How much does outsourced fulfillment really cost?

Posted by:
Jodie Fardoe

15 Mar 2021
Operations

Q: Is it true that moving to an outsourced fulfillment provider will cost you more than doing everything in-house? 

Online retail is a competitive place, and while the industry continues to boom, eCommerce operations managers are working hard to balance tight budgets with growing customer expectations. Outsourcing can be an efficient way to reduce fulfillment costs, but retailers can often be put off by the initial figures even before considering the overall financial benefits and total cost served.

As an example, James and James doesn’t give a one-size-fits-all answer to the pricing question. It wholly depends on the nature of the business, its products, where in the world the products need to be shipped, and how those products need to be shipped. A pricing plan needs to be tailored with the following considerations.

Space requirements

The Coronavirus pandemic has accelerated the shift from retail estate to online, with retailers picking up pace to allocate the right resources to meet changing customer needs.

As a result of this monumental change, fulfillment and distribution centers have become ‘hot property’.

It’s said eCommerce requires a lot more logistical space than that of traditional brick-and-mortar stores, due to the fact that online retailers offer a much wider range of products through their online platforms compared to in-store stock. Plus, unpredictable purchasing patterns can drive the need to hold more inventory.

As your business grows, an increase in order volume means you’ll need more stock on hand, ready to be picked, packed and dispatched to customers – and it’s got to be housed somewhere. Not to mention the reverse logistics (where goods are returned).

This heightened demand for warehousing has consequently pushed up leasing costs, while seasonal fluctuations in order volume could mean your current space goes from half-empty to bursting at the seams at an alarming rate.

Rental rates, packing desks, forklifts, pallets, rubbish disposal, building maintenance, insurance… there are a number of additional costs and fees that go unnoticed, but when you add them all up, it can be quite a shock.

This is when outsourcing sounds like music to the ears.

When you outsource to a third-party logistics (3PL) company, your stock is securely housed in and dispatched from their fulfillment center, removing the need to source and manage your own. You pay for the space you occupy within that warehouse space, and, if your order volume and consumer demand grow, they’ll scale with you.

People power

There are various costs associated with advertising for job roles, bringing new people on board, training them, paying them (obviously) and developing them. There’s the time factor too – it’s costly but it also takes time to get the right people in.

Fulfillment specialists, however, will already have an expertly trained team with the infrastructure in place to add further team members during peak periods.

Tech

Your order fulfillment software needs to be intuitive and efficient while providing decent data insight. Without a full-time team of developers and support personnel, that’s very difficult to achieve. Again, these agile technology projects can take a lot of time, effort and money.

Off-the-shelf warehouse management systems are getting better, slowly, but you’ll find the most cutting-edge systems have already been created by fulfillment specialists. After all, it’s what they do best. Plus, they’ll have dedicated teams continually upgrading and developing that software to make sure it’s meeting the changing needs of eCommerce retailers.

I want to outsource fulfillment to focus on my core business and save money on operating costs. What’s your pricing?

- Many eCommerce retailers

Packaging

Depending on your product, finding affordable, quality outer packaging can be tricky. You’ll of course want to strike a balance between too much protection or too little, and while getting your item to the customer in one piece is the main priority, it helps if the package looks professional too.

One of the major advantages of using a third party for your order fulfillment is that they buy in bulk, and so will have access to better pricing from packaging manufacturers, as well as a wider range of boxes and other materials to suit your product type and size.

Postage

Not only do fulfillment providers have access to preferential shipping rates, collection arrangements also work to their advantage. Usually strategically positioned next to key carrier hubs, fulfillment centers organize multiple collections every day. This means you’ll be able to offer later cut-off times for next-day delivery.

Returns

The cost of customer returns, also referred to as ‘reverse logistics’, is often left unconsidered yet a poor returns process could be a real turn off for customers. It needs to be smooth, efficient and hassle-free but getting to that level of returns mastery can put a big strain on resources. Retailers can lose a third of their revenue to returns, with fashion retailers being hit particularly hard.

Returns as a whole can hike up processing costs, result in lost sales and repurchases. Not to mention the man-hours required for hand-evaluating customer returns ready for restocking.

The best fulfillment specialists out there will take care of the entire returns process, supplemented by tracking so that your customers can access status updates.


A: Is it true that moving to an outsourced fulfillment provider will cost you more than doing everything in-house?

Potentially. But it’s worth considering the bigger picture. An initial tailored proposal may knock you for six but it’s the price you’ll be happy to pay if it means achieving a more agile business, improved quality control, removal of wasteful processes, and most importantly, happy, returning customers.

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James and James Fulfillment

It all began in 2010, when James Hyde and James Strachan couldn’t find a modern shipping service for the eCommerce business they ran. Faced with messy warehouses based on out-dated systems, they decided to build their own.

We’ve not stood still since, helping hundreds of online brands scale up – and scaling with them.