How Does Working With a 3PL Save Money Long-Term?

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Shipping and eCommerce fulfillment services are two significant costs for eCommerce brands. Keeping fulfillment costs low is essential to maintaining profitability and keeping your retail prices competitive. But going cheap with your fulfillment by shipping your orders in-house or outsourcing to the 3PL with the lowest rates can cost your business in the long term. Working with a 3PL that delivers exemplary quality services and is a good fit for your products may cost a bit more on paper, but it will save you money in the long term while helping you grow your business.

Does that sound counterintuitive? Let’s break it down.

working with a 3PL

Breaking down fulfillment costs

When you handle your own fulfillment, you have a couple of fixed costs:

  • Warehousing. You’ll need to lease or buy warehouse space, and that is a fixed cost that doesn’t vary by season.
  • Staff. Your employees provide your order handling services. Staff costs may fluctuate if you bring on temp workers or seasonal hires to help during your busy season. Still, the headache of finding employees falls entirely on you.

In addition, self-fulfillment has the same variable costs as outsourced fulfillment: 

  • Packaging
  • Infill
  • Shipping

When you work with a 3PL, you’ll have charges for packaging, infill, and shipping, plus these fees:

  • Receiving. Your 3PL will charge a fee for each pallet received and put away in the warehouse.
  • Storage. Instead of a fixed cost to lease a warehouse, your storage fees with a 3PL become variable. You only pay for the amount of space you need each month, and it’s easy to flex your storage space up and down to match your sales volume.
  • Pick and pack fulfillment. A 3PL will charge a fee to pick and pack each order. This fee structure is generally higher for the first item in each order, with a smaller cost for each additional SKU in the box.
  • Returns. If you have returns sent back to your 3PL warehouse, you will pay a handling fee for each return.

Multiple factors influence what you actually pay for fulfillment beyond the quoted price. For example, you can reduce receiving costs by arranging for your products to be shipped for easy loading, such as palletized rather than floor-loaded. And excellent inventory forecasting can help you optimize your inventory and reduce storage costs

When you work with a 3PL, your partner’s performance can also affect your costs and profit in ways that can be subtle but impactful.

order fulfillment cost

The hidden costs of cheap fulfillment

As consumers, we are accustomed to shopping by price and looking for sales and discounts. So it’s understandable if, when you get ready to start working with a 3PL, fulfillment expense is at the top of your list of considerations. 

Fulfillment cost is an important factor in considering which fulfillment company to choose as a partner. But it shouldn’t be the only one, and it may not be the most critical.  

Here are seven ways that cheap fulfillment can end up costing your business.

Late shipments

A poorly run fulfillment center may fail to meet performance metrics, and you may not get the service you agreed to. That can commonly show up as orders going out late. When orders ship late, you’re not keeping your commitment to your customers. 

For example, suppose your website promises a customer 3- to 5-day standard shipping on an order that will take three days to deliver. If the 3PL you’re working with doesn’t pick and pack the order for three days, the order won’t be shipping in time to arrive within the delivery window. Communicating this delay adds to your customer service costs and can lead to unhappy customers.

Fulfillment errors

The most common fulfillment error is a mispick, where the picker pulls the wrong SKU, leaves an item out of the box, or pulls an incorrect quantity. Every mis-pick costs you money. You must pay to ship the correct item and cover the cost of return shipping on products the customer didn’t order. And fulfillment mistakes simply make your brand look bad.

e-commerce returns

More returns

Some returns are inevitable, but working with a 3PL that doesn’t provide excellent service can increase your return rate. In addition to fulfillment mistakes, incorrect packaging can lead to returns. If the warehouse uses a box that isn’t heavy enough or is improperly packed, items can arrive damaged. In this case, you must pay for return shipping and re-shipping, and you’ve lost the manufacturing cost for the damaged merchandise.

Lost inventory

Fulfillment warehouses are often large operations with tens of thousands of square feet of space and thousands of SKUs from different companies. If the warehouse isn’t well-run, whole pallets of products can get misplaced.

Inventory shrinkage can also occur because of theft or items being damaged in handling. In a warehouse that lacks adequate training and has low worker morale, theft and damage are both risks.

Most 3PL contracts include a shrinkage allowance. That’s a percentage of your inventory that the fulfillment center can lose or break before the company must pay you for the loss. And, even if you get reimbursed, shrinkage can throw off your inventory management, leading to backorders and out-of-stock SKUs.

Loss of repeat business

All the factors above have a direct economic cost to your business, and they also affect your customer’s experience of your brand. That’s critical in a competitive eCommerce environment where consumers have lots of choices, and even one bad experience can cause someone to take their business elsewhere. 

Repeat customers have more value, on average, than new customers. You don’t have to spend as much to convert them, and people familiar with your products are likely to make larger purchases. It’s not easy to quantify the exact cost of fulfillment that discourages customer loyalty, but it has a significant long-term negative impact on your brand.

Bad reviews

People who have a negative experience ordering from your company can also influence others not to buy through bad reviews or damaging social media posts. Keeping customers happy has never been more critical, and excellent fulfillment is the heart of customer happiness for eCommerce brands.

Missed growth opportunities

Red Stag Fulfillment’s founders learned these lessons the hard way. As eCommerce entrepreneurs with growing businesses, working with a 3PL was a natural move. But the 3PL they chose wasn’t well-run, and the fulfillment mistakes soon started to pile up. After a disastrous holiday season where many orders didn’t ship on time, they realized that their fulfillment company was a roadblock to their business expansion plans

So, they founded Red Stag Fulfillment to provide the type of fulfillment that online stores need to thrive.

working with a 3PL

How working with a 3PL can save you money

If you buy a cheap pair of shoes, you may find that they hurt your feet and fall apart after a few months of wear. Spending more to buy a well-made pair can be a better bargain in the long run because you get more years of wear and a comfortable walking experience. 

Similarly, when you work with a 3PL that provides a high level of service, you might pay a bit more up front, but you’ll start to reap the benefits of superior third-party logistics. You’ll find that better order fulfillment will help you run your business better, allow you to spend less time putting out fires, and provide the foundation for business growth.

Here are seven ways that working with a top 3PL can save you money.

No need to hire and manage warehouse staff

Online entrepreneurs wear a lot of hats. Handing fulfillment to the professionals by working with a 3PL frees up your time to focus on the million other things you need to do. And, when you choose an industry leader like Red Stag Fulfillment, you can set up your fulfillment and forget about it.

warehouse provider

Flexible storage space

If your business grows suddenly, you may need more warehouse space quickly. When you work with a 3PL, you can have flexible warehouse space to accommodate your business’s slow and busy periods, no lease required. And, with storage fees calculated using the cubic foot model, you pay only for exactly the space you use. 

Reduced shrinkage

A 3PL can reduce inventory shrinkage through security monitoring and professional procedures for moving your goods. For example, Red Stag Fulfillment had an inventory accuracy rate of 99.991% in 2021. And our zero shrinkage policy means that we reimburse you for any item that’s lost or damaged in one of our warehouses.

Inventory planning

Fewer returns

High-quality fulfillment can reduce your return rate due to fewer mispicks and damaged shipments.

Add-on services

When you work with a 3PL, you gain access to a large and experienced staff of warehouse associates. That gives you the power to supercharge your business with specialized services such as kitting, marketing fulfillment, and customization. Red Stag Fulfillment offers kitting services, and we work with our customers to find ways to fill special requests.

Fast fulfillment

Fast fulfillment equals shorter delivery times and happier customers. Red Stag Fulfillment offers same-day fulfillment services to get your orders to the customer quickly.

External knowledgebase

A well-managed supply chain is a continuous problem-solving process, and no two eCommerce companies are exactly alike. When you work with an industry-leading 3PL like Red Stag Fulfillment, you gain a partner to help you solve supply chain issues. Starting with the onboarding process, we work with our clients to ensure that their orders are packed and shipped according to their specifications.

warehouse staff

Working with a 3PL is an investment in your brand

At Red Stag Fulfillment, we have heard from our clients about the damage that lousy fulfillment did to their businesses. One client lost a considerable amount to shrinkage, and working with Red Stag boosted its profit margin. Another had shipments lost and products damaged in a warehouse that wasn’t well-equipped to process its products. 

When you calculate your fulfillment costs, the list price of each service isn’t the only cost. For example, you might weigh a 10% saving on pick and pack fees against the cost of a 5% increase in returns. Then multiply that by the long-term cost to your business of dissatisfied customers.

There are two critical steps you can take to help you choose a fulfillment partner that’s a good fit for your brand. First, use Red Stag’s fulfillment company questionnaire, so you know the right questions to ask before you start working with a 3PL. Then ask for references, talk to current customers of that 3PL, and read company reviews.

multi-channel fulfillment

How Red Stag Fulfillment helps eCommerce companies grow

We’ve witnessed it firsthand many times: A growing company switches to Red Stag Fulfillment, and their brand has explosive growth. Of course, we can’t take all the credit for these successes—our clients are very savvy business people—but we’ve seen how exceptional fulfillment can unleash an eCommerce company’s potential.

Red Stag Fulfillment provides fulfillment guarantees that ensure you will never have to pay for our error. And we match those guarantees with one of the lowest error rates in the industry. We provide expert fulfillment services for oversized and heavy products. If you’re ready to work with a 3PL that takes the time to understand and support your business, we’d love to talk.

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