective materials and other packaging all carry a cost whether fulfilment is outsourced or managed internally.

The important question is not simply what packaging costs.

It is whether the packaging being used is appropriate for the product, protects it during delivery and avoids unnecessary freight or material costs.

For many brands, presentation also matters. The parcel arriving at a customer’s door is part of the overall brand experience.

5. Freight

Freight can represent a significant part of the total cost of delivering an online order.

Rates vary according to parcel size, weight, destination, service level and carrier.

A 3PL may also give a business access to different carrier options depending on its requirements.

This makes it worth looking beyond the warehouse rate and considering the total cost of getting the order to the customer.

6. Returns

Returns are part of eCommerce.

Returned products may need to be received, inspected, reconciled and either returned to available inventory, quarantined or handled according to the retailer’s instructions.

A business comparing fulfilment partners should understand how returns are managed rather than treating them as an afterthought.

The costs that are harder to see

Some of the biggest logistics costs never appear as a line on an invoice.

An incorrect order can create a replacement shipment, additional freight, customer service time and potentially a lost customer.

Poor inventory visibility can lead to products being sold when stock is unavailable.

Slow receiving can mean inventory is physically in the building but not available for sale.

A warehouse that struggles when order volumes increase can create delays at exactly the time a marketing campaign is performing well.

These are operational costs, even if they are difficult to put into a spreadsheet.

Is outsourcing always cheaper?

No.

There are businesses for which internal fulfilment continues to make perfect sense.

If volumes are low, products are straightforward and there is already suitable space and labour available, outsourcing may not yet produce a significant advantage.

The equation often changes as the business grows.

At a certain point, the question becomes less about whether you can continue fulfilling orders yourself and more about whether logistics is the best use of your people, space and capital.

A 3PL allows a business to convert much of its fulfilment operation into an outsourced service rather than continually building more logistics capability internally.

Compare like with like

When requesting 3PL quotes, give each provider enough information to price the same operation.

Useful information includes:

• Average monthly order volume
• Number of SKUs
• Average items per order
• Current inventory levels
• Product dimensions and weights
• Typical destinations
• Returns volumes
• Packaging requirements
• Expected promotions or seasonal peaks
• Any special handling or kitting requirements

The cheapest-looking quote is not necessarily the lowest-cost solution if important services have been excluded.

Likewise, a slightly higher fulfilment rate may represent better value if it reduces manual work, errors or operational complexity elsewhere in the business.

Think about what growth will cost too

Your current fulfilment cost is only half the equation.

Consider what happens if orders increase substantially over the next twelve months.

Will you need more warehouse space?

Another employee?

Additional casual staff during busy periods?

More shelving or equipment?

Someone dedicated to inventory?

More time spent managing couriers and delivery issues?

A fulfilment model that works perfectly at today’s volume may become expensive and distracting at the next stage of growth.

The goal is not simply cheaper logistics

A good 3PL arrangement should create a logistics operation that makes commercial sense for the business.

That means balancing cost with accuracy, visibility, capacity, service and customer experience.

For some businesses, outsourcing reduces direct costs. For others, the bigger benefit is removing a growing operational burden and gaining the infrastructure to scale without continually rebuilding the fulfilment function.

Before comparing 3PL prices, work out what your logistics operation really costs today.

You may find the number is very different from the courier bill.

Considering outsourced eCommerce fulfilment? Talk to 3PL Melbourne about your current volumes, inventory and delivery requirements and we can help you understand what an appropriate fulfilment model could look like.