Top Ways 3PL Companies Help Reduce Costs for E-Commerce Merchants
- Making Storage Costs Variable
- Reducing Pick and Pack Charges
- Lowering Shipping Costs by Leveraging 3PL Freight Rates
- The Bottom Line on 3PL Costs and Fees
E-commerce selling has absolutely exploded in growth, with consumers deciding that the convenience of ordering products from the comfort of their own homes is more appealing than traveling to and navigating brick-and-mortar shops. Because of this, the number of online merchants has multiplied exponentially across the globe as well. While the expansion of the e-commerce landscape has afforded small and growing businesses tremendous new business opportunities for selling their products, fulfillment, and delivery of products and meeting consumers’ exceedingly high shipping expectations is presenting a very real operations dilemma – manage the fulfillment operations in-house or outsource to a 3PL fulfillment company.
There are many pros and cons to in-house and outsourcing warehousing and fulfillment, but at the end of the day the deciding factor for most businesses comes down to costs. Which approach costs less in the long run? Which methodology results in lower storage, pick and pack, and shipping fees?
Below, we outline the top reasons why using the best 3PL companies will reduce overall warehousing, fulfillment, and delivery costs.
Making Storage Costs Variable
One of the largest monthly costs for e-commerce merchants is storage. Managed in-house, this comes in the form of a monthly warehouse lease. Not only is finding warehouse space increasingly difficult, but it is also a fixed cost – regardless of the amount of space you need each month.
Alternatively, outsourcing 3PL warehousing enables you to turn this large, fixed cost into a variable cost. How? Because 3PL companies only charge you for what you use each month. Therefore, as you sell products, your inventory stock decreases – and so does your monthly storage bill.
Furthermore, while you may need more space for packing and shipping operations and receive in-house, 3PL warehouses don’t charge you for the use of this space. The total amount of space that is directly allocated to your account is less than the space you would need to run operations in-house.
Reducing Pick and Pack Charges
Another significant cost for fulfillment relates to managing the picking and packing of customers’ orders. Managed in-house, picking, and packing of orders requires employees. Warehousing staff members typically get paid an hourly fee – but that isn’t the full picture. In addition to hourly staffing charges, you’ll be required to pay overtime rates, as well as benefits to attract and retain employees. To keep employees, benefits have become a very important part of the recruiting process, and large companies like Amazon are incentivizing warehouse staff by offering all sorts of perks – up to and including paying for a college education! Not to mention that managing staff is laborious, time-consuming, and takes away valuable time for other important tasks to grow your business.
On the other hand, using a 3PL service both removes the need to manage staff and reduces overall pick and pack costs. First, by using a 3PL service you no longer must pay fully loaded hourly rates for every hour an employee is at your warehouse – including downtime. Rather, 3PL companies charge a pick and pack fee per order to pull and prepare your orders for shipping.
Second, these rates are also lower than you would be able to realize yourself since they are experts in logistics and can leverage all their collective specialization and process synergies among all their clients. For a single item order, fulfillment costs run about $2.95 per order.
Lowering Shipping Costs by Leveraging 3PL Freight Rates
Shipping costs are such a large cost of operating an online web store that they just can’t be ignored. Most e-commerce merchants spend significant time in developing shipping strategies to not only increase sales (e.g., free shipping options) but also decrease their overall shipping costs and improve net operating margins.
Unless your company ships thousands or even tens of thousands of orders per month, there is virtually no way that you will be able to negotiate more aggressive freight and shipping rates than 3PL services. Since 3PL warehouses ship for a multitude of clients, the rates that they negotiate with the carriers is far lower due to the increased volume of shipping. Furthermore, they may ship a lot of products with similar characteristics (such as very small products or very large products), which pushes the cost per shipment down even further.
The Bottom Line on 3PL Costs and Fees
Without a doubt, the three largest logistics costs are storage, pick and pack, and shipping. In all three areas, warehousing and fulfillment providers offer a clear path to lower fees as opposed to in-house logistics management. Lowering costs is paramount to success in the brutally competitive e-commerce landscape. By outsourcing, e-commerce merchants give their businesses the best chance of success by utilizing a 3PL company to store and ship their goods.