You know it’s important to maximize sales while managing expenses. That way you can keep your spirits up e-commerce business Running. While you don’t have to worry about renting store space or paying utility bills to keep your lights and HVAC systems on, there are other expenses that need to be managed so that they don’t eat up your bottom line. One is fulfillment. Fee.
Fulfillment is a multi-step process that begins when a customer places an order and ends when the customer receives it. of Order processing process This includes checking that the warehouse has the products the customer wants, processing the order, picking, packing, and shipping the products in the order to the customer.
Your fulfillment options are:
- Inside the company: Handled by some EC businesses ecommerce fulfillment By ourselves. They manage the warehouse and use their staff to pick and pack orders and arrange for delivery. If you run a small business with low order fulfillment rates, it’s most effective to have your own employees handle fulfillment.
- outsourcing: As your business grows, it may make sense to use a third-party logistics (3PL) company or other third-party fulfillment services to store inventory and pick, pack, and ship orders. Outsourcing can be a good option for companies that are starting to grow but cannot expand warehouse space or hire staff quickly enough to meet new order volumes.
- dropshipping: Some e-commerce retailers can use dropshipping for fulfillment. This type of fulfillment works when you sell a manufacturer’s or supplier’s products rather than purchasing or manufacturing inventory and storing it in a warehouse. With dropshipping, you communicate your order to a manufacturer or supplier partner who fulfills the order.
- Hybrid fulfillment model: You don’t have to stick to just one fulfillment method. It may make the most sense to dropship some items and ship other orders with your employees. Alternatively, you can use a 3PL provider to fulfill orders that require kitting or special packaging. Make the most of every advantage to provide the best customer service and minimize fulfillment costs.
Fulfillment is the combination of processes that get orders to a customer’s doorstep, so it adds up to a variety of expenses. Fulfillment costs are:
- warehouse price: To sell a product, you need to order the product (or raw materials or parts) from a supplier and store it in a warehouse so you can find it and know what you have on hand.
- personnel costs: If you handle it yourself, labor costs are a big part of your fulfillment costs. You need to hire enough people to fill orders and pick and pack them accurately and on time.
- 3PL price: When you outsource your fulfillment, you pay 3PL costs for setup, and then you incur ongoing fulfillment center costs and fulfillment fees for the services provided by your 3PL partner.
- order processing software: Whether you handle fulfillment with your own employees or use a 3PL, you need an accurate and time-saving way to manage orders. Software allows you to manage your inventory, communicate special packaging instructions to your team, and select the best carrier to ship your products. However, software subscriptions increase fulfillment costs.
- packaging: When you complete your order, you don’t just receive the product. You’ll also be sending out shipping boxes, envelopes, packing slips, documents, and possibly promotional materials to encourage your customers to place another order. Entrepreneur.com reported that packaging materials can be costly 10% to 40% of sales price etc., you need to choose carefully.
Bookkeeping software may show you that your revenue is more than your expenses, but are you wondering if you could do better? On the other hand, if you’re running a business in the red and wondering where the money is flowing? You may not know exactly what it is. Digging into your expenses and understanding your fulfillment costs may be just what you need to know how to operate more profitably.
There are several formulas you can use to find out exactly how much to pay for fulfillment. When calculated over several months, these numbers show how costs are changing.
- Cost per order (CPO): CPO is an important metric to track. To calculate your CPO, divide your total cost by the number of orders in a given period (week, month, or quarter). this CPO calculator I can help. The goal is to keep the numbers as low as possible so you can secure more profits.
- Shipping cost per order: It’s also a good idea to track the amount you specifically pay for shipping. Calculate this cost by dividing the total shipping charges by the total number of orders over a period of time, and monitor it closely over time.
- Cost per box (CPB): Some orders may require multiple boxes, so understanding how that affects cost can help you make smart decisions about how to pack and ship your order. . To calculate the cost per box, divide the total cost by the number of boxes shipped over a period of time.
Understanding the facts will help you make wise decisions that will help you manage your order costs. However, keep in mind that reducing fulfillment costs won’t help if the changes compromise customer satisfaction. According to Newsweek, 54% of consumers discover new brands After just one bad experience. Therefore, it is important to find a balance between cost and providing the best customer service. Find out how to choose accurate orders, deliver on time, and package to avoid damage while keeping costs as low as possible.
- Answer internal and 3PL questions
Although it may seem impossible to reduce expenses by hiring others to do work for your company, it can help you control your overall costs. Do the math to understand CPO and other numbers, then contact your 3PL provider to see how the cost of their services compare. Because of their relationships with shipping companies, 3PLs are usually able to negotiate better shipping rates than shipping companies. Additionally, because 3PLs often operate domestically or internationally, they set up fulfillment centers near where most orders come from, reducing fulfillment time and shipping costs. While a 3PL isn’t the solution for every e-commerce business, outsourcing can be a solution to your fulfillment cost control challenges.
- 3PL cost optimization
If you decide that outsourcing some or all of your fulfillment makes sense for your business, be sure to choose the right 3PL partner and exactly the services you need. Find a provider with an established operation that’s a good fit for your company (customizing services is expensive) and get the best deal on fulfillment center pricing, from picking and packing to kitting, custom packaging, and returns management. Negotiate. Also, make sure your 3PL price includes the speed of fulfillment you need to keep your promises to your customers.
- Scalable warehousing
It’s not uncommon for e-commerce retailers to have busy seasons. Many companies process more orders during the fourth quarter holidays. For companies, orders peak during the summer sports season. Also, if a particular product may be in short supply and you want to expand your inventory now, you may need to increase your warehouse price budget. Therefore, more warehouse space may be required to ensure sufficient inventory. But if you’re not careful, you could end up paying for leftover space that you don’t actually need. Look for a 3PL or warehouse provider that allows you to scale up and down so you can pay for what you need throughout the year.
- Adaptable process
How specialized is your fulfillment process? Do you use specific boxes to send specific items? If you add a product to a line, do you place that product near items that customers typically purchase together? Are your employees working on software to help them get work done faster? Making thoughtful changes to your processes will save you time and make it easier to adapt when changes occur. (and lower cost).
- Take advantage of free trade zones
When importing products to fill orders, Free Trade Zone (FTZ) May help reduce costs. In an FTZ, you do not have to pay customs duties on products that you later re-export. Goods entering the FTZ are not subject to customs regulations until they leave the country, so you do not have to pay duties or duties on damaged goods destroyed in the FTZ. FTZs also have various customs processes, allowing cargo to be routed to aircraft and ships more quickly. Talk to your 3PL partner to see if this option can help you control costs.
- Let’s take another look at eco-friendly packaging.
When flipping through a consumables catalog, you might be tempted to skip over packaging made from sustainable materials, thinking it’s expensive. But look again. Environmentally friendly packaging possible save money. Eco-friendly packaging often weighs less than traditional materials, so you can save on shipping costs. you may also be eligible Tax credits or incentives To use sustainable materials.
Sustainable packaging can also help improve customer loyalty, according to research from McKinsey & Company. Over 40% of consumers It states that the environmental impact of packaging is very or extremely important. Therefore, the majority of customers are likely looking for brands that share their values and are loyal to them.
Even if you don’t switch to eco-friendly packaging, it’s a good idea to evaluate your packaging process and avoid overpacking. It can be bulky and wasteful to transport, increasing costs, but it does not add any additional protection during transport.
- Minimize returns
Another way to control fulfillment costs is to reduce the number of returns you need to process. Each return requires inventory to be sourced, picked, packed, and shipped again, increasing costs if these operations have to be repeated.
Research why people return purchased items. Should you provide better descriptions on your e-commerce site? Are your products damaged when your customers receive them? Are your return policies a little too lenient, causing people to order things they don’t intend to keep? Having a low return rate also reduces the cost of processing orders.
- Minimize the number of boxes
A customer may place an order and then discover that they need additional items. Some systems allow you to adjust your order and add items so that everything ships in one box. If your CPB is high, redoing this part of the fulfillment process can be of great benefit to your business.
- automate
Significant cost savings can be achieved by switching from paper-based fulfillment processes to the use of mobile devices. Giving your employees orders on handheld computers makes picking and packing faster, reduces errors, and saves time and money.
- Watch fulfillment costs
It’s important to closely monitor costs so you can make changes when necessary. If your warehouse prices, fulfillment center prices, packaging material costs, or shipping costs go up, you’ll need to recalculate to make sure you’re still profitable.
Fulfillment costs are part of running an e-commerce business, but be careful not to pay more than you have to. You can choose from a variety of ways to process orders: in-house, outsourced, dropshipping, or a combination thereof. You can also focus on parts of your fulfillment process, such as the packaging and shipping you use, to keep costs down.
Tracking fulfillment costs is important for e-commerce business owners. Calculating and understanding cost per order and cost per box can help you make better decisions and keep your business on a profitable trajectory.
Process automation can also help your business succeed. The WooCommerce platform includes features that help you manage your business more efficiently. for example, WooCommerce Shipping Save time and money by printing shipping labels from your WooCommerce dashboard. WooCommerce customers can use it at no additional charge. Please contact us for more information.
