If you’re growing an eCommerce brand, at some point you’ll be looking for efficient ways to store and ship your products. Outsourcing your inventory management and order fulfilment to a 3PL company is one way to do this. Not only is it a highly efficient solution if you partner with the right one but it’s also more affordable than you might think, there are even many startup brands who choose to work with a 3PL right from the beginning.
The Main 3PL Costs to Consider
Almost every 3PL will provide your business with 4 main services: Storage – Pick and Pack – Receivals – Shipping. These are the standard facilities that any third-party logistics company will have however, there are some 3PL’s who will offer much more than this, things like returns processing, bespoke packaging, kitting etc. are all additional services that the best 3PL’s will provide.
Next, we’ll break these services down into their main components so you can see what you’re actually paying for.
Storage – usually 3PL’s will provide multiple storage pricing options, the most common ways you’ll be charged for inventory storage are per bin, quantity of pallets, or for smaller amounts of goods just the front stock shelf space your products use. Malpa 3PL takes this one step further and offers a storage pricing option based on the physical space your products use, measured in cubic meters. This methodology is particularly beneficial to brands whose products are stored in single size cartons and take up significant pallet space.
Pick and Pack – this is the process of locating your products within the warehouse, picking them and then packing in the relevant packaging ready to be shipped.
Generally, when it comes to picking 3PL’s will charge per item picked or per a certain number of items picked e.g., $1 per item picked or $5 for every 7 items picked. Neither option is necessarily better than the other and is usually dependent on your brand and product type, product location and storage solution.
For packing, eCommerce brands are typically charged a standard fee per order packed with additional fees being added on if the product requires a more personalised packaging process.
Receivals – the term receivals or receiving in logistics refers to the process of accepting your stock into the warehouse, usually sent directly from your manufacturer.
This process has many ways of being priced as there are a lot of variations in product size, storage requirements, cartons they come in, manufacturer accuracy etc. For example, if your products only require front stock shelf space, the receivals process may look something like this:
pallet arrives at the warehouse -> products are identified and matched with relevant documentation -> if product quantity and type are correct, the products are placed into front stock storage cartons -> products are moved onto front stock shelving.
This may sound simple, and it is to an extent but there are many variations to this process, like what if the manufacturer gets the quantity wrong (this happens more than you would think), or if your products require barcoding, or backstock shelving, these are all things to consider when calculating receivals costs.
Shipping – shipping costs are where a 3PL can really save you money, because they ship products in large volumes, they have access to discounted shipping rates that they can then pass onto you. 3PL’s also have access to a range of courier services who specialise in different areas of order shipping e.g. international vs domestic or air freight vs road freight. Costs will also vary of course depending on the size and weight of your products, order volume, where your products are shipped to the most and which courier services are used.
If you’re considering a partnership with a 3PL, one of the most important things to pay attention to in the initial stages is how they outline their pricing structures. Some questions to keep in mind when negotiating pricing: Are they being transparent and honest about what you’re being charged for? Are there any hidden fees? Do they only offer standardised rates for their services or are there options for more personalised pricing solutions?
The best 3PL’s will typically offer a combination of standard rates and customised pricing depending on which services your brand requires the most.
In addition to the 4 main services that all third-party logistics companies charge for, there are a few other costs that can come into play. Not every 3PL will offer these services and some might be more common than others, nevertheless we have listed below some of the additional costs and services you might find with the best 3PL’s.
Onboarding Fee – this fee is charged when onboarding new clients to cover the various costs that come with integrating new clients into the warehouse ecosystem, things like integrating your API, connecting the relevant shopping site(s) to their warehouse management system (WMS) software, training clients on how to use the WMS software on their end and making sure that your shopping site is configured properly so that all your product SKUs are connected to their system properly.
Admin / Software Management Fee – most 3PL’s will charge you a weekly or monthly admin / software management fee, whether they outline it directly or it is built into other costings. This fee is to cover the ongoing management of your brand within their WMS software. Typically, this means fixing any problems that arise with integrations or products within the system, managing tasks for clients who aren’t familiar with the software etc.
Returns Processing Fee – this is also a service that most 3PL’s will provide but it falls just outside of the main 4 because some eCommerce brands will choose to manage returns themselves. This fee covers the full processing of customer returned products. Here’s what a standard returns process might look like:
receive product(s) from courier -> identify item(s) and assess -> if damaged, product(s) are quarantined and client notified whether it is due to a manufacturer error or customer misuse -> if product(s) are in good condition, client is notified, and product(s) are received back onto the shelves
Bespoke Packaging Fee – this service is not offered by all 3PL’s and is not necessary for all types of eCommerce brands but if you require highly specific packaging for your products to highlight your brand image you will have to pay for it. Usually, the bespoke packaging fee will be added onto your standard packing fee for each order for e.g. you’re paying $5 per order as a base rate and an extra $1.25 for any bespoke requirements.
Benefits of 3PL Pricing Structures
One of the main benefits of working with a 3PL is the flexibility of their pricing throughout the year as your business goes through up and down sales periods. This is particularly beneficial to seasonal apparel brands but is still relevant to other eCom brands as well.
For example, if your brand is winter apparel products, during summer your sales will likely dip. When this happens, you are able to reduce your storage costs simply by having less stock shipped to the 3PL warehouse. Your 3PL will continue to charge you based on how much space your products use up but they will use less space therefore will cost less.
The opposite is also true though, as your sales spike and you require more storage space, your storage costs will increase.
If you were leasing your own warehouse space, you would be charged the same rate throughout the year regardless of your level of sales. The ability to scale both up and down along with your brand is a big reason 3PL’s are becoming more and more popular in the eCommerce space.
As we just outlined above, the cost of a 3PL and their services can vary quite a lot depending on a whole range of factors. That’s why it is important to speak to and assess a few options before making your decision.
To learn about Malpa 3PL’s pricing structures check out our ‘Pricing Page’ or if you want some personalised pricing put together that is specific to your business needs, hit up the ‘contact us’ page and we will reach out within 24 hours to hear about your specific business needs.