Outsourcing warehousing and fulfillment operations is becoming increasingly popular, especially as warehouse lease costs increase and available inventory of warehouse units decreases dramatically. Over the last decade, the perfect storm hit – a shift in consumer behavior towards e-commerce purchasing, a global pandemic, and now price inflation at a level unheard of for years. All these factors make in-house warehousing and fulfillment operations increasingly more challenging from a cost perspective.
Warehouse leases, one of the largest cost drivers of in-house fulfillment operations, are on the rise. Over the last 5 years, according to a recent poll by WarehousingAndFulfillment.com, the average price per square foot of a commercial warehouse lease increased over 20% from $6.53 to $7.96. Outsourcing, on the other hand, turns this fixed cost into a variable cost, where users pay for the space used each month – typically a per pallet fee. Furthermore, attracting and retaining warehouse staff has become extremely difficult, with average hourly rates increase over 30% the last five years to a whopping $14.97 per hour. Similarly, outsourced fulfillment services not only take away the headache of managing warehouse staff, and users only pay for the time it takes to prepare their orders, receive their products, and ship them out the door.
It’s no wonder that outsourced fulfillment warehouses have taken center stage. But deciphering the costs of using such a service can be challenging at times. After all, fulfillment centers have a complex cost structure, oftentimes charging a fee for every service they perform for merchants. While at first glance it may seem cumbersome, fulfillment fees can be easily understood with some in-depth explanations.
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Most Common Warehousing and Fulfillment Charges
A large percentage of a monthly bill from using an outsourced warehousing service will be comprised of the following four items:
-Pallet Storage Fees
Receiving fees are charges related to inspecting, counting, and receiving product into the fulfillment center. This fulfillment cost includes physically placing the product in their warehouse and entering the inventory units into their WMS (warehouse management system) for online viewing. Most frequently, outsourced warehouses charge a receiving fee per hour which runs from $35-$45 per hour.
Pallet storage fees encompass the cost of storing the product in the fulfillment center each month. While some companies will charge a bin fee or a cubic footage fee, by far the most popular way warehouses charge is per pallet. A typical pallet is 40 inches by 48 inches and about four to six feet tall. Warehousing companies charge anywhere from $8-$30 per pallet per month, depending upon a host of factors that can include location, volume, and special needs, such as climate conditions.
Fulfillment fees are charged by fulfillment centers for preparing orders for shipment and includes the time it takes to pick, pack, and ready the order in full. Orders are typically pulled by staff, quality checked for accuracy, and packaged in such a way to limit damage. While some warehouses charge a flat fee for fulfillment, most charge a combination order plus per item fee to charge for larger orders more fairly. A common fulfillment fee is around $2.50 per order plus $60 per item.
Less Common Fulfillment Charges
Outside of the four main fees, fulfillment companies oftentimes charge other fees to clients for various services provided. Some of the less common items include:
-Account Management Fees
Account management fees are charged to cover the costs of customer service of an account. Usually, a fulfillment center will provide a single point of contact for clients to email and call to answer all questions related to orders, inventory, and shipping. Account management fees vary greatly depending upon the specific needs of each client but range from $100-$5,000 per month.
Most fulfillment centers handle the returns processing of orders for their clients, which entails inspecting the product for damage and either disposing of it or returning it to inventory. While return fees are like fulfillment fees, they are generally a bit higher because the inspection process takes longer. A common or average return fee per order runs $4.00.
Another service that warehouses offer customers is kitting and assembly. Kitting is the process of combining multiple items together into a single unit for selling purposes. Like receiving, warehouses often charge $35-$45 per hour for kitting services.
Final Considerations – Monthly Minimums and Volume Discounts
Now that you have a good understanding of the common and not-so-common fees charged by fulfillment services, there are a few last points to consider making the best decisions. First, many fulfillment companies have monthly minimums in the form of an order volume per month or a dollar amount per month threshold. Second, some businesses can score discounts off listed pricing by bringing higher volumes to the table. In other words, the more orders you ship or the more pallets you store, the better pricing you can get from fulfillment centers.
All in all, fulfillment companies offer a viable alternative for online merchants, especially in challenging times. When space is difficult to obtain and employees difficult to retain, taking away the headache by outsourcing is becoming a popular alternative.