10 Effective Strategies to Cut E-commerce Fulfillment Costs

You understand that adopting the right strategies to the business should aim at enhancing the sale and minimizing the expenses. It’s how you will be able to continue with the operations of your ecommerce business. While they are not paying for store space leasing and the next electric bill to ensure the light bulbs and the HVAC system stays on, you should not let these following costs cut into your profits, and one is fulfillment cost.

Table of Contents

1. What is Ecommerce Fulfillment?
2. Options for Fulfillment

• In-house
• Outsourced
• Dropshipping
• Hybrid Fulfillment Model

3. How Ecommerce Fulfillment Costs Add Up?

• Warehousing Prices
• Labor Expenses
• 3PL Prices
• Order Fulfillment Software
• Packaging Costs

4. Are Your Fulfillment Costs Under Control?

• Cost per Order (CPO)
• Shipping Cost per Order
• Cost per Box (CPB)

5. Ten Tips for Keeping Fulfillment Costs Low

1. Answer the In-house vs 3PL Question
2. Optimize 3PL Costs
3. Scalable Warehousing
4. Adaptable Processes
5. Use Free Trade Zones
6. Green Packaging
7. Minimize Returns
8. Minimize the Number of Boxes
9. Automate Processes
10. Monitor Fulfillment Costs

6. Concluding Remarks — Controlling the Cost of Doing Business

What is ecommerce fulfillment?

Order fulfillment focuses on the means through which customers obtain their products or services, on the way customers get their ordered products or services. Order fulfilment is the systematic process by which potential goods that a customer wants, gets processed, picked, packaged and is shipped to the customer’s location.

Options for fulfillment include:

• In-house: Ecommerce on the other hand is done by some ecommerce businesses using their own ecommerce fulfillment resources. They oversee a warehouse, employ people to pick and pack all orders and even organize shipping services. Dealing with fulfillment with your own employees is most effective if you own a small business with low order fulfillment.
• Outsourced: As your business expands, you may be able to save money by outsourcing to a third-party logistics (3PL) provider or other third-party fulfillment provider to hold inventory and manage order selection, packing and shipping. Outsourcing may be advisable for those companies that begin to develop and cannot rent additional warehouse space or hire personnel at a higher speed than the growth of the new number of orders.
• Dropshipping: Some of the players in the ecommerce industry can employ dropshipping in the supply chain process. This kind of fulfillment is effective if instead of buying or producing goods and having them in a stock, you are selling products for a manufacturer or supplier. In the case of dropshipping, you relay the order to your manufacturer or supplier, whoever fulfils the order.
• Hybrid fulfillment model: Fulfillment methods aren’t set in stone where you are restricted to only one method at a time. What they should do is use dropshipping for some of their products while using their employees to meet other orders. Or you may need a 3PL provider for orders that need kitting or due to its specific packing requirements. They also demonstrate how you can have the best of all worlds to give your customers the very best in customer service while simultaneously keeping your fulfillment costs in check.

How ecommerce fulfillment costs add up?

That is why fulfillment is made up of processes that ensures gets your orders to customers, a lot of things ends up costing. Cost of fulfillment comes from:

• Warehousing prices: To truly sell merchandise, often you have to purchase supplies, or materials, or components from other companies and then have a stock room so you can find them and maintain an inventory.
• Labor expenses: The major expenditure when it comes to fulfillment is labor if you choose to deal with it internally. You must staff enough employees to handle your orders and make sure that the items are picked and packed correctly and on time!
• 3PL prices: If you outsource fulfilment, you will pay your 3PL price for setup then have other fees for the fulfillment center for the services that your 3PL provider offers.
• Order fulfillment software: No matter which of the two, internal or 3PL, you have to have a swift and efficient means of order processing with your company. It is used to control stock, inform a team about additional directions on packing, and identify the most appropriate carrier to deliver goods. However, there are costs of fulfillment which are accrued from software subscriptions.
• Packaging: In fact, when you make delivery to a client, you are not only delivering the actual item. You also sending a shipping box or envelope, an invoice, documents and sometimes inserts to make an additional order from the customer. In their work, entrepreneur.com mentioned that packaging material can thus cost about 10% to 40% of the price of the item, always be cautious with the packaging material that you use.

Are your or Make Sure fulfillment costs under control?

Sometimes, your bookkeeping software may tell you that the revenues are higher than the expenses, but are you thinking that perhaps there is a better way? On the contrary, you may be running at a loss, but often you may not be very certain of which aspect of your business is losing you money. Looking at your cost line by line to interpret what fulfillment costs may be what you have to do to discover how you might run the business more lucratively.

However, there are a few formulas you can employ to find out where and how much you incur charges towards fulfillment. Month by month, when you do the math, these numbers inform you how those costs are evolving.

• Cost per order (CPO): It is also stated that CPO must be measured. To determine the CPO simply divide the total cost by the number of orders that is made in a week, a month or a quarter. This CPO calculator can help. This is usually your goal because the amount has to be small so you can retain a good portion of the profits.
• Shipping cost per order: It is therefore important to monitor what you pay particularly for the shipping costs as well. This cost can be obtained by dividing the total shipping costs incurred by total number of orders made over a specific period of time and comparing this figure over time.
• Cost per box (CPB): Just as some foods can contain several servings, some orders can contain several boxes and knowing how that factor can influence your costs is important in deciding how to package and send out the orders. To determine your cost per box, you divide total costs by the number of go-out boxes in a particular time.

Thus, once you have all the facts and realize what the problem is, you will have the opportunity to make better decisions to manage the costs of orders. But remember that reduce in the number of fulfilment cost is irrelevant if it tries to cut areas that customers are bound to be unhappy about. According to Newsweek, 54-percent of consumers will abandon a brand after a single negative experience.

Ten tips for keeping fulfillment costs low and keeping customers happy

Answer the decision in-house versus 3PL question

This may look paradoxical to an extent, to cut costs it is possible to turn to another individual to do the work for the company. Figure out what your CPO and other numbers are and then ask the 3PL providers how they are going to make their cost work. As mentioned 3PLs have business dealings with the delivery companies, so they have better bargaining power in fixing the delivery charges more than you can. Also, 3PLs tend to operate nationally or even overseas, thus, set up their fulfillment centers near your consumers, which will reduce the delivery time and costs. 3PLs may not be the solution for every online selling business, but outsourcing may be your remedy for the consternation of the magnitude of your fulfillment costs.

1. Optimize 3PL costs

So, if you decided that outsourcing some or all of fulfillment is right for your business, choose the right 3PL provider and the specific services your company requires. Lock in with providers that already have a heavy footprint in the market and seek to establish operations for your business (additional customization of services will be more expensive) and negotiate to achieve the fulfillment center rates, from P&P to kitting, custom packaging, and returns management. Secondly, ensure that the 3PL pricing reflects the fulfillment speed to ensure you honor your promises to your customer.

2. Scalable warehousing

Indeed, it should come as no surprise that there are those times of the year that ecommerce retailers may be more active or sell more products. A lot of companies make or deliver more orders during the Q4 holidays. In companies, the high frequency in orders is recorded during the summer sports season. You may also be forced to raise your budget for warehouse pricing if you are told that some of the products may soon be hard to come by and you want to order them at the moment. Therefore, there are times in the year for which a business requires additional warehouse space for stock purposes.

3. Adaptable processes

Where along the ‘high-technology/highly specialized’ continuum does your company’s product fulfillment plans fit? Does one employ special boxes for some articles? If you launch a new product, can you place it near other products which customer would purchase together? Does your employee’s find ways of working around your software to complete a task faster? Understand operations and change aspects to be efficient both in time and possible to simplify in order to become inexpensive to shift.

4. Use free trade zones

For those who order products for delivery, free trade zones can fit in your setting by reducing costs. Import and export taxes differ with an FTZ in that one is not charged for products that are exported later. Merchandise in the FTZs is not required to conform to customs procedures unless it is removed so you avoid paying duties or tariffs in the items you destroy at the zone. FTZs also have different customs processes; for this reason, you can have your shipments to airplanes or ships turned around faster. Discuss with your 3PL partner whether this option would be suitable to help you reign in costs.

5. Let us borrow a sneak peek at green packaging.

If you are browsing through a catalog of supplies and orders, you’ll see some being wrapped in eco-friendly packaging, and would immediately rule them out as being more costly. But take a second look. Organic packaging has the potential of reducing your costs. Another advantage of using eco-friendly packaging is that since most of them weigh less than the conventional products, transporting them also costs less.

Sustainable packaging may also help build customer loyalty, Additionally, the study by McKinsey & Company showed that 40.3% of consumers note the effects of packaging on the environment as ’very (180) ‘or ‘extremely (52) important’. So, a big portion of your clients might be searching for a company with similar values to stick to.

However, even if the product marketer does not change to the use of the green packaging, at least he or she has to review packaging functions so that there is no over packing.

6. Minimize returns

You can also keep the overall costs of fulfilling orders down by minimizing the amount of returns that you receive. Every return implies restocking, picking, repackaging and shipping which will be costly if you find yourself repeating those tasks.

Research towards understanding why people return the items which they had purchased in the market. Is there a need to give better descriptions on your ecommerce site? Is there a possibility to bring harmed good to a customer? Is your return policy overly generous, so that customers run up purchases on items they never had a real intention of using? Remember; a low return rate is a great way of reducing the overall cost of order fulfillment.

7. Minimize the number of boxes

Customers might order some items for they realized that they needed some other item that was usually sold by that firm. There are some systems that give you the opportunity to make changes to an order to include the item so that all will be shipped in one package. If your CPB is high, changing this segment of the fulfillment process may be a huge advantage to your company.

8. Automate

There are tremendous cost benefits that can be achieved when you replace paper-based fulfillment processes with the use of a mobile device. Your employees should be told to give orders on a handheld computer so that picking and packing time will be fast and with less errors hence cutting on time and costs.

9. Watch fulfillment costs

This may look good on paper but it can rapidly balloon out of control, especially if you fail to keep a keen eye on the costs necessary to keep the project moving forward. When the price structures such as the cost of warehousing, prices charged by a fulfillment center, cost of packaging material and shipping costs increases, you have to recalculate in order to remain profitable.

Concluding Remarks — Control the cost of doing business

Every ecommerce company needs to incur certain expenses for order fulfillment, so just make certain you’re not overpaying. The types of fulfilling orders you are to choose have their issues solved within the company, through outsourcing, or by the dropshipping solution or a mix of the three. You can also choose the parts that fulfill the customer need such an aspect as the packaging you provide or the shipping means you maintain in an attempt to reduce cost.

Fulfillment costs are among the things that should be monitored by the ecommerce business owners. Calculating your cost per order or better still the cost per box allows you to make good decision that may affect the success of the business.

This means that you can also be able to run a business by automating some of its processes. There are tools within WooCommerce that would assist in managing the business much easier. For instance, WooCommerce Shipping allows you to print shipping labels directly from your WooCommerce interface — and it ends up being less costly — and, our WooCommerce customers have free access. outsourced, dropshipping, or a combination. You can also focus on parts of the fulfillment process, like the packaging you use or shipping to keep costs low.

Keeping track of fulfillment costs is important for ecommerce business owners. Doing the math to understand your cost per order or cost per box can help you make better decisions and keep your business on track to profitability.

Automating processes can also help you run a successful business. The WooCommerce platform includes features that can help manage your business more efficiently. For example, WooCommerce Shipping lets you print shipping labels from your WooCommerce dashboard, saving time and money — and WooCommerce customers can use it at no additional cost. Contact us to learn more.