Order Fulfilment Costs: Calculating Prices

Order Fulfilment Costs: Calculating Prices

E-commerce is booming, making fulfilment services and shipping costs a hot topic. Third party fulfilment companies take over parts of the supply chain for clients and help them manage and grow their business. Fulfilment vendors charge their clients a (monthly) fee based on the services they provide and the total cost depends, in the main, on four cost factors: the receiving of inventory, storage and warehousing, pick and pack, and outbound shipping. The cost of each of these processes depends on volume and complexity (and sometimes order measurements). Additional services like brand packaging, item assembly and express delivery also cost extra.

In order to calculate the estimated costs of outsourcing in advance, companies have to add the aforementioned fees together to arrive at a grand total. BIZ Courier is all about transparency and this article’s goal is to give our clients an overview of our prices. Admittedly, it is rather difficult to give exact numbers in a business as complex as fulfilment; hence, please take the costs listed in the article as what they are: approximations which serve to provide a sense of what to expect.

Outsourcing or Company Owned Warehouse(S)

Companies that have their own warehouse(s) and shipping department generate different costs than those who outsource to fulfilment services. They both have to be calculated differently: warehouses have fixed costs independent of the actual number of fulfilment processes; therefore, even if sales are low, the costs remain the same and if business is booming, investments into storage space, personnel and infrastructure might be needed to cover the unexpected increase in fulfilment and shipping processes.

Outsourced warehouses on the other hand usually have low fixed costs; fees mostly depend on the number of fulfilment processes [i.e., as in items shipped] and the amount of goods stored. Costs therefore scale directly with sales and are more flexible.

Important cost factors in fulfilment

  • Storage Costs
    Goods have to be received, stored and booked which takes time and, as a consequence, cost money. Receiving a common package or pallet amounts to about €2.67 whereas storage comes to between €1.60 and €3.90.
    Storage costs depend on the items value, dimensions, and quantity: companies can rent space and insure their products against any kind of hazard for 0,32 € to 0,49 € per Cubic Meter per day. Furthermore, at Biz, customers would only have to pay storage according to the quantities stored in each location upon the last day of each month. That is something which rewards them for supplying us with their fast-selling articles and assigning to us orders with their top selling products.
  • Picking and Shipping
    As orders come in, the relevant items have to be moved from the warehouse, put together based on the order, packed, and shipped. Costs are based on labour, packaging material and shipping costs. High quality boxes are more expensive.
    Shipping costs are low because order fulfilment companies get discounted bulk rates – actual costs depend on shipping services [i.e., BIZ, TIPSA, GLS, DHL, UPS, INOUT, DPD etc.] and package weight. National shipping is cheaper than international shipping.
  • Returns
    Returned items incur additional costs. These packages have to be received, inspected and put back into storage (or disposed of). Accepting returned packages varies from €0.25 to €0.30 (largely depends on the item in question) and storage costs have already been covered above.
  • Additional Services or Value Added Services
    Additional services include, but are not limited to, enclosing flyers, creating sets and bundles from different products, cutting or refilling wares, and gift-wrapping. Most fulfilment service providers offer such services at an additional cost; however, it is difficult to give exact numbers. Perhaps it would be safe to say about €0.20 for adding flyers to packages or adding company labels. Furthermore, an hour of standard warehouse labour amounts to roughly €32, which offers an approximation of what to expect.
  • IT-Services
    Fulfilment service providers usually have excellent IT infrastructure and well-oiled software systems in place. It is easy to connect these services to clients’ web shop-software or whatever program they use to manage their supply chain. Some fulfilment providers charge a small fee for each transaction, about €0.01; some offer such services free of charge.
    Sometimes some integration measures are necessary despite the aforementioned convenience of such IT systems in order to link two existing IT systems or even create a new one. Industry standards for IT-work are somewhere around €110.00 per hour.

Please do not take the prices listed above as anything more than approximate values, rough guidelines so to speak. Companies that ship large quantities and have many fulfilment processes can count on economies of scale and their own negotiating power to get lower prices. Volume discounts are very common in this industry.

Hidden costs

Finally, we would like to mention hidden costs, in this case the hidden costs of poor and ineffective order fulfilment. Good fulfilment providers help save money in a number of ways which often stay hidden until something goes wrong. Wrong orders, damaged packages, delays and long shipping times are the result of an ineffectual supply chain management which cost a lot of money on top of making customers unhappy. These issues have an immediate cost and long-term effects, as they tarnish your company’s reputation. Unfortunately, repairing fulfilment software, expanding infrastructure or training employees to avoid making these mistakes in the future is also expensive.

That is where professional fulfilment service providers have a huge advantage: they are very good at avoiding such blunders through experience and accumulated knowhow. After all, this is what they do day in, day out! When everything goes smoothly, it is easy to forget what could go wrong and how much that would cost.

Get in touch

If you have any further questions on this topic, or anything else for that matter, or would like to get an estimate of costs for your particular business, feel free to contact us. We would be happy to provide you with the information you need to make the decision best for your business!