If you utilize a fulfillment company to deliver your goods, you must factor this cost into the final pricing of your goods. Question is, how much do fulfillment companies charge? While this may seem a straightforward question, third-party (3PL) fulfillment pricing varies widely from one service provider to the next. It also varies within order fulfillment pricing models.
Extensive knowledge of 3PL fulfillment pricing will help you identify suitable fulfillment organizations, streamline your operations, and broaden your bottom line.
Fulfillment Companies
3PL fulfillment companies allow businesses to outsource tasks like storing goods, organizing inventory, preparing orders, shipping them out, and managing returns. The Natural Dog Company saved $1,000,000 by opting for 3PL fulfillment services instead of handling fulfillment in-house.
Some common trends in the fulfillment industry include:
Operational costs
Businesses are trying their best to lower operational expenses by maximizing the return on all resources. Direct labor and freight are the two largest cost drivers, so companies are exploring strategies to reduce these expenses while maintaining high service levels.
Multiple warehouse locations
Companies are opening additional distribution centers to meet customer demands for faster deliveries. While this offers tangible benefits, it increases inventory requirements, leads to higher labor costs, and requires more operational oversight.
Labor
Rising wages and labor shortages are significant challenges. Many fulfillment centers now pay over $11 per hour as wages, compared to $7 just a few years ago.
Automation
3PL Businesses are increasingly turning to automation and advanced warehouse management systems (WMS) to improve efficiency and reduce order fulfillment costs. These tools help streamline processes, boost capacity, and lower the cost per order.
Sustainability
Customers are increasingly demanding eco-friendly practices — such as sustainable sourcing and packaging — as they become more aware of their impact on climate change. These sustainability efforts may be essential, but they come with added costs like production costs.
Factors That Influence Fulfillment Costs
The core components determining the 3PL fulfillment pricing include:
Storage fees
Warehouses have limited space, and businesses are charged for the storage their products occupy. Larger items require more room and incur higher fees; smaller items cost less.
Additional charges may apply if products take longer to store or need specialized equipment to facilitate the storage. The average cost for storage is $5-$15 per pallet/month, $0.30-$0.55 per cubic foot/month, and $1-$250 per bin/month.
Pick and pack fees
Pick and pack fees include selecting/picking the correct item and preparing/packing it for shipment, with the fees typically calculated on a per-item basis.
These costs cover the labor involved in handling the items and the materials used for packaging. Expect to pay $4.79 on average.
Shipping costs
The cost of delivering an order from the fulfillment center to the customer is based on factors like package weight, shipping destination, and desired delivery speed.
Faster shipping options are significantly more expensive. You must balance customer expectations for speedy delivery with cost considerations to avoid overspending. Shipping will set you back $2-$25 per item.
Receiving fees
Receiving or intake fees cover the labor and processes required to handle incoming inventory from manufacturers or suppliers.
These fees may be charged per pallet, per unit, or by the hour, often with a minimum rate applied. This process ensures inventory is accurately checked and stored in the warehouse. The average cost for receiving is $8.69.
Additional services: Value-added services
Value-added services (VAS) go beyond basic fulfillment. These include custom packaging, returns management, and improved order processing. Although VAS is an added cost, it can vastly improve service delivery.
For instance, order fulfillment can be a time-consuming and error-prone process for businesses. Outsourcing this function can improve the speed and accuracy of order processing.
Common Pricing Models for Fulfillment Services
Here’s a roundup of the most common fulfillment center pricing models.
Pay-as-you-go
The pay-as-you-go 3PL fulfillment pricing model allows businesses to pay only for the services they use. This flexible approach ensures you’re only charged when services are needed, unlike models with fixed monthly fees or minimum order requirements.
It is an excellent option for growing businesses as you only incur costs with usage. However, it is one of the costliest options.
Flat rate 3PL fulfillment pricing
Flat-rate shipping charges a fixed fee for shipping a package. This method is great for customers as it offers predictable costs.
It’s a popular e-commerce fulfillment pricing model, offering customers consistent pricing. For instance, small goods below 5 lbs will be charged the same, while any shipment above 5 lbs will have the same cost regardless of weight or item categorization.
Volume-based pricing
With volume-based 3PL fulfillment pricing, businesses pay based on the amount of goods a 3PL provider stores, processes, or ships.
This model is ideal for larger companies handling high volumes, as it typically lowers per-unit costs as volume increases. For example, the fulfillment provider will charge you $100 for handling a single container, $450 for handling five containers, and $900 for 10.
How to Estimate Fulfillment Costs for Your Business
Fulfillment cost is the total of all warehousing and operational expenses required to process and ship orders. It includes costs for receiving, storing, picking, packing, shipping, and handling returns or reverse logistics.
Calculating fulfillment costs helps you determine the monthly order volumes, inventory size and storage requirements, average package weight and dimensions, and the typical delivery destinations, whether local or international. This is how to find an estimate of fulfillment costs:
Cost Per Order (CPO)
Measures the average cost to fulfill a single order. It is calculated by dividing total order expenses by the number of orders received.
CPO = Total order expenses ÷ Orders received
Cost Per Box (CPB)
Provides a more detailed view of fulfillment expenses for businesses shipping multiple boxes per order. It is calculated by dividing total order expenses by the number of boxes sent.
CPB = Total order expenses ÷ Boxes sent
Cost as a Percentage of Sales
Shows what percentage of revenue is spent on order fulfillment. The calculation involves dividing total fulfillment costs by net sales and multiplying by 100.
Cost as a percentage of sales = (Total order expenses ÷ Net sales) × 100
For instance, to find the fulfillment cost for a small e-commerce business, you can rely on this formula:
Fulfillment cost = Account & storage fees + ((Supplies + Postage + Pick & pack fee) X Packages shipped) + Value-added services
Here’s a breakdown of the key components:
- Account and storage fees: These are ongoing fulfillment center fees for storing inventory. Billed monthly.
- Pick and pack fees: Labor costs for selecting items, packing them, and attaching shipping labels.
- Postage: Costs depend on item size, weight, shipping distance, and delivery speed.
- Supplies: Basic packaging materials are usually included, but specialized packaging may incur extra fees.
- Value-added services: Charges for additional offerings like custom packaging, product inspections, and returns management. Costs vary based on specific requirements.
For a subscription box company, use the cost-per-box model. Calculate by dividing the total monthly fee by the number of boxes sent.
Total fee per order = (Total storage fees + Total receiving fee + Total pick/pack fee) ÷ Boxes sent
For an easier time calculating your fulfillment cost, follow the prompts on this site to download the fulfillment cost calculator.
Comparing Costs: In-house Fulfillment vs. Outsourcing
This is what you should expect from in-house and outsourcing fulfillment:
Features of in-house fulfillment
It involves costs such as labor, warehousing, technology, and shipping. Advantages include:
- Provides personalized service and ensures brand consistency.
- Offers direct control over the customer experience.
- Allows greater flexibility for product customization and packaging.
- Full control over risk management.
Challenges of in-house fulfillment
- Can experience delays during peak periods or rapid growth.
- Requires significant investment in labor, technology, overhead, and infrastructure to run operations or scale effectively. For instance, it cost the Singing Machine Company $1.6 million in fixed rent and $1.2 million in labor annually.
- You may lack the expertise in managing logistics or supply chains.
Features of outsourcing fulfillment
Expect charges for rental fees and variable expenses tied to order volume. Its benefits include:
- Can handle large volumes of orders and minimize bottlenecks.
- They have expertise in logistics. This improves delivery times and customer satisfaction.
- Facilitates expansion into new markets with greater operational flexibility.
Challenges of outsourcing fulfillment
- Limited control over customization of packaging and product presentation.
- Businesses rely on the 3PL provider for risk management and logistics.
Tips for Reducing Fulfillment Costs
Follow these pointers to minimize your costs:
Choose the right fulfillment partner
The right fulfillment partner should have the capacity to manage seasonal peaks, provide additional service, integrate with your operations, and have warehouses near your customers, which can lower costs.
Optimize packaging to reduce shipping fees
Inefficient packaging processes can increase costs due to material wastage and storage expenses for packaging supplies. As carriers base charges on package size and weight, streamlining packaging can reduce these costs and lower shipping expenses.
Forecast demand
Holding inventory in warehouses attracts storage costs. Use data for business intelligence, such as demand forecasting, to maintain optimal inventory levels and minimize storage costs.
Negotiate rates
You should negotiate for lower fees if you have bulk orders or have plenty of business that warrants signing long-term contracts.
Take Charge of Your 3PL Fulfillment Costs
Most third-party logistics companies rely on pay-as-you-go, flat rate, and volume-based pricing models, which attract diverse prices. Only one of these pricing models may be suited to your large, small, or e-commerce business. Fulfillment costs vary widely but are predictable with the right partner.
As 3PL fulfillment pricing is influenced by factors like storage, shipping, and pick and pack fees, the key is finding a provider that balances cost with quality. For instance, QuickBox has a 95% delivery rate within two days, but its 3PL pricing is just right.
Want to know what fulfillment services would cost your business? Contact us for a personalized quote today!
SOURCES
Fulfillment Service Costs: 3PL Warehousing Fees & Pricing. (October 2024). Warehousing and Fulfillment.
Fulfillment Center Pricing — How Much Does Outsourcing Fulfillment Cost. Spark Shipping.
End of an era — today we closed our 50,000 sqft fulfillment center after 9 years. (March 2024). Natural Dog Company.
‘A massive undertaking’: Singing Machine shifts from in-house logistics to 3PL. (December 2023). Industry Dive.
Warehousing and Storage: NAICS 493. (November 2024). Bureau of Labour Statistics.
Transparent Fulfillment Center Pricing. Our Service Works.
What is a warehouse management system? Extensiv.