There’s a fiscal revolution brewing in ecommerce, as companies seek more variable cost options in fulfillment and other services to minimize their exposure and risk in the light of seismic market threats, from COVID-19 to the Ever Given clogging the Suez and beyond. It may have never been more important for growing companies to avoid high fixed costs.
Paying only for what they use in an operation or service, such as fulfillment, makes it easy to reallocate funds to new partners or efforts when one channel goes offline.
At the same time, today’s ecommerce businesses are living on tight margins. The ability to reduce capital expenditures (CapEx) or control costs can make it easier to invest in the people and products needed to increase those margins.
Fulfillment is one operation in which moving from fixed to variable costs with a reliable partner not only mitigates risks but helps companies pursue new opportunities by freeing up invested capital.
There is security in liquidity, and you ultimately might deliver a better service and experience for your customers.
TL;DR:
Key takeaways
Variable cost fulfillment allows ecommerce companies to pay only for the services they actually use.
This model reduces capital expenditure and frees up cash for reinvestment in growth areas.
Seven key benefits include easier budgeting, reduced CapEx, easier scaling, and lower management costs.
Partnering with a 3PL provider using this model helps businesses focus on their core competencies.
Your guide to understanding variable cost fulfillment
Red Stag Fulfillment has created a new guide to explain variable cost fulfillment and seven critical ways it supports your business growth.
Here, we’ll explain some of the ideas behind variable cost service models and get you ready to capitalize on its savings potential, from budgeting improvements and CapEx reductions to improving your ability to scale to meet demand while eliminating many smaller costs.
A quick definition of variable cost fulfillment
Variable cost models are when the customer pays for a service based on how much they use it. The more a service is used, the greater the overall cost. However, if you need to use less of it, your costs decline. It’s common for software and marketing services. It’s also something we grew up with when long-distance calls were still a thing.
Physical and more traditional business services can also use a variable cost model. You outsource a task or business aspect and pay as you use more of any service aspect. You may pay more for variable cost fulfillment models when you increase the amount of inventory you store with a 3PL, or total costs will increase as you receive more orders and require higher pick and pack labor.
Variable cost fulfillment and similar services tend to work well for small and mid-sized businesses because they can simplify your growth requirements. Instead of building out physical infrastructure or lease a new building, you can offload some requirements and scale your team or product offering instead.
7 savings you’ll discover in the RSF guide
Our look into the benefits of working with variable cost fulfillment companies and other variable cost providers highlighted seven clear benefits focused on freeing up revenue for reinvestment in your operations. The Red Stag Fulfillment guide dives deeper into:
How budgeting becomes easier – Track expenses more accurately as costs align directly with order volume.
Reducing investments in physical assets and space – Eliminate the need for warehouses, equipment, and related infrastructure.
Ways to reduce CapEx, especially during growth phases – Free up capital for product development, marketing, and expansion.
How scaling becomes easier and more affordable – Grow or contract operations smoothly without investment in fixed assets.
Reducing labor and management expenses – Eliminate hiring, training, benefits, and HR management costs.
Elimination of maintenance and related recurring costs – Avoid the burden of warehouse upkeep, equipment maintenance, and software updates.
Reinvestment in controlled operations – Focus resources on core competencies that directly impact customer experience.
PRO TIP: While our guide will help ecommerce companies of all sizes, it’s especially valuable for businesses ready to scale. If you’ve outgrown your current operations and need to free up revenue for growth, variable cost fulfillment can be the perfect solution.
