Selecting the right fulfillment company for your eCommerce business requires you to carefully weigh your options and look at some analytics for your online store. Some fulfillment companies might not be willing to work with the kind of volume you usually do, and the logistics of some fulfillment companies might simply not be a good fit for the volume you work with or the kind of products you sell. By understanding how fulfillment companies think and how the size of your company influences your choices and options, you'll be better suited to find the best Fulfillment Services Company for your start up or growing business.
We have quite a few small to mid sized businesses that hit our site each month. Occasionally, they wonder if they're large enough to capitalize on outsourced 3PL services. Furthermore, they wonder if they can actually afford to use a 3PL provider. We believe there are a couple of important factors to consider.
Why Use Small Business Fulfillment Services?
Why would a small but growing company opt out of DIY fulfillment? Really, it takes just a bit of experience to see why. Sure, it might seem cheaper at the outset, but once you dig into the situation, you realize that it’s incredibly costly in terms of time and effort, even if the owner is doing the work without being paid. Eventually, these companies will grow to the point that they have to pay an employee to do nothing but shipping. That money might be better spent with a fulfillment company. However, it may not be that simple.
Many Fulfillment Companies Shy Away from Startups
Although working with a fulfillment company might be the best way to spend your money while ensuring better customer satisfaction, time savings, and other benefits, you may learn—to your chagrin—that it’s not as simple as choosing a partner and inking a deal. In fact, most fulfillment companies find it challenging working with startups. In some cases, the new business has failed within just two years. The challenge becomes filling the pipeline – perpetually finding new businesses to work with because many of them won’t be in existence within a few years.
Additionally, quite a few fulfillment companies will not work with startup businesses or have very serious reservations about such a partnership. These reservations generally focus on the fact that startups usually take up the most time of all potential clients. This applies to the amount of time needed to get the company set up because of their lack of track record and limited information, as well as the amount of time needed to answer questions and hold hands during the setup process.
Further complicating the situation is the fact that most startups don’t have much in the way of funding, because they have few or even no orders at the moment. This means that the fulfillment center isn’t going to make much (or any) profit on the account. Fulfillment is a high-volume, low-profit business, and fulfillment companies need to make smart decisions when it comes to the clients they take on to ensure that they 1) have a product that is in demand current, 2) have the finances to be a valuable partner, and 3) can sell in the volume needed to help the fulfillment company maintain profitability.
How Many Companies are Looking for Small Business Fulfillment & How Many 3PLs Specialize in Lower Volume Transactions?
Oftentimes, as a lead generation company within the warehousing and fulfillment niche, we get asked by potential warehousing vendors or current customers just how many “large scale” opportunities we see on a regular basis. And because we’ve received even more of these requests than usual lately, we decided to analyze our last couple of years of data to determine just how many leads we produce that would classify as larger volume, versus the smaller and mid-sized deals. The results definitely provided some insights into the overall online marketing segment for warehousing and fulfillment services.
In our system, we classify warehousing and fulfillment leads based upon the number of orders processed per month, which we felt would be a fairly good measure for this particular study. In our system, lead volumes are classified into the following monthly volume levels: Less than 200 orders per month, between 200-499 orders per month, 500-999 orders per month, and 1,000+ orders per month. The number of orders per month are taken directly from the prospect. In most cases, they are very accurate. It is important to note that in other cases, the figures provided by prospects can vary from actual figures. For example, newer companies may anticipate larger volumes than may actually be achieved. Similarly, some companies have been known to underestimate order demand, and actual volumes are higher than anticipated.
After reviewing the last few years-worth of data, we found that 90.38% of all leads generated had monthly order volume levels of less than 500 orders per month - in other words, companies looking for small business fulfillment servcies. On the flip side of the coin, a slim 9.62% of all leads generated had monthly order volume levels in excess of 500 orders per month.
The results seem to indicate that most leads are smaller volume opportunities – and these results were also highly correlated with the results for other B2B niches. In other words, in areas from warehousing and fulfillment to call center and search engine optimization, most online leads that we’ve generated fall into the small and mid-sized business segment. But why, you might ask? We believe (not so scientifically) that the proportion of smaller deals is due to the larger percentage of small businesses within the US. According to U.S. Census data, 99.7% of all U.S. Employer Firms are small business (less than 500 employees). The numbers pretty much speak for themselves.
If there are so many small businesses that need fulfillment services, then are there a lot of fulfillment providers that help with small volumes? Unfortunately the answer is a resounding NO!
Small Business Fulfillment Services Companies - Understanding Minimums and Volume Requirements
The role of a fulfillment company is to store your inventory, prepare your orders and ship them to your customers. They provide this service to a number of online businesses similar to yours, and need to know what to expect from their clients so they can plan accordingly. This is why most fulfillment companies set limits. The maximum and minimum limits set by fulfillment companies also allow them to figure out a pricing structure that works for them.
Some fulfillment companies specialize in working with eCommerce store that usually generate small volumes of orders. These services work with a large number of clients and can offer affordable pricing for this type of online stores.
However, on the other hand, MOST fulfillment companies work with mid to large eCommerce businesses. This means an online store that generates a relatively low number of orders would probably not interest this type of fulfillment service or that they would not be able to offer competitive pricing.
Even if a fulfillment services companies will work with smaller or start-up volumes, most of them do have "minimums" in order to do business with you. Minimums usually fall into one of the following categories:
- Minimum orders per month (e.g. 200 orders per month)
- Minimum monthly spend (e.g. $500 of fulfillment fees spent per month - if your bill doesn't hit the $500, they would still charge you the $500 minimum
- Minimum number of pallets per month (especially for "warehousing" projects, a minimum number of pallets may be required)
- Requirements sometimes take the form of only working on long-terms projects, in which case they will not help if it is a one-off project
- Occasionally, companies will waive the minimums for a certain number of months in order to help your start-up "get off the ground" and achieve the minimum levels
Keep in mind that if you are truly “cash strapped”, you may have to hold off on outsourcing until you have adequate funds. Also, if shipping is a core function of your business (for example, some just in time manufacturing companies), then outsourcing may not be the best option. Otherwise, most often the “freeing up” of time allows you to focus on more critical tasks for your company that bring value and grow sales.
Why Optimal Order Volumes are a Myth
It is certainly true that efficiencies are gained when order volume increases, but it’s absolutely untrue that smaller businesses shouldn’t outsource unless they reach a certain order volume. First, consider the situation where a small business would rather think “strategically”, focusing most of its internal efforts on growth rather than inserting product into a box and slapping a label on it. Not to minimize the importance of the logistics process as it is extremely important, but growth reigns in a business. In most cases, if you’re not growing sales, then you’re probably shrinking. Especially for smaller or start-up businesses, it could just as easily be argued that razor sharp focus on growth and marketing is absolutely critical to success and longevity of the business. Second, there are a wealth of other instances where outsourcing for a smaller or start-up oriented business make sense, such as international companies looking to expand presence into the US without opening up a physical operation, locating fulfillment closer to the manufacturer or supplier or customer base, or a wealth of other legitimate reasons.
Location Influences Your Start-up Fulfillment Options
Where does your inventory come from and where do most of your orders go? If most of your inventory comes from overseas, a warehouse located near a main hub would make a lot of sense - think California or New Jersey. On the other hand, if you mostly sell products made locally, a warehouse located in a state where a large number of orders are generated or located where orders can easily be shipped all over the country at an affordable cost would make more sense.
Would it make sense to store your inventory in different warehouses? Using a network of warehouses located around the country makes sense if you want to offer affordable shipping costs and short delivery times. Some fulfillment companies can help you provide this type of service to your customers thanks to their network of warehouses as long as you generate enough volume for this solution to make sense.
Storage Requirements and Other Specific Needs for Start-up Fulfillment
Regardless of the volume you work with, working with large products such as furniture is very different from selling smaller items. There are very different storage and logistics requirements and you need a fulfillment service that can handle the type of products you sell so that you can guarantee an optimal experience for your customers.
There are unique challenges when it comes to large or heavy products. These items need to be stored in a safe manner, special care has to be taken to avoid damage and you need to find affordable shipping and delivery solutions. There is also the issue of storage space since large items obviously take more room and you might also require long-term storage for products that sell at a slower pace.
Selling smaller products comes with a whole other set of challenges, such as storing these items without damaging them or losing anything and finding an efficient way to prepare orders.
Start-up Fulfillment - Other Factors to Consider When Choosing Fulfillment Options
There are other specific requirements to take into consideration depending on the type of items you sell. Fragile or perishable products require additional care for storage and selling products such as clothes means you need to select a fulfillment service that has established an efficient way of preparing orders without sending the wrong size or color.
For helpful tips, check out our resource on What to Look For When Searching For a Fulfillment Provider.
You also need to ask yourself how quickly you plan on growing and select a fulfillment service that can grow with you since switching to a different solution could be expensive. Choosing a fulfillment service is a complex process and this decision is very important since it will affect your profit margin as well as the kind of experience customers can expect when they order from you. You should contact us to learn more about how we pre-screen warehouses and how we can help you find the right fulfillment service.
So Start-up Friendly Fulfillment Companies Do Exist?
The good news for start-up or growing companies is that there are some great options for outsourcing fulfillment with companies that have a favorable service and terms for their type of fulfillment project. These companies have focused on building systems, processes, technology and people to be able to offer a cost effective and flexible solution. In fact, if done the right way, these companies are capable of creating a diversified portfolio of clients that aggregately ships in high volumes, creating a unique solution that, as a whole, operates in a similar fashion to a fulfillment company that has a smaller subset of larger volume clients. The other benefit we see is that oftentimes these smaller and start-up businesses grow significantly, turning into a larger volume shipper.
The Right Kind of Fulfillment Company Offers Advantages to Smaller Businesses
Ultimately, the benefit of using a fulfillment company that specializes in shipping for smaller volume customers is plentiful. First, these types of companies are typically more flexible – they’re usually smaller businesses themselves with 1-2 regional locations, with processes and procedures but not over-the-top red tape that you have to sift through. For example, larger companies may require orders to be shipped out a certain way without deviation and in its own packaging, whereas small business fulfillment companies offer more flexibility to tailor the order and packaging experience. They understand, after all, that you have to find creative ways to win deals, so they are flexible to meet these needs. Second, smaller volume friendly fulfillment companies have more favorable terms, usually without monthly minimums, since they bank on the aggregate volume of all orders and know that every penny counts for start-ups and growing firms. Third, with smaller companies, oftentimes more dynamic and personable relationships can be forged, as you’ll likely be able to interface with upper level management and won’t be so much of a “number.”
All in all, it’s important to know that you do have options as a start-up or growing business. Although there are articles out there that claim you shouldn’t start outsourcing at an early stage, this couldn’t be further from the truth in a number of cases. By focusing on a company that caters to your particular situation, you do have options to offload this important aspect to a professional organization, so that other business areas can get the attention they need to succeed as a business as a whole.
When Is the Best Time For Start-Ups to Connect with Fulfillment Companies for Live Quotes?
There is a "right" time to start connecting with fulfillment companies and making a final selection. If you contact them too early in the process, not only will most companies likely not respond to you, but also they will not provide the best rates possible. In fact, my fulfillment houses will not take your company seriously until:
- You've ordered products
- You know the date of arrival and quantities being ordered
- You at least have a baseline website up and running so they can see you're moving forward
- You have a definite company name and corporate entity set up (this is especially important for international companies looking for US fulfillment services)
- You've figured out which location best suits your fulfillment needs
If you don't quite have these items "checked off", it may be best to spend time finalizing your business plan and preparing your budget and financial forecast. We've even created a page dedicated to explaining all of the fulfillment costs and pricing.
Making a Final Decision on Small Business and Startup 3PL Services
Just because you run a small company doesn't mean you shouldn’t go big. A small business that contracts with a 3PL company gains access to large-scale resources that it can't easily obtain on its own. But there are instances where you shouldn't use a fulfillment center.
The One Time Outsourcing May Not Be Best - Are You Severely Limited on Cash Flow?
We fully understand that there are instances where there simply isn't enough funding in the business to even pay a provider for their work. These are the rare cases where companies are literally living month to month and don't have cash in the bank to pay a 3PL company. If this is the case, it might make sense to get to a financial point where you're able to meet the financial ability to pay.
In Most Cases, Can You Afford Not To Use 3PL Services?
If you're not literally "out of money," then we would tend to argue that perhaps you can't afford not to use 3PL services. Here's why we believe this so strongly.
- Unless shipping is your business, it's not the most important thing that should be taking up your valuable time
- Every minute spent on shipping instead of other more important functions is lost momentum
- Sales and marketing, especially in these difficult times, is the lifeblood of your small business
If, as the manager or owner, you're out shipping product, this is unbelievably valuable time that isn't being spent on moving the business forward. Shipping is a part of the business that you can get a lower level worker to complete. And by not spending time on the shipping, you'll be able to focus on more important things. You know what they say about sales...if your business isn't growing, it's shrinking. This couldn't be more true when it comes to small business. In order to succeed, you have to focus an enormous amount of attention on growing your business. Any time spent doing tasks that can easily be outsourced is valuable time wasted, and therefore a huge opportunity cost.
Use as Much or as Little as You Need
Using an outsourced 3PL allows you to use as much or as little of their resources as you need. The challenge is on them to increase space if needed or hire additional staff. Similarly, in slower times, they're required to let go of staff or re-negotiate leases. By outsourcing, you don't have to think about these issues. For small business owners, cash is king. Outsourced 3PL's allow you to hold on to more of your cash - and they oftentimes allow monthly payments which further helps with cash flow.
Cost of Doing it on Your Own Could Be Higher
Getting warehouses, staff, and information systems up and running requires a major investment. Most small businesses can’t afford all this entails. 3PL companies are able to do all of this for you. And because they are able to spread costs among all their clients, they are usually able to offer many time-saving and cost benefits to your business.
Outsourcing Small Business Fulfillment Provides Better Customer Service
Using a 3pl company that has good technology in place means your customers will get their products! Using local warehouses, customers get their products faster. And 3PL companies usually have support staff on hand that can not only answer your questions but also serve as a customer service support to your customers.
Find the Right Kind of 3PL Company for Your Start Up
But do keep in mind that not all 3PL companies specialize in helping start up and smaller companies. Be certain to search for 3PL's with this type of focus, as many prefer to work with more established firms. Take time to explore different 3PL companies and see what cost savings they can pass on to you.
How Do You Find the Right Fulfillment Company?
Finding the right company starts with having as much information as possible. Remember that the fulfillment company will be screening you just as rigorously as you are screening them. You want to find a fit that works for both partners. The fulfillment company needs a partner that’s financially stable, has products that are in-demand, and will be around for longer than a couple of years. You need a partner that offers flexible solutions tailored to the sometimes-chaotic needs of small businesses and startups, and that is able to offer better pricing than what a general fulfillment company might be able to provide.
When you start discussing partnerships with potential companies, you’ll need to make sure that you can provide them with the things they’ll need to see. These include the fact that you are a business entity with a company name, office phone, business email address, and at least a basic website to your credit (this is especially true if you’re an ecommerce company). They will also want an idea of the volume you’ll be sending in terms of product/inventory, as well as when it will arrive.
Finally, you need to be clear about any requirements your products might have, including temperature control, fragility/specialty packaging, and more. If possible, share your formal business plan with the company you’re partnering with, as this can prove that you’ve not only done your research, but you are also committed to long-term success.
In regards to the fulfillment company, you should look for a single-location provider in most instances, as multi-location providers are usually more expensive. You should also look for firms that say they’re “startup friendly” and have low or no minimum requirements. Of course, you’ll want to see competitive pricing and flexibility in terms of how unique you can make fulfillment using your own logo, packaging, and the like. It might also be beneficial to partner with a firm that provides you with a dedicated service representative to answer your questions, as well as a company founded with an entrepreneurial spirit that can help with building your own business.
Ultimately, working with a fulfillment company is not only possible, but it’s an excellent idea for small business and startup owners looking for better efficiency, time savings, and the benefits that come from partnering with an expert capable of handling all of their fulfillment needs.
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