In December 2018 and through January 2019, we conducted our annual warehouse costs and pricing survey. This year, we polled around 600 warehouses and had even more participation than in 2017, and we’d like to thank everyone that took the time to fill out the confidential survey.
Before we launch into the results, it’s important to point out some of our assumptions. First, we did not record which answer was associated with a particular warehouse. This was done to allow vendors to confidentially answer questions without fear of providing key information about their specific company. Second, if we found any of the survey answers to fall far outside of the extremes, we did not include the results in the averages outlined below. For example, if someone indicated that they paid $75 per square foot per year for warehouse space and the next highest amount was $18, we did not include the result so that we could accommodate for any order entry errors. Unreasonably high or low answers to our survey questions could have been a result of misunderstandings related to the question or an error in entry. Third, we did not segregate the results by geography. We acknowledge that this definitely has a tendency of skewing some of the results, as we do have vendors that operate in the United States and Canada. Fourth, in cases where results were given in various formats for a single question, we made our best attempt to compute averages based upon the most common answer type given. As an example, some respondents answered that they pay a warehouse management employee a salary, while others indicated that they paid an hourly salary. Similarly, some respondents provided answers to how much they charge for pick and pack per order as a flat order fee, while others responded that they charge a per order plus a per item fee. Finally, if there were any responses that warranted further explanation, we elaborated on those responses in our discussion below, so that readers of the results can understand the various responses received.
Summary of 2018/2019 Survey Results
Overall, the hot fulfillment and warehousing market, bolstered by e-commerce fulfillment growth and increased demand for timely processing of internet-driven orders, seems to have caused warehousing costs (mainly warehouse leases and labor related costs) to rise. As a result, the end of 2018 and beginning of 2019 has seen an increase in warehousing and fulfillment pricing for outsourced services. The survey showed that costs rose in all areas for warehouses (warehouse lease costs, hourly employees rates, and management salaried staff), and as a result overall profitability decreased slightly. In order to keep up with rising costs, providers of warehouse and fulfillment services increased their pricing offered to customers across the board as well, including storage fees, pick and pack fees. Furthermore, fulfillment companies opted to extend lower shipping discounts to customers as well.
Below are the results of our latest survey. In order to make the results easier to digest, we’ve segmented them into the following categories:
- Performance Data
- Agreement Terms
- Warehousing Costs
- Pricing and Discounts
For performance data, our main objective was to see how many fulfillment providers use performance data to gauge the quality of their work. We asked the following questions:
- Do you measure performance?
- What is your picking accuracy?
- What is your inventory shrinkage rate?
- What percentage of customers do you retain each year?
In the survey, we found that 82.93% of companies polled measure their performance in some way. The average picking accuracy for order fulfillment companies was 99.19%, and the average inventory shrinkage was 1.26%. Respondents, on average, retained 99.52% of their clients. Performance data results didn’t vary significantly from our 2017 survey.
We get a number of questions, both from warehouses as well as companies looking to outsource, about the standard terms of agreement that fulfillment houses employ. In our survey, we asked:
- What terms do you offer on your agreements? (month to month, annual, multi-year, or no term) This question allowed warehouses to respond with multiple agreement types, since many firms are flexible and offer different terms to different customers.
- Do you increase your pricing on a regular basis?
- If you do increase your pricing, what percentage do you increase pricing?
In the survey, we found that 56% offer month-to-month agreements, 61% offer annual agreements, 37% offer multi-year agreements, and 12% don’t require an agreement in all cases. Month-to-month agreements rose slightly in popularity from 10.26% to 12%. More significant, however, were increases in annual and multi-year agreements. The use of annual agreements rose from 38% in 2017 to 61% in 2018/2019, and the use of multi-year agreements rose from 25% to 37% over the same periods. Furthermore, 64.29% of all respondents said they do increase pricing yearly. The rate of price increases nearly doubled – in 2017 the average increase was 2.37% and our latest survey indicated that the average rate increase is now 4%.
It’s helpful for warehousing companies to see what others are paying to maintain their warehouse. In the survey, we asked:
- What is your yearly cost per square foot of your warehouse space?
- What is your starting hourly rate of your warehouse staff?
- What is your annual pay for a warehouse management employee?
- What is your corporate profit?
The average cost per square foot of warehouse space was $7.79, a marked increased of $6.53 in 2017. The average starting hourly rate of warehouse staff was $13.32, and the average annual pay for a warehouse management staff was $50.524 (2017 results were $11.44 and $47,478 respectively). The average corporate profit came in at 7.25% for 2018.
Pricing and Discounts
In order to get a feel for the going rates of fulfillment companies, we polled warehouses and asked them questions relating to their pricing and discounts that they offer customers. Not only do warehouses need to understand the competitive landscape, but we also get tons of questions from companies looking for outsourced fulfillment services that are looking to uncover the average fulfillment pricing, costs and fees. For pick and pack fees, we asked:
For order fulfillment pricing, we asked:
- What is your average pick and pack price for a single item direct to consumer order?
- What is your average pick and pack price for a business to business order?
- Do you offer discounted pick and pack rates?
- If you do offer discounted pick and pack rates, what is the break with which you offer the discount and how much of a discount do you offer?
The average pick and pack fee for a single item B2C order was $2.86 (up from $2.64 a year ago), whereas the average fee for a B2B order was $4.17 (up from $3.74 a year ago). An overwhelming 74.29% said that they do offer discounted pick and pack fees based upon volume of orders (which was unchanged from 2017), and the average discount was applied at 1,000 orders per month (with the highest frequency of responses either 500 or 1,000 orders per month). Discounts ranged from 5% up to 10%.
We did introduce an additional question in the 2018/2019 survey – ‘Do you charge differently for Amazon orders, and if so by how much?’. We found that 57.14% do in fact charge different for Amazon orders. On average, fulfillment houses charge $1 more for Amazon orders.
For storage pricing, we asked:
- How do you charge your customers for storage?
- What is your average price for storage?
- Do you offer discounted storage fees?
- If you offer discounted storage fees, at what breaks do you offer discounts and what discount is offered?
The most common way of charging for storage was pallet storage (90.24% – which was a 10% increase from 2017), followed by storage per bin (26.83%), per square foot (24.39%) and lastly per cubic foot (12.2%). These percentages reflect that companies, in many cases, offer more than just one storage pricing. Warehouses shied away from pricing per cubic foot in 2018 and into 2019.
The average pallet storage fee came increased only slight from $13.02 in 2017 to $13.20 in 2018/2019. The average cubic footage charge was $.5, the average cost per bin was $2.85, and the average cost per square foot was $.66. A full 48.65% of respondents offered discounted storage solutions (mostly at pallet levels), which was largely unchanged from last year’s survey. The average discount was 10% given at roughly 500 pallets.
We surveyed the warehouses about their shipping pricing and discounts. Questions included:
- How do you charge for shipping?
- If you offer shipping discounts, what discount do you give for ground, express, and LTL shipping?
With regard to shipping pricing, again we found that many companies offered a number of approaches. The most common approach (43.90%) was to allow customers to use their own rates. This was interesting, as many fulfillment providers rely upon making margin on freight. Not far behind, however, was the option of offering a cost plus model, where they mark up their shipping costs (41.46%). About a third of the respondents (31.71%) offer a percentage discount off of published rates, and 14.63% responded that they don’t apply a discount at all. When discounts were offered, the average shipping discount for ground was 20.02%, for express was 29% (both of which were decreases from 2017. 51.33% was the average discount given for LTL freight.
Set Up, Account Management, Receiving, and Returns Fees
In 2018/2019, we expanded our survey to ask questions about other ancillary fees fulfillment companies sometimes charge. The questions included:
- If you charge a set up fee for a new client, how much do you charge on average?
- Do you charge a routine account management fee, and if so, how much and how frequently?
- Do you charge returns fees, and if so how much?
- Do you charge receiving fees, and if so how much?
The average set up charge was $336, but some companies charge as much as $2,000-$10,000 depending upon the complexity of the integration. 56.41% of companies in our survey indicated that they account management fees, and the average fee was $226.54 per month. 84.62% of those surveyed indicated they charge returns fees and the average charge per single unit return was $3.53 (although some companies charge the same as their standard pick and pack fee OR around $35 per hour). Most companies polled charge a receiving fee (94.87%). Receiving fees varied widely including depending upon the unit of measure: $.25 unit; $7 pallet; $31.95 hour; $373.33 container; $1.21 carton.