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Do you really know how much fulfillment services cost? Getting products properly delivered to your customers is an essential part of your brand, but cost matters in how much profit you’ll make. When seeking out fulfillment centers, vetting is essential to make sure you find ones that not only perform a high quality of service but also work at your budget level. Invariably, when companies come to us looking for a logistics partner, the first question most companies ask is, “how much will fulfillment outsourcing cost”?
Keep in mind – fulfillment costs aren’t necessarily straightforward. Unlike other industries, fulfillment pricing is billed on an activity and pay-per-use basis. While very few fulfillment houses charge a flat fee or percentage of sales basis, most often, fulfillment services companies charge based upon the services that they perform for you during the month. This can make it challenging to understand exactly what you’ll be charge, especially in cases of budgeting or financial planning.
In this post we will try to address everything that you need to know to fully understand fulfillment pricing and costs. First, we’ll provide a summary of average order fulfillment costs. Then, we’ll break down each 3PL fee and rate, line by line, so that you have the same knowledge as a fulfillment pro!
In addition to serving as a matching service for the fulfillment industry since 2005, all our executive team members have run fulfillment companies in the past, so we understand all the ins and outs to the fulfillment industry as well as the details to fulfillment services pricing and costs. Furthermore, each year we perform an exhaustive survey of all the fulfillment centers in our network, asking them what 3PL pricing and order fulfillment costs they charge customers. Below is a summary of all the standard ecommerce and order fulfillment pricing, populated with actual survey results from our most recent survey.
This is almost identical to what you will receive from in a live fulfillment quote and serves as a very useful tool in planning your company’s fulfillment costs when outsourcing. It will require you to make estimates, on a line-by-line basis, to estimate fulfillment and 3PL pricing.
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|Fulfillment Cost Type||Fulfillment Pricing Fee per Unit|
|Set Up Fee||$336-575 on average and ranges from $0 to thousands; $150-$450 on average for web store integration and is usually included in the total set up fee|
|Inbound Shipping Fee||Discount off of negotiated rates with carriers|
|Receiving Fee||$39.53 per hour OR $330 per 20 foot container/$397 per 40 foot container OR $2.46 per box OR $7.37 per pallet OR $.25 per item OR $2.50 per SKU|
|Storage Fee||$16.21 per pallet OR $.50 per cubic foot OR $3.18 per bin OR $.91 per square foot|
|Fulfillment Fee||$2.75 per order PLUS $.40 per order (discounted for higher volume or orders but the average is $3.13 per single item order) & $4.33 per B2B order|
|Box Fee||$.80 per box (some companies include this in fulfillment fees, in which case you might see a slightly larger fulfillment fee and the range was $.50-$1.61 on average)|
|Order Inserts||$.23 per insert OR $.05 per label|
|Outbound Shipping Fee||Discount off of negotiated rates with carriers (e.g. 21.82% off of ground, 26.40% off of express, 24.71% off of international and 57.30% off LTL); Shipping on your own account could cost $.50-.95 per order|
|Returns Fee||$3.15 per order PLUS $.50 per additional item ($3.62 for a single item return on average)|
|Kitting Fee||$39.60 per hour or custom quoted rated per order/item based on time study ($.25-$.65 for a simple project per unit)|
|Account Management Fee||$198.93 per month and ranges from $30-$500 per month depending upon complexity|
|Call Center Services Fee||$1.43 per minute|
Below is a listing of all the potential fees that you will encounter with a fulfillment service, with a short definition. The rest of this page is devoted to providing in depth explanations of each of the fulfillment fees and rates.
View the summary slideshow below or keeping reading further down the page to get an even further explanation!
While there are a small percentage of fulfillment companies that use creative pricing structures (such as charging a percentage of sales methodology or charging a flat fee without additional ancillary fees), the vast majority of fulfillment houses use activity based pricing – which simply means that they charge you for each service or “activity” that they perform for you. Typically, they will total up all the activities that they performed for you each month and then invoice you monthly, although some may charge on a more frequent basis such as bi-monthly. While there can be quite a few different charges on your invoice, the main fees that you will encounter are:
Of these fulfillment center costs, the four 3PL costs that will comprise most of your monthly invoice are as follows:
First, we’ll break down the most common charges, and then we will provide details about the less common order fulfillment costs. But before we dive in, there are a few points to consider.
Unfortunately, every 3PL company has different rates that they charge, which makes it very difficult to compare 3PL costs among the various options. But there are some common charges that you will encounter that we’ve included below so that you can begin to familiarize yourself with what to expect.
Some important notes to keep in mind about the various fees:
Now, let’s take a deep dive into each specific fee to explore them more in depth.
It seems most set-ups for business services require a fee, and fulfillment centers are no different – roughly 52% of all fulfillment centers charge setup fees. Costs for this range widely, however, so you need to shop carefully. These fees can range from the hundreds of dollars to possibly thousands of dollars. On the low end, they will likely run from $150-$1,500, although some of the larger companies that focus on more sophisticated integrations may charge thousands to integrate depending upon the difficulty of the integration and overall setup.
The average setup fee is around $368, with some providers coming in lower, especially if they focus on helping startups and smaller businesses with lower overall fulfillment charges and fees. Also included in the set up fee is the cost to set up the account in the fulfillment center’s system, including SKU set up, establishing processes and procedures specific to the customer, etc.
What you pay depends on what you need to get started. The biggest expense comes from connecting your online shopping cart to the warehouse. This requires some technical assistance from IT professionals. Even so, going through an outsourced warehouse typically saves you money than other options. Just to integrate your cart with the fulfillment center’s WMS (warehouse management system) costs up to $275 on average, and some companies charge a monthly fee for upkeep of the integration and online reporting, usually ranging from $30-500 per month ($198 per month on average).
You can also call this receiving and sorting, which requires you sending your products to the warehouse to maintain product inventory. On average, fees for this run about $35-$45 per hour ($39.53 was the average receiving rate per hour). Most fulfillment centers charge on a per unit or hourly basis, though they sometimes add more fees if you need extras like bar code scanning and damage inspection. Some will charge a per order receiving fees (such as $30-50 per order), while others charge per pallet ($4-15, with $7.37 per pallet average) or per item ($.20-$.25) or per SKU ($2.50-$10.00) or per box ($2.46). Some companies charge per incoming container for receiving, with an average 20 foot container receiving fee costing $330 and an average 40 foot container costing $396.88.
Making the comparison even more difficult is that some companies don’t charge fulfillment fees, attempting to “streamline” their fee structure. In this case, they may roll the receiving fees into the order fulfillment/pick and pack fees (thereby eliminating the receiving charge but making their fulfillment fees appear higher). Be extremely careful when comparing options that don’t charge a receiving fee. Properly receiving your product is arguably the most critical step in outsourcing your fulfillment, and if anything is inaccurately received it will negatively impact overall operations – which is why fulfillment companies should charge a receiving fee and why you should be suspicious if they don’t. By the way, if you’re researching a fulfillment company and they don’t charge a receiving fee, you should definitely ask them where they’re making up this cost in their other fees, because it’s virtually impossible to not charge a receiving fee and survive.
Receiving encompasses a great deal of tasks like product unloading, counting inventory, inspecting it for quality, inventory data entry, and physical storage in pallet, bins, etc.
How are monthly storage fees calculated for a 3PL? A large part of your fulfillment fees will come in the form of storage of your product in the fulfillment center’s warehouse. They charge for this service based upon how much storage space you utilize on a monthly basis, and it can run $6-$40 for each pallet (we found the overall average pallet rate to be $16.21 per pallet per month). The range is wide and is influenced by location, volumes, special warehouse requirements (such as climate controls), etc. You may also incur extra charges for shelf space if requiring additional storage to accommodate your product. Typically, the warehouse will pick a day each month to perform a pallet count, and they will calculate the total pallet storage pricing per month based upon that calculation.
Some companies break from the norm of pallet storage fees and rather charge storage fees based upon cubic footage used, which accommodate for pick bins better. These fees generally range from $.45-$.55 per cubic foot. Two other forms of charging for storage that are less common is a fee per bin ($3.18 per bin on average per month) and a per square footage ($.91 per square foot per month).
Overall, warehousing services figure costs on cubic footage or square footage or pallet storage or bin storage. Since fees go by a monthly charge, some of this could vary depending on what your inventory is at a given time – which is one of the perks of using a fulfillment service. You only pay for what you use that month – something that you can’t do if you lease or own a space of your own. Leased or owned space is a fixed cost each month, regardless of whether you fully utilize it or not (not to mention that it is an encumbrance).
Remember that more fees could apply if you need storage services like temperature controlled warehousing, food grade warehousing, hazardous warehousing or other specialized needs. For more specialized storage needs, such as climate controlled, expect a surcharge over the typical warehouse fees. In our surveys, we found that climate controls warrant a 73% premium, averaging $16-23 per pallet per month (or about $.71 per cubic foot).
Storage in a warehousing company is important for your company, especially if you need to store inventory there during long-term periods. The reason you may need this now is you’ve likely outgrown the space your startup had in the beginning. Now you need some third-party storage somewhere.
Rather than having to rent out more expensive storage facilities, many fulfillment centers provide the storage for you. This works as double duty in being able to outsource your fulfillment to a third-party warehouse while still providing ample inventory storage space.
However, it’s not a cut and dry process for warehouse storage. Fulfillment centers frequently charge for storage in different ways. It ranges from pallet storage systems to charging by cubic footage, or even square feet.
Other times, it about storage bins or cabinets. What you choose matters based on what type of products you sell. You’ll have to determine different ways fulfillment companies charge for storage to decide what your best storage approach is in the coming year.
A great thing about pallet storage is they’re so easy to assemble in any public warehouse setting. They come in different sizes as well, giving you warehouse options on where these fit within the four walls. It gives you alternatives when you have various-sized products that require more storage space than others.
Even better is pallets don’t take up a lot of floor space, so it leaves room for warehouse employees to move around without obstructions. In many cases, you can assemble pallets based on the width of the warehouse aisles. For instance, you can get narrow or very narrow aisle pallet racks for more efficient utilization of floor space.
Other pallet options include double-deep pallet racks, or pushback racks. Pallet flow racks are also popular, which works on any floor level in warehouses.
Generally, you’ll get charged between $6 to $20 per pallet every month.
One negative with pallet storage is you sometimes get overcharged for what’s known as “dead space.” Storing by cubic foot is preferable for many businesses because it’s so easy to calculate using automated systems.
All that’s necessary is calculating the dimensions of your items by multiplying total units by cubic feet. Then you need a sum for all your SKU’s for an accurate assessment.
Many automated programs do this for you, saving time for your warehouse on calculating what they’ll charge you. Nevertheless, storing by cubic feet still requires extensive management since you’ll need constant updating of product dimensions, including new items as they become available.
Typically, you’ll get charged between $.45 to $.55 per cubic foot per month.
It’s possible your business sells unique products that are more difficult to store. Larger products fall in this category, and it’s going to require different methods of storage to accommodate.
Storing products by square footage isn’t overly common, yet typically used for bulkier items not normally fitting into pallet or cubic feet storage options.
Choosing your items means you’ll get charged per square foot, which might require a set amount of square footage in your contract.
Generally, you’ll get charged between $.50 to $1.00 per square foot, with the average running around $.91 per square foot.
You may run into some fulfillment houses that prefer using cabinets or bins in the fulfillment center for easier accessibility. In many cases, storing products this way enhances security since most cabinets and bins have a lock and key, or it makes “picking” orders more efficient – which translates into lower pick fees!
Storage cabinets are sometimes more expensive to build and maintain in warehouses because they frequently require more materials, refrigeration or electrical components. Because of these features, pricing is going to become a little higher for the sake of added protection.
Overall, though, volume is going to determine pricing more than anything. It’s not to say you still can’t find lower rates with the right fulfillment warehouse.
Typically, you’ll pay between $2.00 to $6.00 per bin for storage, with the average running at about $3.18 per bin per month.
Even though terms like “Pick and Pack” still sound arcane, you need to learn some of the terms to understand industry fees. “Pick and pack” is merely another definition for the fulfillment process, or gathering and packaging all your orders – fully preparing the order to be sent to your customer but not including the cost of shipping. Sometimes, people within the industry use “pick and pack” to describe the process of individually picking single items, or “eaches”, as opposed to pulling case/carton orders or full pallet orders.
For outsourced warehousing fulfillment providers, fees usually run up to $5 or more per package, and $3.13 is usually the average for a one item B2C order (with $4.33 being the average for a B2B order). Generally, you’ll see it structured as a per order fee PLUS a per item fee. In other words, there may be a $2.50 per order fee plus $.50 per item picked. As an example in this case, a two item order would cost $3.50 ($2.50 to pick the order plus two times the $.50 per item fee for a total of $3.50).
They frequently charge you via packaging materials used and how many items go into a package. Sometimes weight factors in as well, so expect to pay a little more for heavier products. Some companies include packaging into this cost, while others charge an additional box fee – so be sure to check with your fulfillment company to see if the materials are included in the pick and pack fees. For a standard sized box, companies typically charge you a 10-15% markup over their cost (11.25% on average), which would amount to $.80-$.1.61 per box for a small box. If a company charges a separate box fee in addition to a pick and pack or fulfillment fee, then the price to fulfill the order would be the pick fee (e.g. $3.13 per order) plus the box fee (e.g. $.80) for a total of $3.93.
Sometimes you might require the fulfillment services to insert another item into each order. For example, you may wish to include a future coupon or some other form of marketing literature. Fulfillment centers will usually charge an order insert fee for adding this additional insert into the order. The average cost for an order insert is roughly $.23 per order, but can range from $.15-$.40 per order.
Unlike many other business service providers, order fulfillment pricing companies structure their pricing proposals in a multitude of different ways. In particular, order fulfillment fees are packaged differently, making it complicated to compare competing quotes. So if you find it exhausting to review various offers from order fulfillment providers, then take a look at some of the tips we’ve listed below. These will help you decipher the code to fulfillment fees, and hopefully in the process make it easier to choose the best fulfillment firm for your company.
Thankfully, most logistics companies structure their order fulfillment fees in one of two ways. We’ve detailed the two main options below so that you can more easily understand how they work.
Under the average order fulfillment fee option, outsourced providers utilize one “average” fulfillment or handling fee to be charged for every order, despite its size. In this case, you’ll incur the same fee per transaction whether there was one item on the order or eight. Companies that use this structure base the order fulfillment fee on an average sized order, knowing that there will be some outliers, both below and above the average order size. This type of structure is used to keep things simple.
Under the “order fulfillment fee plus item fee”, logistics providers charge a flat order fee for every order shipped plus an item fee for every item picked on the order. So, if one order has 3 items, then you would incur an order fee plus 3 item fees. Companies that utilize this structure believe that it more accurately conveys the time and effort needed to pick and pack an order, regardless of the size of the order. It can be a little more complicated, but it tends to provide a way of accurately charging orders of various sizes.
Sometimes, warehousing providers provide extremely low order fulfillment fees and then charge high fees in other areas, so as to camouflage the higher costs and attract new business. They do this because order fulfillment fees are one of the most important fees that businesses assess when choosing a provider. When you compare pricing, make sure to view the entire pricing proposal in relation to other providers so you don’t get caught with this trick.
Subscription box fulfillment has grown in popularity over the years. Usually, subscription boxes are produced in mass on an assembly line since each order contains the exact same items. While most fulfillment centers charge a very similar pricing structure for subscription box fulfilment as they do for regular order fulfillment as listed above, some will negotiate with you for a discounted rate since there are synergies by performing the bulk orders in mass. In this case, they may perform a time study, determine the time it takes to build out a single unit, and then charge you a unit rate based upon an hour labor cost equivalent. Most companies use a $35-45 per hour rate when charge for this type of service.
If you sell on Amazon and use their Fulfillment by Amazon service, Amazon will store and ship your products directly to customers. However, Amazon has strict guidelines for labeling of products and cartons, which may require that you use an Amazon Prep and Storage service in order to get the products in proper condition before forwarding to Amazon DCs (distribution centers). Furthermore, Amazon charges extremely high storage fees for product that sits at their facility for an extended periods of time – and 3PL warehouses can provide a short-term warehouse service that eliminates this punitive fee. On average, fulfillment centers charge $.56 per Amazon label, $.20 per SKU or $1.50-3.00 per order for preparing orders and paperwork required to ship to Amazon. While there aren’t as many companies that perform this service because the profits aren’t as great, connecting with the proper companies will allow you to minimize your fulfillment by Amazon fees.
Typically, fulfillment firms don’t include the cost of the carton or packaging into the order fulfillment fees. Therefore, be careful to measure the impact of additional packaging or contract packaging in relationship to the overall pricing. In our most recent survey, 71% of fulfillment providers charge separately for boxes. Of those that do charge for boxes, the fee per box ranges from $.80 to $1.61+. This is important to keep in mind so that you can estimate all your fulfillment costs accurately.
In addition to the cost of cartons and packaging, there are other fees you might encounter depending upon your needs. First, some companies require an additional item to be inserted into each order. This could range from a promotional insert to an invoice. The fulfillment cost to add an insert is $.23 on average. Second, adding a label to a carton, whether it is a bar code label or another label (such as an Amazon FBA label) will run about $.05 per label. Third, if your outbound orders are shipped by the pallet, oftentimes the pallets will need to be shrink wrapped. Fulfillment centers charge, on average, $37 per hour or $5.50 per pallet for shrink wrapping services.
Some companies won’t need a full slate of fulfillment services. Rather, they may ship in product by the pallet, have it stored in the warehouse, and then ship out pallet or larger orders as needed. In this case, there is no need for pick and pack services and other specialized services. With pallet in, pallet out scenarios the fees are fairly straightforward – you’ll incur a pallet in fee for having the warehouse receive the pallet (usually between $4-8), you’ll incur a pallet storage fee of between $6-20 per month, and you’ll incur a pallet out fee for the warehouse to pull the pallet and place it at the dock for pick up or shipment (usually between $4-8). If you need the warehouse to ship the pallet, then there will also be a shipping fee.
Shipping costs are incurred both when shipping product to the warehouse as well as when orders are shipped from the warehouse to your customers. These are a very sizeable component of all order fulfillment fees, and they should be weighed carefully when making a decision on which 3PL company to choose. Usually, the best way to do this is to provide a couple of mock shipments for quoting purposes. Then have the competing fulfillment firms offer a shipping rate for comparison. Shipping costs are explained in more detail below.
Inbound shipping is when your products are shipped in bulk to the warehouse. There are referred to as inbound freight costs. If you are shipping products to the warehouse from overseas, the process is referred to as freight forwarding and it includes not only the shipping but also the customs clearance and drayage to the warehouse. If your products are produced in the country, then inbound freight would include either small parcel, LTL (less-than-truckload) or FTL (full truckload) shipping to the warehouse. In all of these cases, fulfillment houses have pre-existing relationships with freight carriers and can pass on discounted rates to you if you use their preferred carriers. If you don’t use the warehouse’s freight relationships, you can always quote out inbound shipping via online freight quoting services.
Outbound e-commerce shipping is when you ship individual orders from the warehouse to your customers. These charges are one of the largest fees you’ll run into – whether you do your own fulfillment in-house or use a third-party fulfillment house. The shipping procedure does cost money, yet you could save money going through the warehouse’s account rather than you own. One reason is because warehouses get good rates from most carriers due to aggregate shipping of all of their customers. But, not all warehouses offer discounts, and some prefer to have you use your own rates. In our latest survey, we found that 6% of companies don’t offer a shipping discount, and 30% of companies at least allow you to ship on your own. Of those that do offer shipping discounts (almost 94% of them), 20% use a Discount Off of Published Rates model (where they give you a certain percentage discount off of retail rates), and over 68% use Cost Plus (which is taking their cost and adding a percentage market up).
While you can save money here, most fulfillment companies give you discounts anyway. It’s all based on the volume of your packages. Overall, you could have extra fees if you insist on shipping through your own company account (companies may charge an additional fee per order ranging from $.50 to $.95). In general, for ground shipping, fulfillment companies may be able to provide you with a 15-25% discount off of published (or more if you have high volume). In the case of express shipments, they’ll likely be able to provide an even higher discount, such as 20-30%. For LTL and truckload shipments, discounts can be sizable – up to 45-60%+.
Unfortunately, a necessary part of the fulfillment process is handling returns. Returns processing involves receiving the customer return, inspecting it for damage, destroying it if it is in unsellable condition, or receiving it back into inventory if it is in sellable condition. This process can take longer than shipping the actual order, and so it stands to reason that the costs may be higher to return a product than to ship it out initially. Furthermore, some returns require additional prep work, such as ironing apparel or inspecting an electronic device to make sure it works properly. The average cost of a single item return is approximately $3.62.
Two types of customer service comes into play when using an outsourced fulfillment center. First, the fulfillment center will provide your company and staff with customer service. Usually, this comes in the form of answering your questions about inventory, orders and shipments. Some more proactive companies will meet with your team monthly and go over key performance metrics. Account management fees average about $200 per month, but range from $30 on the low end to $1,000 per month for sophisticated customer service requirements.
Second, a small percentage of fulfillment providers will handle your inbound calls, emails and chat correspondence with your end customers (ecommerce call center) – allowing you to not have to worry about answering order and shipping questions. These are collectively called call center services. On average, fulfillment centers charge around $1.43 per minute for inbound customer service work.
One thing you’ll find consistently when searching for fulfillment companies is that they always ask about your volume – how many orders you ship per month, how much warehouse space you require and how much shipping services you use. Not only are they trying to find out how large of a customer you might be for their warehouse, but they’re also able to use this information in order to determine whether or not you are eligible for a volume discount.
Volume discounts are lower prices in exchange for higher volume levels. You win because you get a lower rate per order, pallet or shipment. They win because they are shipping in higher volume. In our most recent survey of warehouses, a full 64% of fulfillment companies offer discounts for order fulfillment depending upon volume, 39% offer discounts for storage services, and over 94% of fulfillment providers use some form of discount on shipping services (either cost plus or discount off of published rates). Below describes some of the potential volume discounts you might receive, and what volume breaks are required for each service:
|Fulfillment Service Category||% of Co’s that Discount||Volume Break||Average Discount|
|Pick and Pack Fee||64%||500-5,000 orders/month||6.50%|
|Pallet Storage Fee||39%||100-2,000 pallets/month||9.86%|
Another way to receive lower prices and/or to potential decrease any rate increases is to lock into a longer term agreement. While many fulfillment companies offer the option of month to month terms (56%), 44% offer yearly terms and 35% offer multi-year agreements. Especially in the case of multi-year agreements, fulfillment firms usually offer an incentive for such a term, whether in the form of discounted pricing or lack of rate increases. A full 80% of firms increase prices yearly (on average by about 3-7%). Be sure to look at all of the options available to lock in the best prices.
Sometimes, we get asked what the average fulfillment costs are as a percentage of gross sales. This is a very difficult question to answer. For example, let’s say that your average fully loaded fulfillment costs are $8 per order. For a product with a gross sales price of $50, the fulfillment costs are a whopping 16% of sales. However, if the gross sales price of the product is $110, then the fulfillment cost is slightly over 7%. Due to the fluctuations in product prices, we would not suggest taking the fulfillment costs as a percentage of gross sales analysis too serious. However, for those of you that are determined to explore this angle, studies have shown that the most efficient companies are operating at between 8-10%, whereas the average seems to be around 10-15%, with the lower end of companies without as much automation operating at around 20% of gross sales.
One of the most important things for you to research when it comes to choosing the best 3PL companies is how their fulfillment pricing and costs and their system works. This way you can choose the best options for your business plan and be able to budget accordingly.
We wish it weren’t the case, but unfortunately most 3PL companies aren’t fully transparent and straightforward when it comes to 3PL pricing. Fortunately, we’ve compiled a list of a handful of things to watch out for when comparing the rates of different companies. Don’t forget, we’re happy to match you with the best options out of our vast network of the best fulfillment companies and warehouses.
The following is a list of helpful fulfillment pricing tips to help you be able to make an informed decision – whether you’re looking for a warehousing and fulfillment company near me or a company that’s in a completely different area.
Read through all pricing documentation to verify what fees will apply to you and ensure they are legitimate for the type of business needs you have currently and what needs you will have in the future. Asking questions now can save you from confusion later. Be sure to ask the provider if they are giving you a proposal that includes ALL prices that you might see using their services.
We help many companies each month that ended up choosing a fulfillment company only to find that once they starting using the services, their bill was much higher than anticipated. Come to find out, they weren’t shown every price they might potentially incur. So when they got their invoice, which was a mile long, all of these miscellaneous charges added up to a hefty bill. Make sure that you have each company provide you a complete listing of all 3PL pricing.
Be sure to check into any limitations regarding storage and order fulfillment to confirm the fulfillment company can handle your expected output and also your inventory needs. Include projections for varying needs throughout the year.
Verify fulfillment costs for normal customer returns, international orders, and other variables that may be exceptions to the majority of your standard business transactions. Do their fees include boxes and other packaging needed to ship your orders? Make sure there aren’t any details left unexplained.
It is important to know in advance if you may need different shipping options for time limitations. Also, customization such as wrapping, custom packing materials, custom packing slips, and extras to be included (catalogs, business flyers, ads, etc.).
Sometimes, fulfillment companies will offer volume discounts or contract discounts. Be sure to ask if these apply, as they can add cost savings for your company. In our latest survey, we found that 54% of fulfillment companies offer yearly contracts and 45% offer multi-year agreements. Locking into a longer contract can reduce your costs. Similarly, 70% of fulfillment houses offer discounts for pick and pack fees at different monthly volumes levels, and 62% of warehouses offer discounts depending upon the storage space needed (the more, the higher the discount). It pays to make sure you realize any potential savings from contract length and volume.
When you’re comparing between multiple fulfillment companies, one of the best ‘hacks’ is to ask each provider to give you a full month invoice based upon either your full projections or one of your most recent month’s performance (using your historical data). This way, they will have to provide you an “all inclusive” quote, and you can compare the total values from each provider. If you can’t do this, then at least make sure that you’re incorporating all costs from each provider and coming up with a projected total, rather than comparing any single line item. Factoring for all costs will help you make the best decision.
One of the biggest challenges in comparing warehousing companies is that every company uses their own pricing models. Most companies have a laundry list of potential charges that you can incur each month – and none of them are the same from company to company. So comparing pricing is like comparing apples to oranges. The best way to perform an adequate analysis is to have each organization provide you with a “what if” analysis – what would your total costs with them be if you were to have a certain number of orders and storage per month. This will help you get to the bottom of actual costs. However, you still need to be aware of these other potential pitfalls to avoid.
It would be extremely easy to compare different options if all companies presented their pricing the same way. Unfortunately, almost all companies will use different pricing models. This makes it almost impossible to do an “apples to apples” comparison. We recommend that you take the power back by asking each 3PL company to provide you a “what if” analysis. Basically, in addition to their proposal, ask them to provide you with a mock invoice using certain assumptions about an average month for your business. This way, you’ll get a fully loaded price from each of the vendors, which makes comparison shopping easy.
We’ve seen it happen all too often – a 3PL firm provides a company a quote with only a couple of fees – all of which are extremely low versus the competition. This is what we refer to in the industry as the “shell game.” Many times 3PL’s will try to gain a pricing advantage by giving you a couple of low rates (especially pick and pack fees), only to later charge you much higher rates in other areas after you commit to working with them. One of the most common areas where they hide fees are in the difficult to measure shipping costs. Ask for specific 3PL pricing to uncover any discrepancies.
A good understanding of pricing structure will help save you from concerns in the future. Analyze current business needs and try to project future business needs to account for possible changes in fulfillment pricing structure based on volume. Feel free to ask our experts for additional guidance and answers.
Not all fulfillment warehouses are alike, and some charging more for supposedly superior services may not really live up to the hype. You’ll be glad to know many 3PL warehouses are out there that are very affordable. We can help you find them here at insightQuote.
In many cases, you’re better off going with an outsourced fulfillment company since they’re very budget-friendly and they specialize in this one function – driving down their overall costs. In fact, there are a number of reasons outsourcing will save your company money:
Often, people automatically think that controlling every area of their business is the best way to save money. If you want it done cost effectively you do it yourself, right? That’s not always true. In fact, by outsourcing your warehousing and shipping to a 3PL company, you can save a substantial amount of money. Where most companies make the mistake in the analysis is by failing to look at all of the costs and benefits – missing out on important considerations because they’re not on top of mind. But by factoring for every cost component, 3PL outsourcing really does provide an effective way to eliminate the headache of performing the storage and shipping while at the same time saving you money.
Many businesses often find that one part of the year business booms, then other times of the year orders just trickle in. If you invest in your own warehouse space, you may find that you have too little or too much warehouse, depending on the time of the year. Paying for a warehouse that doesn’t fit your needs year-round is a waste of money. 3PL providers can scale to meet your current needs. Furthermore, when you lease the warehouse yourself, your business (and most likely “you” as the small business owner through a “personal guarantee”) is on the hook for fulfilling the agreement. By outsourcing, this risk is avoided.
Most frequently, when comparing the costs of outsourcing warehousing versus in house operations, companies do a fairly good job of anticipating hard costs associated with cartons and other packaging materials. However, frequently companies forget to consider other warehouse supplies costs that, when totaled over a year, can amount to a sizeable amount of money. For example, some of the more commonly forgotten supplies costs include: shrink wrapping, warehouse computers and other equipment, software programs, paper and labels, and many others. These costs can easily add up to $2,000 to $5,000 per year, and can cause faulty conclusions if unaccounted for in the analysis.
When you run your own warehouse, you’re responsible for directly paying these costs. Some of these costs, such as labor for employees, has to be paid quite frequently – oftentimes every two weeks. However, many 3PL warehouses will grant you “terms” on their 3PL fulfillment agreement, oftentimes invoicing you monthly and giving you a certain period of time to pay your bill. These terms help improve your cash flow cycle, and by paying one company for all of the costs associated with warehousing, your payables management process is streamlined.
Of all of the costs in an in house versus outsourcing analysis, owner and management “time” related to warehouse and shipping management is typically the most under-represented. Usually, businesses forget to incorporate the time spent managing the process, or they simply under-estimate the total actual time spent. And this cost can be quite significant, considering that managers and owners are the highest paid members of the team most likely. So in order to make it a completely “fair” analysis, it’s important to get an accurate estimate for the amount of time that is spent by management on the warehouse function. Furthermore, figure out how much value could be derived if this time was spent on a more “value” producing activity, such as sales and marketing. This isn’t meant to minimize the importance of the shipping function, but it is a more easily outsourced function, which then allows management to spent time in other areas.
As you can see, there are many ways going with a 3PL provider can save you money, short-term and long-term. Before you sign a warehouse lease, make sure you’re not passing up a great opportunity by going with a 3PL provider instead.
In order to truly compare if outsourced warehousing and fulfillment is the best solution, you’ll have to compare all of the costs of outsourcing with in-house costs. Below is a listing of all of the costs that you should consider if you’re looking at performing fulfillment in-house:
If you want some ideas of what these actual costs will run, take a look at our fulfillment cost calculator.
No matter which way you end up proceeding, fulfilling orders in house or using a fulfilment service, managing costs will be critical. Staying within a budget is likely a fact of life for your business, despite maybe overstepping those boundaries on occasion. Part of this might relate to an important business aspect: Fulfillment.
If you’re doing fulfillment services in-house, the costs are no doubt already overwhelming. It’s not a recommended process if you’re still a small business that needs some help to grow.
Then again, maybe you’ve reached a point where your company is large enough now to handle some fulfillment duties. Do you know how to keep your expenses in check so they don’t run out of control and create financial jeopardy?
Even if you outsource your fulfillment to a third-party warehouse, expenses could still balloon if you don’t pay attention to what they’re doing. In this case, staying closely communicated with the fulfillment center is imperative to know exactly what your expenses are.
Here’s top ways to cut costs in fulfillment for both in-house and outsourced situations.
No matter if you do fulfillment in-house or outsourcing to a fulfillment center, you need to start with an audit to see where you could cut expenses. Auditing helps better determine what your business needs are so you see where to cut if you’re spending more money than necessary.
What you needed last year is perhaps different this year, meaning any tech you invested in then could maybe become eliminated now to save money.
Areas where you could cut or reorganize in-house or in a warehouse include direct and indirect labor, outbound and inbound freight, occupancy, and packing materials.
This is another cost usually associated with working with 3PL warehouses. Accepting and verifying deliveries of your inventory is a typical process in warehousing, though they’re going to charge you a fee for the service. The problem is, the fee is perhaps higher than you’re willing to spend.
It’s all the more reason to vet a fulfillment center before you start to work with them to compare their receiving fees.
A shared space warehouse can cut costs considerably, especially if your own in-house fulfillment is becoming impossible due to lack of space. Some fulfillment centers offer shared space warehouses to accommodate more than one client.
Doing so eliminates having to lease out space on your own to accommodate your growth. The shared space service also cuts costs considerably since you’re sharing costs with others. At the same time, you’re getting a warehouse that keeps you up on the latest fulfillment changes.
Not all state-of-the-art technology is expensive, though the investment can save you money in helping to speed up deliveries. However, using advanced tech through an outsourced fulfillment center saves you on overhead investments.
Many warehouses that outsource give you a fixed rate while you still enjoy the latest technology to assure your customers get deliveries sooner than later.
Sometimes you can save money by just being more productive with the things you already own on-site. It’s possible to do the same with a warehouse you partner with year-round.
By getting as much productivity out of what you already own, you’ll come out ahead, though you need to look carefully at various things. Areas like effective product replenishment, slotting practices for picking, efficient inventory management, quality assurance, and automation systems are just some things to streamline for savings.
Automation is a growing area in many industrial areas, and it reduces your work force costs while placing less burdens on existing warehouse staff.
Each year, insightQuote conducts its annual warehousing and fulfillment company survey to uncover information about the average costs and pricing of its database of pre-screened warehousing vendors. Frequently, users of our service and participating vendors alike ask us questions about what warehouses charge on average for their service, as well as what their baseline costs structures average. We were interested in learning more about some of the more common costs and prices with the industry, especially as it pertains to the small to mid-sized fulfillment provider. Each warehouse that participates in our warehousing services platform is sent an email survey with questions related to costs and pricing.
This page uses data from the survey results. To view detailed information about the surveys, you can view our warehousing costs and pricing page.
The main questions we asked in the survey are as follows:
For 2016, the average yearly cost per square foot of warehouse space across all respondents was $9.24. The median response was $7. The mode of all results (most frequent response) was tied between $5 and $6. The range of the results was 14.5, with responses ranging from $1.5 to $16. A couple of the warehouse respondents reported that they owned the facility outright. While we don’t know which responses were associated with which locations, we do know some respondents indicated that they paid different costs in different areas of the country in cases where they had multiple warehouses facilities, which wouldn’t be a surprise, as some areas are inherently more expensive than others.
In 2017, the average cost per square foot of storage space dropped quite a bit from the previous year to $6.53. This is a result of a much larger sample size that we collected in 2017 versus 2016.
In 2018/2019, costs climbed to $7.79 per square foot, largely as a result of the hot commercial real estate market due to e-commerce fulfillment growth.
Costs only increased in 2020, with the cost per square foot of commercial warehouse space on average climbing slightly to $7.81 per square foot.
There was a modest price per square foot increase in 2021 to $7.91, followed by another slight increase in 2022 to $7.96.
For 2016, the average starting hourly rate of a warehouse staff member was $11.54. Both the median response and the mode of all results was $10. The range of all results was $13. The lowest rate reported was $8, and the highest rate reported was $21, though at least one respondent reported that they may offer as high as $25 for a starting team member. On multiple occasions, respondents reported that they also offered additional benefits, such as medical and dental benefits.
In 2017, the average dropped just slightly by $.10 to $11.44.
In 2018/2019, the industry saw a sharp increase in hourly wages to $13.32. The cost of labor is increasing, as companies have struggled to find quality labor without increasing costs.
The average hourly rate of a warehouse worker rose in 2020 to $13.47. Labor costs jumped sharply in 2021 to $14.00 per hour. Pandemic related supply chain issues and inflation helped increase the 2022 hourly wage rate to $14.97 per hour.
For this particular question in 2016, as mentioned previously, we had some respondents (21%) report that they pay warehouse management staff on an hourly basis, ranging from $12 to $34 per hour, with an average of $18.04. The average annual pay for warehouse management staff expressed across all respondents on an annual basis was $32,050. The median and mode were both $40,000, with a range of $53,000. The lowest rate reported with $21,000, with the highest reported salary was $74,000.
In 2017, once again we see that the average changed significantly, most likely as a result of the larger sample size of warehouses that responded to our survey.
In 2018/2019, it was no surprise to see that costs of management staff increased to $50,524.
2020 warehouse management yearly salaries rose to a peak of $52,765. The increase continued in 2021, with average management staff salaries increasing to $55,855.
In 2022, warehouse management wage rates decreased to an average $52,790 per year.
One of the most common notes from respondents on this particular question was that the order fulfillment fees varied based upon order volume. Therefore, we had to make some assumptions, factoring by averaging in cases where respondents provided ranges. Furthermore, some respondents indicated that the average prices included warehouse provided packaging. Finally, our assumption is that the order fees were for a single item shipped, although some indicated that the order fees presented included up to a few items (2-3). For 2016, the average pick and pack per order fees was $2.84. The median result was $2.85, with the mode being a tie between $2.5 and $3.5. The range was $5.5, with the low response of $1 and the highest response of $6.5.
In 2017, the average pick and pack price for a single item order dropped slightly to $2.64. With market pressures on providing low rates and new technology and innovation, fulfillment companies have to come in at the most competitive fulfillment pricing in order to win deals. Business to business orders are usually more complex, so it’s no surprise that the average B2B order came in at $3.74 to prepare for shipment.
Largely as a result of increasing costs, we found in our 2018/2019 survey that warehouses had to increase order fulfillment (pick and pack) fees to $2.86 per single item B2C order and $4.17 per single item B2B order.
With all major warehousing costs increasing in 2020, it stands to reason that the 2020 average pick and pack fulfillment prices rose to $2.96 per single item B2C order and $4.27 per single item B2B order. And buyer beware – some fulfillment companies roll box fees into their pick and pack fees and some don’t. For those that don’t, they charge on average $.25-$1.50 per box, depending upon the size, etc.
The survey results in 2021 continued the streak of increases, with B2C pick and pack fulfillment fees per order jumping to $3.13. However, the lone stat that remained the same was B2B fulfillment fees, which stayed put at $4.27 per order. Average box fees didn’t move much either.
At long last, price increases did not take place or were very small in 2022. The average price of a single item B2C order stayed the same at $3.13 and an average B2B order increased slightly to $4.33 per order.
In 2016, the average monthly storage charge of all respondents was $9.62. Both the median and the mode were $10. The range was $24.5, with the lowest response being 3.5 and the highest being $28.
For 2017, once again due to the larger sample size, the average price to store a pallet in a 3PL warehouse according to our survey change quite a bit – increasing to $13.02. This cost is better taken into account using a range, which we believe to be from $6-$15 per pallet. Geography will impact this greatly. For example, a warehouse in the middle of Kansas will be able to obtain warehousing space more cost effectively than a warehouse near Los Angeles.
It should come as no surprise that due to the commercial real estate market lease increases, warehouses had to increase their storage fees slights from $13.02 in 2017 to $13.20 in 2018/2019.
In 2020, pallet storage pricing rose sharply to $14.58 per pallet, in what appears to be an increase directly related to the slow and methodical death of brick and mortar retail and shift towards e-commerce retail and the corresponding demand for warehouse space. Furthermore, insightQuote uncovered that there is a premium upwards of 173% for climate controlled warehouse space, with pallet storage fees ranging from $16-23 per pallet per month. 2021 pricing increased slightly for pallet storage of dry goods to $14.79 per pallet.
Due to storage space scarcity, the average cost per pallet of storage in 2022 rose sharply to $16.21.
The vast majority use pallet storage (almost 80%), but other methods are used, such as cubic footage, square footage, and storage per bin. In terms of the average costs, in 2017 it was $13.02 per pallet, $.54 per cubic foot, $2.13 per bin, and $.88 per square foot.
Clearly, companies chose to focus more on the pallet storage methodology in 2018/2019. In terms of the average costs, in 2018/2019 it was $13.20 per pallet, $.55 per cubic foot, $2.85 per bin and $.66 per square foot.
In 2020, pallet storage and cubic footage pricing methodologies grew in popularity and use. In terms of the average costs, in 2020 it was $14.58 per pallet, $.495 per cubic foot, $3.30 per bin and $.77 per square foot.
In 2021, storage fees averaged $14.79 per pallet, $4.07 per bin, $.75 per square foot, $.45 per cubic foot, and $5.11 per shelf.
In 2022, storage fees average $16.21 per pallet, $3.18 per bin, $.91 per square foot and $.50 per cubic foot.
Yet another new question for our 2017 survey, we wanted to see what method was most used. It was no surprise to see that discount off of published rates was the most common at 41.03%. What was surprising was that 38.46% used their customers’ account for shipping. In terms of total discounts given off of published rates, the averages were 24% for ground, 31% for express, and 44% for LTL.
In terms of total discounts given off of published rates, the averages were 20.2% for ground, 29% for express, and 51% for LTL.
In 2020, cost plus shipping prices grew in popularity, fewer warehouses allowed companies to use their own rates and shipping discounts increased in usage. In terms of total discounts given off of published rates, the averages were 13% for ground, 20% for express, and 57% for LTL.
In 2021, cost plus shipping prices grew in popularity even further, more warehouses allowed companies to use their own rates and shipping discounts increased in usage. In terms of total discounts given off of published rates, the averages were 20% for ground, 25% for express, and 56% for LTL.
Cost plus shipping pricing grew in popularity further in 2022, while other methods remained similar to previous levels. For total discounts given off published rates, the averages in 2022 were 22% for ground, 26% for express, 25% for international, and 57% for LTL.
This is a new question that we asked in 2017. In particular, this is a very interesting question that sheds some light into the industry as a whole – profit margins are definitely lower in this industry than many. Warehouses have to operate on thin margins, and rather rely upon volume to make overall corporate profit. For 2017, the average corporate profit was 8.83%, but a great frequency operated closer to the 5% level. Due to costs rising in 2018 and 2019, corporate profit fell to 7.25%. And after warehousing and fulfillment companies largely increased pricing across the board, corporate profits spiked to an all-time insightQuote survey high of 9.77%. With the pandemic fueling e-commerce fulfillment growth, it comes as little surprise that corporate profits soared to 11% in 2021. Profits decreased slightly in 2022 to 10.58%
This is a new question we asked in 2018/2019. Average set up fee was $336, but ranged from $100 per month up to thousands per month. Average account management fee was $226, but ranged from $100 to $1,000 per month. Average receiving fees were dependent upon the methodology used ($.25 unit; $7 pallet; $31.95 hour; $373.33 container; $1.21 carton). Finally, average returns fees were $3.53 per single item order.
In 2020, set up fees increased from $336 on average to $520. Surprisingly, average account management fees fell to $130 per month. Receiving charges increased across the board ($7.65 per pallet; $35.30 per hour; $465 per container; $1.50 per carton; and $6.30 per SKU). Returns fees, on average, increased to $4.05 per order.
In 2021, set up fees increased further to $550. Account management fees rose to $160 per month. Receiving fees were as follows: Per container $441, per hour $36.09, per SKU $2.58, per carton $2.91, per pallet $10.10. Returns fees jumped to $5.28 per order.
In 2022, set up fees decreased to $368.03, as companies are leveraging technology better to improve the setup process. Account management fees increased again to $198.93 per month. Receiving fees were as follows: Per container $397, per hour $39.53, per SKU $2.50, per carton $2.46, per pallet $7.37. Returns fees decreased to $3.62 per single item order.
For the first time, in 2020 we asked warehouses what they charged for kitting services and call center services (if offered). The average hourly rate for kitting services was $35.75 per hour and the average inbound call center charge was $1.05 per minute. In 2021, kitting fees rose to $35.47 per hour and inbound call center charges per minute dropped significantly to $.85 per minute. In 2022, kitting services rose again to $39.60 per hour and call center services per minute increased significantly to $1.43 per minute.
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