3PL performance metrics: 16 critical KPIs for 3PLs

Working with a third-party logistics (3PL) provider is a great way to save time on operational logistics and improve customer satisfaction—assuming you find a reliable partner.

But once you’re set up, it can be difficult to know if your 3PL is doing a good job. Are they fulfilling their promises? Is your business really benefiting from the partnership?

To keep logistics providers accountable and improve visibility across their operations, you need to track the right 3PL performance metrics. Keep reading to learn which metrics will help you best monitor the performance of your 3PL and how to track them.

What you’ll learn

What are the most important performance metrics for 3PLs?

When working with a third-party logistics provider, the performance metrics you should focus on are the ones that most closely align with your business goals and what you aim to get out of the partnership.

These 3PL metrics help provide overall visibility into a company’s performance:

If there’s a specific goal you have in mind—for example, improving customer satisfaction—you can benefit from including multiple KPIs that relate to this goal.

However, it’s best not to focus too much on a single area. 

You can build a more holistic picture of your partner’s overall performance by selecting specific KPIs for inventory management, order fulfillment, operational efficiency, and cost-effectiveness.

Inventory management performance metrics

Inventory management performance metrics reflect how efficiently your logistics partner manages your inventory while it’s in storage. Reliable inventory management means fewer stockouts, faster order fulfillment, and reduced inventory costs.

Inventory accuracy measures how well your recorded inventory levels match your actual physical counts. When the inventory levels on record are wrong, you risk unexpectedly running out of stock or ordering more inventory than is necessary to meet demand.

Poor inventory accuracy leads to inflated storage costs, lost sales, and dissatisfied customers. It also hints at ineffective inventory management processes, making it a red flag when assessing 3PL performance.

Use the following formula to measure inventory accuracy as a percentage:

(Actual Inventory / Recorded Inventory) × 100 = Inventory Accuracy

Inventory turnover measures the frequency at which inventory is sold and replenished.

A high inventory turnover typically indicates strong sales performance and efficient inventory management; whereas, low turnover suggests overstocking, obsolescence, or poor sales performance.

Inventory turnover is measured using the inventory turnover ratio formula:

Cost of Goods Sold / Average Inventory = Inventory Turnover Ratio

This calculation tells you how many times your inventory was sold and replenished in the specified period. 

A “good” inventory turnover ratio varies greatly between different industries. 

The food and beverage sector, for example, typically has a higher turnover than the textile industry because perishable goods have a shorter shelf life and need to be sold faster.

Inventory turnover ratio benchmarks by industry in Q1 of 2025:

Carrying costs are the expenses associated with storing and managing your inventory. They represent the total sum of any fees, utilities, capital costs, financing costs, labor, depreciation, and insurance costs related to inventory storage.

Carrying costs do not include:

The lower your carrying costs, the more profitably your business is operating. Higher inventory carrying costs limit your financial flexibility and shrink your profit margins. 

When inventory is managed efficiently, your carrying costs will be lower.

Use the following formula to measure inventory carrying cost as a percentage:

(Total Inventory Carrying Costs / Total Inventory Value) × 100 = Inventory Carrying Cost

This formula helps you understand how your carrying costs affect profitability and contribute to your total cost of goods sold.

Inventory shrinkage refers to the loss of inventory caused by damage, theft, poor inventory management, or supplier fraud.

When shrinkage occurs, it can go undetected for a long time unless you perform regular physical stock counts. Shrinkage can lead to stockouts and customer dissatisfaction in addition to any financial loss incurred by the loss of inventory.

Use this formula to calculate inventory shrinkage as a percentage of inventory:

(Recorded Inventory – Actual Inventory) / Recorded Inventory = Shrinkage

A reliable 3PL will have processes and systems in place to prevent shrinkage. At Red Stag Fulfillment, for example, we have a strict zero-shrinkage policy. That means we reimburse you for your cost if any item is ever lost or damaged.

In 2024, Red Stag Fulfillment reported 99.993% accuracy across inbound, inventory, order accuracy, and on-time shipping. That equates to a less than 0.01% inventory shrinkage rate, which is what you should expect from a logistics partner that cares about your business.

Customer satisfaction performance metrics

A good 3PL partner shouldn’t just make your business more efficient; it should ensure your customers have an excellent experience with your brand. Customer satisfaction performance metrics track how much positive or negative impact your 3PL has on the customer experience.

On-time delivery (OTD) measures the percentage of customer orders delivered within the promised delivery window. It’s a 3PL fulfillment metric that dramatically influences customer satisfaction because late deliveries mean unhappy customers and a reduced likelihood of future sales.

A high OTD rate helps to strengthen your brand reputation and build trust with your customers, resulting in more repeat sales and word-of-mouth referrals.

Use this formula to calculate on-time delivery rate as a percentage:

(On-Time Deliveries / Total Deliveries) × 100 = On-Time Delivery Rate

OTD can usually be tracked using real-time logistics systems, such as inventory management software, warehouse management software, and transport management systems.

Average lead time is the average amount of time it takes for an order to reach a customer after it has been placed. In other words, it measures the average speed of your entire fulfillment process—from order processing through picking, packing, and delivery.

This performance metric helps you understand how long customers spend waiting for orders to arrive and to identify any issues in the fulfillment process. Longer lead times frustrate customers, while short lead times reflect efficient supply chain management and can lead to more sales.

Use the following formula to calculate average lead time:

Total Order Fulfillment Time / Total Number of Orders = Average Lead Time

Average lead times vary depending on factors like shipping method, location, and product customization. To set a benchmark for holding your 3PL accountable, work out your average shipping time and add the number of days you expect it to take for orders to be processed and fulfilled.

Example: If your 3PL uses a carrier that takes 2–3 days on average to transport an order from the warehouse to your customer and one day to process the order, pick and pack the necessary items, and prepare it for shipping, an appropriate benchmark for average lead time is 3.5 days.

Return rate is the percentage of products sold that are returned by customers. 

A low 3PL return rate typically indicates good product quality, accurate product descriptions and delivery promises, and efficient order fulfillment. High return rates increase your reverse logistics costs and reflect poor customer satisfaction.

Monitoring return rate helps you identify trends or areas of improvement with your products and your fulfillment process.

You can measure return rate as a percentage using the following formula:

(Total Returns / Total Units Sold) × 100 = Return Rate

An appropriate return rate benchmark depends on the type of products you’re selling. 

According to a recent National Retail Federation (NRF) report, the average return rate for ecommerce businesses in 2024 was 16.9%. But that doesn’t tell the whole story. The same report found that when it came to apparel and footwear purchases, 51% of Gen Z consumers engaged in bracketing—the practice of purchasing multiple products with the intent of returning one or more items.

There can be many reasons for returns, and it’s not always a sign of poor 3PL performance. In addition to bracketing, improper advertising could be the culprit. For example, if a product is listed as navy blue on your ecommerce website, but it’s actually dark green, then the main cause of returns for this item is likely false advertising. 

This is why it’s important to conduct a root cause analysis for your returns. 

Order fulfillment performance metrics

Order fulfillment is a critical aspect of the customer experience, so your partner needs to be aligned with your standards. A reliable 3PL partner will fulfill customer orders quickly and accurately to ensure customers are satisfied with your service. 

The order fulfillment performance metrics below measure the efficiency, accuracy, and quality of a 3PL’s fulfillment process.

Shipping accuracy refers to the percentage of orders shipped without any errors in items, quantities, packaging, or delivery address. The higher your 3PL’s shipping accuracy, the fewer returns you’ll have to deal with and, theoretically, the greater your customer satisfaction rates will be.

The formula for measuring shipping accuracy as a percentage is:

(Accurate Shipments / Total Shipments) × 100 = Shipping Accuracy

A reliable 3PL should maintain a shipping accuracy of above 99%. This shows that they’re meticulous when it comes to order fulfillment and have implemented the necessary systems—such as warehouse robotics or inventory management software—to prevent shipping errors.

Order accuracy measures the percentage of orders delivered without errors. It differs from shipping accuracy in that it doesn’t account for issues that occur during transit, such as lost items or carrier delays.

A high order accuracy means fewer returns and customer complaints. A low order accuracy increases your operational costs and damages your brand’s reputation.

You can calculate order accuracy using the following formula:

(Accurate Orders / Total Orders) × 100 = Order Accuracy

Order fulfillment cycle time, or order cycle time, is the total time spent on fulfillment from the moment a customer places an order to when that order is delivered to them.

Order cycle time encompasses tasks such as:

Efficient 3PLs have short cycle times. This helps reduce your fulfillment costs and improve lead times, resulting in wider profit margins and happy customers. It also means the 3PL can limit its costs per order and charge a competitive rate.

Use this formula to calculate order fulfillment cycle time:

You can also break down cycle time into different stages for a more granular analysis. For example, if you’re concerned with order picking inefficiencies, you could establish a benchmark for order picking cycle time and measure performance against that.

There’s no universal benchmark for order cycle time. Top retailers fulfill orders in an average of 1.8 days, while 64% deliver an entire order within one week. From the consumer side, online shoppers are willing to wait an average of 3.1 days for an online order to arrive.

Operational efficiency performance metrics

Operational efficiency performance metrics help you understand how effectively your 3PL provider manages and executes its operations. They measure productivity and timeliness, helping you identify areas of strength and opportunities for improvement.

Fill rate measures the percentage of customer orders fulfilled from available stock without delays, lost items, or backorders.

A high fill rate suggests efficient inventory management and order fulfillment capabilities. A low fill rate indicates bottlenecks in the supply chain or inaccurate demand forecasting, and it increases the risk of stockouts.

The formula for measuring fill rate as a percentage is:

(Total Orders Shipped on First Attempt / Total Orders) × 100 = Fill Rate

If your fill rate is low, you may be able to improve it by strengthening collaboration with your 3PL and your suppliers. More accurate demand forecasting helps ensure stock is always available to meet customer demand without overstocking.

Appropriate benchmarks for fill rate depend on the type of products you’re selling. 

Ecommerce customers typically expect fast deliveries, so a fill rate of 95% or above helps ensure customer satisfaction. But for sectors with complex supply chains and specialized parts—like the automotive industry—85% or above is an acceptable fill rate, as customers typically understand it takes longer to procure exactly what they need.

Dock-to-stock time, also known as inbound receiving time, measures how long it takes for inventory to be received and put away after it arrives at your 3PL’s warehouse. It helps you understand the efficiency of your logistics partner’s receiving process.

A lengthy dock-to-stock time indicates slow receiving times and potential labor or operational inefficiencies, while a short dock-to-stock time suggests a streamlined receiving process.

Dock-to-stock time can be calculated using this formula:

In this formula, “Time Inventory is Put Away” refers to the time (for example, 6 p.m. Tuesday) that inventory is added to storage. “Time Inventory is Delivered” refers to the time that the inventory arrives at the warehouse.

Depending on the scale of your operations, you can measure this in days, minutes, or hours.

So if inventory is delivered to the warehouse at 8 a.m. Monday and put away in storage at 9 a.m. Tuesday, the dock-to-stock time is 13 hours (9 a.m. Tuesday – 13 hours = 8 a.m. Monday).

Delays in the receiving process can have a compounding effect on your operational efficiency. If the received goods are required for backorder fulfillment, already-frustrated customers may have to wait even longer to receive their orders. This can also tie up your cash flow, as it means more capital is locked up in unsold inventory.

Return processing time refers to the total time it takes for an item returned by a customer to be processed and inspected and the appropriate action taken—either restocked, replaced, repaired, or disposed of.

This is an important metric for 3PLs because it not only demonstrates operational efficiency but also affects customer satisfaction. The returns process is a critical touchpoint in the customer experience that has a major impact on how satisfied customers feel with your service.

You can measure return processing time using the following formula:

Time Return is Processed – Time Return is Received = Return Processing Time

To measure overall return efficiency, track the average return processing time by noting the times of every return for a given period.

Financial performance metrics

Financial performance metrics are financial KPIs that measure the actual costs of working with a 3PL partner. These are essential for understanding the percentage of financial loss attributable to 3PL costs.

Cost per unit shipped is the average total expense incurred to ship a single product. This includes your direct shipping costs, along with any labor and packaging fees. Cost per unit shipped tells you the cost-effectiveness of your logistics operations.

The higher your cost per unit shipped gets, the less profitable your products become. While external factors such as carrier price hikes can inflate this metric, internal factors are often in the hands of your 3PL provider.

The formula for calculating cost per unit shipped is:

Total Shipping Costs / Total Units Shipped = Cost Per Unit

Here’s a detailed breakdown of what’s included in total shipping costs:

The optimal cost per unit shipped depends on the types of products you’re shipping, where your customers are located, and any special shipping requirements. Measure the cost per unit against historical performance to identify and address unexpected spikes.

Cost per order refers to the average total cost incurred to fulfill a single customer order. It provides insight into the efficiency and cost-effectiveness of your 3PL provider’s warehousing, order processing, and shipping processes.

This metric is useful for calculating total ordering costs and working out exactly how much you’re spending on 3PL fulfillment. It can help you predict profitability and plan your budget accordingly.

Use this formula to calculate your cost per order:

Total Fulfillment Costs / Total Orders Processed = Cost Per Order

Insights from the 2025 Warehousing and Fulfillment Costs & Pricing Survey show that the average pick-and-pack pricing for 3PLs is currently $3.25 for B2C and $4.85 for B2B. However, factors like order volume, product type, and shipping requirements can often affect how much you’re charged for fulfillment.

Storage costs are the fees you pay to store inventory in a logistics partner’s warehouse or distribution center. They’re typically charged as a single volume-based fee designed to cover any rent, utilities, insurance, equipment use, and labor associated with storing and managing your inventory.

3PL storage costs are often charged by pallet, bin, shelf, or cubic foot of storage.

To work out your average storage cost per unit, use this formula:

Along with your fulfillment costs and any additional administrative fees, storage costs contribute to the total cost of working with a 3PL. Understanding them helps you determine whether the partnership is profitable and how much they contribute to your total cost of goods sold.

Here’s what you can expect to pay for 3PL storage costs, based on the aforementioned 2025 survey:

How to incorporate 3PL metrics into service-level agreements

Service-level agreements (SLAs) help keep third-party logistics providers accountable for their performance and ensure consistency. By incorporating various KPIs into your agreements, you can better understand and monitor how effectively your 3PL partner is meeting your expectations.

Here’s a step-by-step method for implementing performance metrics into your SLAs:

1. Identify the KPIs aligned with your business goals.
   Select specific metrics directly related to the areas you want to focus on, such as supply chain efficiency or customer satisfaction.
2. Focus on measurable and objective metrics.
   Choose quantifiable KPIs that can ideally be measured using your logistics partner’s reporting systems to ensure transparency and avoid ambiguity.
3. Define clear performance targets.
   Set realistic and achievable benchmarks for good performance based on your operational and financial needs.
4. Establish effective reporting and monitoring processes.
   Collaborate with your 3PL provider to determine the frequency of reporting and how data will be shared. If necessary, implement systems to ensure real-time performance tracking.
5. Include a root cause analysis clause.
   To ensure fast resolution should problems arise, require your 3PL to investigate the cause of any issues to identify the best corrective actions.
6. Define penalties and incentives.
   Introduce performance-based incentives for exceeding targets and establish financial penalties for underperformance.
7. Specify performance review timelines.
   Schedule regular reviews for assessing performance, addressing issues, and adjusting targets when necessary.

Looking for a more reliable logistics partner? Choose Red Stag Fulfillment

At Red Stag Fulfillment, we go above and beyond to ensure businesses and their customers are happy with our service. We prioritize accountability and trust, which is why we provide guarantees like always-accurate orders and two-day receiving.

To learn more about how Red Stag Fulfillment can help your business, speak to one of our friendly team members today.