You’re ready to start growing your ecommerce business. You’ve found a potential 3PL that matches your needs. But you may be wondering, how much does a 3PL cost?
3PL costs vary depending on each company and the amount of service you need. You need to calculate 3PL cost based on various different factors, including your product size to shipping fees. Most 3PLs charge on four different areas, pick-packing, shipping, storage and integration. 3PLs also run on a volume discount basis, which means the more you send out, the cheaper these costs will become.
Let’s start by breaking down what is included.
4 primary 3PL costs to know about
There are four primary 3PL costs to know and consider when working with a 3PL service.
Before actually processing and fulfilling an order from your ecommerce platform, 3PLs need to receive your inventory first.
Hence, ‘receiving’ refers to the acceptance of the delivery of your products.
Receiving costs also cover the verification process and warehousing of your inventory, as well as the process to upload on the 3PL’s system.
This cost can vary and can be based on per hour, by unit, by the carton, by pallet, and so on.
The factors can also vary depending on the 3PL company, so it’s wise to check how the 3PL calculates their receiving costs.
When you store your inventory at a 3PL’s warehouse, 3PLs will charge you for storage space. It can be either long-term or short-term, with individual storage arrangements.
3PLs usually charge storage costs on a monthly basis and can be based on per-SKU, per-unit storage, per pallet, and so on.
Some other factors to consider are methods to store your products. For example, if your product needs to be stored at a certain temperature, additional costs may incur.
Again, this depends on how the 3PL company has set its costs, so be sure to check.
Pick and pack costs
Picking and packing refer to the process that occurs once your customer places an order.
In picking, 3PL warehouse workers physically go through the warehouse to locate and pick the ordered items from its designated storage location. Costs usually depend on the number of items to pick. It can incur for each pick or from a certain number of picks.
After picking, the items are packed for shipment according to the delivery orders. Parcel requirements can be a factor in the packing costs, such as the type of packaging material, its size and its number.
Another factor to remember is personalisation services, where 3PLs fulfil personalised orders. Such as adding personalised letters. Costs usually incur, so be sure to check with your potential 3PL partner.
Shipping refers to the inbound and outbound of an item.
Inbound is where your inventory reaches to your 3PL partner’s warehouse. Outbound is where your inventory leaves the 3PL’s warehouse to head towards your customer.
It’s just like when you have to fulfil an order by yourself. You have to pay for shipping, even when outsourcing the fulfilment process.
However, the shipping rate can be much lower through 3PL. This is possible because of the 3PL’s courier partnerships and their access to high-volume discounts.
Other factors that affect shipping costs are:
- product weight;
- how quickly you want to fulfil;
- how your product will be sent (by air, sea or land);
- custom needs (such as fragile, foods, etc.);
- shipping area; and so on.
So, when you want to know how much 3PL costs, it’s nice to keep in mind that these are the four main factors they’re based on.
“What are the other costs in 3PL?”
Besides the ones mentioned in the earlier sections, there are other factors which could change how much 3PL costs.
- Product weight and metrics;
- Custom logo labelling;
- Distance to and from fulfilment centre; and more.
Also, there are costs where some 3PLs may charge you for, while some may not. Let’s look at two main costs that fit this description.
First, is the onboarding costs. Generally, onboarding refers to connecting your online shopping site to the fulfilment centre. Onboarding can include other services, such as integrating API and creating an account.
Second, is the knitting costs. Knitting means to create a product set or kit by assembling individual products. In this case, the 3PL needs to put together multiple SKUs, which is where the additional cost can come from. This is sometimes called ‘additional picks’.
There are a variety of factors that determine the cost of using a 3PL. Therefore, we highly recommend asking a 3PL directly for more information.
Comparison to in-house fulfilment
Now you have an idea of how 3PL costs work. But you want to know exactly how cheap it is compared to in-house fulfilment costs. Therefore, you want to know the numbers for your case.
3PLs usually either provide a cost model on their website or reply with an email after you send the required details to calculate the cost. If you remember your details, you can directly call them as well.
(Also, don’t be shy to give a call. 3PLs are more than happy to help you.)
In-house fulfilment costs
Next, you need to get a number for your in-house fulfilment costs. A quick and easy way to do it is to calculate your fulfilment cost per order (CPO).
CPO refers to the sum of all the logistics expenses involved in in-house fulfilment, such as:
- receiving and storing the product;
- fulfilling orders (picking, packing and shipping);
- returns processing from customers;
- warehouse loan; and so on.
You can calculate your CPO by dividing the total costs for a year by the number of orders. While it is not an exact representation of your current costs, it is enough to be able to compare with 3PL costs.
In the case, you are interested to get a more detailed number, you will need to get several sets of data in order to calculate. This will depend on how detailed you want to be.
Here is a brief list for you to start on a little more detailed calculation:
- Annual net sales ($) – the gross sale net of product returns and exchanges.
- Annual orders shipped – the number of orders that were fulfilled.
- Total order lines – the total lines ordered on the marketing orders.
- Direct/indirect labour ($) – indirect referring to other labour such as maintenance.
- Total occupancy ($) – also known as ‘fixed CPO’, generally referring to the facility costs.
- Entire packaging supplies ($) – the cost of any boxes, envelopes and dunnage used for packing.
There are several other ways to calculate CPO, so it’s good to search for more examples.
Or, if you simply want to know an average of how cheap 3PL costs are compared to in-housing costs, check from this page.
How and when will costs change?
Your next question may be, “How and when will 3PL costs change?” There is one primary factor to keep in mind.
Parallels to your business situation
Businesses always have its ups and downs, and that is the same for ecommerce businesses.
For example, if your product is a seasonal item and it is currently off-season, it will sell less compared to when it is on-season. When that happens, it’s likely that you will lower your production rate in response.
Just like how you respond to your business’s situation, 3PLs can do that as well.
3PLs adjust their service level according to your order volume. Continuing from the previous example, fewer sales means you don’t need too much storage space for that season. 3PLs will scale down your allocated space so you won’t have to pay extra for what you’re not using.
This applies to the opposite situation as well. During on-season or the holiday shopping spree, 3PLs will automatically scale up their services in order to fulfil the increased order volumes. This will also happen if your ecommerce business is growing overall. In these cases, the cost will increase accordingly.
A similar process will occur even when you are doing in-house fulfilment. However, scaling your storage and labour is harder to accomplish on your own. You won’t be able to easily change your storage loan according to your sales, and it’s a hassle to get the extra labour during holiday shopping.
3PLs can handle this in a much flexible manner.
3PLs care about your business situation, so they will make sure that they provide the best solution for your case.
How much a 3PL cost varies from case to case. Therefore, it is recommended to directly call your interested 3PL service for detailed information.
Factors that influence the cost can include:
- Difference between 3PL companies;
- Pick and pack
- Your own business situation;
- Product metrics and requirements;
- Order volume;
- On/off-season; and more.
Now you have an idea of what is included in a 3PL cost.
So, what are you waiting for? Get that quote and start calculating to see if using a 3PL service is for you.