The ecommerce market in the US was worth an estimated $599.2 billion in 2021, making it the second largest entity of its type behind China.
What’s more, the global market is expected to total $5.5 trillion in value by the end of this year, while this trend for accelerated growth (which began with the coronavirus pandemic) is likely to continue for the foreseeable future at least.
Of course, this is good news for ecommerce stores and retailers, who can benefit from increased demand for their goods. However, a sustained and accelerated spike in demand can also create issues in terms of scalability, especially when it comes to fulfilling orders and the cost of logistics.
So, we’ve addressed some of the common fulfillment costs below so that you can understand your potential outlay and make informed decisions about how you process your customers’ orders.
What are Order Fulfillment Costs?
When we talk about order fulfillment, we’re referring to the complete process from the point of sales enquiry (which is online in the case of ecommerce) to the actual delivery of a physical product to the customers.
There are numerous elements to effective order fulfillment, which incur a range of different costs. In general terms, however, order fulfillment costs refer to the various fees and charges associated with processing, packaging and shipping goods.
Of course, these costs must be calculated and managed in-house when you fulfill orders independently, but outsourcing enables you to tap into specialist fulfillment expertise for a single charge that encompasses the precise service that you’ve asked for.
Fulfillment services can handle all of the steps and processes associated with ecommerce sales, from order processing and management to packaging, distribution and shipment directly to the customer.
As we’ve already touched on, outsourcing fulfillment to an expert third-party delivers numerous advantages in terms of quality and transparency, while it may even be more cost-effective depending on your pricing model, the nature of your products and the volumes that you ship.
It’s important to understand the costs in detail, so that you can identify value and select the right fulfillment partner for your ecommerce store.
Ecommerce Fulfillment Costs Explored
In the next section, we’re going to explore the most pertinent ecommerce fulfillment costs. These include:
#1. Inventory Receiving and Storage
You may ask your fulfillment partner to store goods on your behalf, but the items will first need to be received, unloaded and checked for quality.
This is referred to as inbound shipping, and inventory intake fees are likely to be charged either as an hourly rate or per pallet or unit.
In terms of direct storage costs, this is likely to be one of the more significant charges that’s applied by your fulfillment partner. Space may be at a premium for such entities, although those that operate multiple fulfillment centers in different locations may have a little more room and affordable pricing as a result.
Some such costs are charged per cubic foot of space required, so you may pay a premium for larger, bulkier items. So, it’s important to thrash out such details and compare the market before making an informed decision.
#2. Pick and Pack and Packaging Costs
If you’ve outsourced full responsibility for your ecommerce fulfillment, the necessary items must be picked from storage and packed for shipping once a particular order has been processed.
So, your provider will usually charge a pick and pack fee on a per-pick basis, while additional fees may be added when orders are amended or added prior to shipment.
Fulfillment services almost always include packaging costs, particularly when providers use their basic stocks of boxes and envelopes that are housed within fulfillment centers.
This may or not be charged as an additional cost, but it’s something that you should check as part of your agreement.
#3. Shipping Costs
Another significant cost is shipping, but the good news is that working with seasoned and well-resourced fulfillment companies will enable you to distribute your goods under their large volume deal contracts with significant discounts as a result.
This results in lower shipping fees overall, particularly when selling goods overseas and utilizing different fulfillment centers globally.
Ultimately, the total cost per order to ship will depend on a package’s weight, service level and the distance traveled. So, by partnering with fulfillment providers that have distribution centers in different locations, you can reduce costs further.
Make no mistake; it’s virtually impossible to achieve such deals or discounts when operating independently, especially if you operate a small or startup ecommerce store.
#4. Return Costs
Returns represent a key ecommerce and fulfillment cost, and one that can cost businesses considerable amounts of cash.
According to some studies, at least 30% of all products ordered online are returned, compared to just 8.89% of items purchased in brick-and-mortar stores. So, it’s important to have an understanding of such costs and a plan for minimizing them, and a third-party fulfillment center can help in this respect.
When considering the potential cost of returns, you’ll need to consider processing, reconditioning (where necessary) and return shipping, each of which will factor into the total amount that you pay.
Usually, return costs are charged per order, although some providers may include them as part of pick and pack fees.
You should also note that most carriers and logistic companies actively discourage individual international returns by charging inflated return shipping fees. This can be a challenge when operating independently, but one that can be resolved by working directly with fulfillment providers with local return addresses in different countries.
This way, you can benefit from local return costs and bulk return shipments, potentially saving you significant sums of money over time!
The Bottom Line
Ultimately, there are numerous fees and charges associated with order fulfillment, and it’s important to understand these in detail in order to optimize profitability.
This is where partnering with a third-party fulfillment provider can be rewarding, however, as they’ll combine one or more fulfillment services in a bespoke package that’s charged at a single, transparent price.
This also helps you to create and optimize the value you receive for your money, particularly when you identify service providers that don’t include lots of hidden fees and charges.
Ultimately, it’s also important that you calculate the fees associated with self-fulfillment and compare the pricing of third-party providers, as this will enable you to make an informed decision that benefits your ecommerce store.
