Starting a small, product-based business involves a lot of heavy lifting (literally) — and in the beginning, you might be doing it all yourself.
As you scale, order fulfillment can become a huge undertaking that can eat up much of your time. Today, there are many options for outsourcing your order fulfillment so you can free up your schedule and focus on growing your business.
To help you decide whether fulfillment services is the right move for your retail business, we’ll take a look at how to outsource this time-consuming task, the benefits of fulfillment services, and how to calculate the potential costs.
What is an Order Fulfillment Provider?
How nice would it be to get your inventory out of your apartment or house? That’s precisely what fulfillment services do for retailers: they take inventory off your hands and do the dirty work of packing and shipping for you.
An order fulfillment provider essentially warehouses goods (i.e. your products) for their clients. Once they receive an order, the fulfillment provider will pick, pack, and prepare the product for shipment — and schedule the shipment pickup from carriers such as FedEx, UPS, and USPS.
Now that you understand the basics of what fulfillment services do, it's best to figure out if outsourcing your order fulfillment is cost effective for your business.
The Benefits of Outsourcing Order Fulfillment
There are a number of benefits to outsourcing order fulfillment services, such as lower shipping rates, reduced operating costs, and a broader reach to help you grow into new markets.
Many order fulfillment providers have discounted shipping rates with various shipping carriers for both domestic and international shipments. If you've ever filled out forms for an international shipment for customs, you probably know how tedious it is — but you can leave that to your order fulfillment provider.
"I was working full-time and launching Brief Transitions as a side business,” Clavieres said. “I originally handled order fulfillment myself, however, I found that it was taking up too much time and that customers could get the product faster if I used an order fulfillment service."
How to Calculate Order Fulfillment Costs
The cost to outsource to a fulfillment service will depend heavily on factors like your current sales volume, geography, and the amount of inventory you need to store. But you can get a sense of your potential costs by following this formula:
Step 1: Project the Following Items Based on Current Sales Volume
- Number of bins/pallets each month that your fulfillment provider will warehouse for you
- Number of orders per month that your fulfillment provider will ship for you
- Number of units per order that your fulfillment provider will ship for you
- Number of units your fulfillment provider will receive from you each month
Step 2: Get Service Quotes From Various Order Fulfillment Providers to Weigh Your Options
The types of fees required may differ with each fulfillment service provider, but these should give you a general idea of what to expect:
- Storage fee per bin/palette
- Pick/pack fee per order shipped
- Pick/pack fee per unit shipped
- Receiving fee per unit
Step 3: Determine Your Monthly Service Fees
- Total storage fee per month = number of bins/pallets x storage fee per bin/pallet
- Total pick/pack fee per month = (number of orders per month x pick/pack fee per order) + (number of units per month x pick/pack fee per unit)
- Total receiving fee per month = number of units received each month x receiving fee per unit
- Total monthly fee = total storage fee + total pick/pack fee + total receiving fee
Step 4: Determine Your Total Fee Per Order
To calculate your total fee per order, simply divide your total monthly fee by your total number of orders per month.
Step 5: Does the Total Order Fulfillment Fee Per Order Work for Your Business?
Once you have an idea of what your total fee per order will be, you can add this number to your cost of goods sold to decide if the total fee per order leaves you with a gross profit that you’re comfortable with.
While this is a lot of numbers to crunch, using these formulas will give you some insights on whether using a fulfillment service is worth it for your retail business.
Need a little extra help calculating all your costs? View these calculations in more detail on the eFulfillment Service website.
Six Order Fulfillment Services to Consider
Boxzooka has built warehouse management software (WMS), with informative dashboard reporting, analytics, and integrated global landed-cost ecommerce selling tools built right into their WMS.
Boxzooka's technology allows you to focus on your sales and marketing while immediately opening your doors to international markets. They also take care of the rest of your business, helping you to grow faster.
2. efulfillment Service
eFulfillment Service began with a mission to make order fulfillment easy and affordable for merchants. Today, the company is a family owned business that provides end-to-end offerings for all kinds of companies. eFulfillment Service provides domestic and international shipping services and 24/7 client access to its order fulfillment software.
3. Fulfillment By Amazon
Fulfillment By Amazon, also known as FBA, allows anyone to sell their items on the Amazon platform. Merchants ship out their products to be stored in Amazon's fulfillment centers, and they pick, pack, ship, and provide customer service for these products.
Fees are determined by item size and weight, so this option is most beneficial to merchants who sell small items. FBA also works for those who sell through multiple channels and companies already selling on Amazon.
FURTHER READING: How Multichannel Sales Can Help Your Retail Business Prosper.
ShipBob integrates with Shopify and is one of the top order fulfillment services that offers same-day delivery for orders placed in Los Angeles, New York City, San Francisco, Dallas, and Chicago — plus 2-day shipping within the continental U.S.
ShipBob has two main services:
- Free software solution that merchants can use to manage orders and inventory.
- It integrates with marketplaces, ecommerce platforms, and physical logistics to fulfill orders and keep track of warehouse inventory.
ShipBob's advantage is its proximity to merchants and consumers in the largest metro areas in the U.S. Its strategic locations allow this order fulfillment provider to offer same-day delivery services, similar to Amazon’s, at an affordable cost.
Ships-a-Lot is another order fulfillment service that partners with fast-growing brands that need a highly dedicated service. Also a Shopify partner, the service provider was initially created as a fulfillment solution for Shopify merchants to enable shipping items in real-time.
After developing their solution, the founders thought the platform could also be used by other online stores, and Ships-a-Lot was born.
Merchants can use the real-time rates feature on the company's website to receive information about pricing for single or multiple destinations.
Whitebox is an entire ecommerce operation in a single package. By combining all functions of the ecommerce process into one service, Whitebox helps manufacturers and brands scale globally while shrinking overhead.
This order fulfillment service has a very simple interface and offers same-day delivery to select markets.
Moving Forward with Outsourcing Order Fulfillment
Now that you have a better understanding of how to calculate order fulfillment fees, you can take your time to do the research, weigh your options, and decide which option is best for your business.
If you're not ready to outsource this crucial task, or think you’re not shipping enough orders yet to hire an order fulfillment provider, you can also hire someone in-house to manage your order fulfillment.
Finding someone to join your team is another great option to relieve yourself from this task.
"We needed someone to focus solely on getting our orders out within 24 hours and put a great amount of detail into packaging those orders up. It may seem like small details — a sticker here or ribbon there — but those little details add to our customer experience. It is a top priority that we feel needed some extra attention," says Macaire Douglas, founder of Half Pint Shop.
How do you fulfill your orders? What fulfillment services do you recommend? Share your experiences in the comments.