Fulfillment Center Costs: What Retail Startups Need to Know

By December 2, 2020Shipping

If you are an e-commerce retailer, at some point you may consider enlisting the services of a fulfillment center. Partnering with a fulfillment center has many benefits, but there are a few drawbacks as well. Here we’ll focus on what factors into fulfillment center costs, specifically those that may be prohibitive for a small business looking to expand its e-commerce presence.

What Is a Fulfillment Center?

Simply put, a fulfillment center provides warehousing and order fulfillment services for an online seller. It stores inventory and carries out picking, packing and shipping orders to customers. Many fulfillment centers handle return orders as well.

For many retail startups, it becomes difficult to understand the true cost of fulfillment due to the sheer number of variables and charges involved. Costs related to order fulfillment vary by carrier, industry, inventory specifications, and other factors. Additional fees, such as initial setup fees, receiving and intake fees, storage fees, order fulfillment charges, shipping charges all impact the total cost of the service as well.

Top Considerations When Deciding to Outsource Order Fulfillment

Reputable fulfillment centers or 3PL providers reduce the burden of order fulfillment, yet there are a few key points to keep in mind before you decide to join hands with a logistics and shipping partner.

Ensure the Provider Handles Delivery and Shipment Efficiently

Fulfillment is the most important step in delivering customer experience that foments repeat business. It is the last thing — and likely the only thing if handled incorrectly — customers will remember about the store. In that sense, retailers take a leap of faith when they outsource this critical aspect of the business. To mitigate the risk involved, retailers must perform due diligence to ensure the fulfillment center has a flawless shipping and handling record. It is not uncommon for retailers to ask a vendor to provide customer references and visit a fulfillment center location prior to signing a service level agreement.

Check How They Handle Returned Orders

Return orders are often challenging because of the logistical complexity involved. Processing the validity of a return might be difficult for a fulfillment center: they are not always in the best position to judge as to why a product is being returned, and whether it is in good shape for re-selling. Returns may pile up without any visibility into customer feedback that can help determine why a particular item has a high return rate and what you can do to improve its quality. This has negative impacts up and down the balance sheet, not to mention poor customer experience.

Ascertain Every Aspect of Pricing Out Front

Retailers need to understand how every factor tied to rates and billing work before they execute the service level agreement. Many fulfillment centers levy charges and fees that add up quickly. Carriers do offer price breaks for bulk handling, but a small enterprise dealing in limited quantities may not qualify for discounts and special deals. Adding up all the costs, retailers — particularly startups — may realize it makes more sense to execute the e-commerce fulfillment process internally.

Ask About Custom Packaging

It is up to the retail to specify any unique packaging needs to the fulfillment center. For example, if you are selling an extremely fragile glass or crystal artifact that requires extra padding while shipping, the fulfillment center needs to know your shipping requirements for this product.  Ask if the fulfillment agency will offer customization packaging for specialty products. Many offer custom packaging capabilities and will design a custom model for achieving an appropriately attractive, safe, and cost-effective shipment of sensitive items.

Are you a retailer that needs to outsource order fulfillment without incurring unnecessary fulfillment center costs? Newegg Logistics offers transparent pricing plus flexible, scalable solutions designed to help retailers grow their business.