3pl Costs: Fixed vs. Variable Pricing for Ecommerce Fulfillment - Selazar (2023)

At the height of the 2020 e-commerce boom, more e-commerce businesses quickly seek logistics solutions.Third Party LogisticsLogistics has suddenly become more prevalent as demand for storage, pick-and-pack services, and last-mile delivery has soared. The dramatic shift in buying behavior has also brought about a shift in delivery options. More and more companies are desperate to find the best solution to maintain customer expectations. With no stores open and fewer staff, despite these issues, a way was needed to get the job done. Tip 3pl's.

Thankfully, working with a 3pl is a common-sense approach for businesses looking to grow quickly and outsource operations. This is a logical step to relieve the common stress and hassle of in-house packaging and shipping operations. Outsourcing these services to another company can instantly fulfill your storage and delivery needs, saving your business valuable time, effort and money. Yes, please!

However, choosing to work with a 3pl means you give up a lot of responsibility, right? That may cause some hesitation for companies that have historically been content to control every aspect of their business. However, with the right partner, the capabilities of this new fulfillment frontier will not only augment your operations, but also improve the quality of your service. Hiring an expert in any industry, such as in fulfillment, can ensure that the job gets done smoothly. With these fulfillment advantages in place, you can focus on other aspects of your business while remaining fully operational without any loss in service or sales. When you finally decide to take the leap and outsource to an eCommerce warehouse, due diligence is a must.

It is crucial to ensure that you have a reliable partner with a proven track record and the right pricing options for your business. You must ensure you understand all aspects of your contract to fulfill your fiduciary responsibilities so your business can thrive in the new era of digital commerce. Price gouging and 3pl annual subscription models can quickly add to costs and reduce your bottom line if you don't fully understand what you're paying. 3pl costs vary widely between suppliers.

Third-party logistics services helped innovate business distribution and fulfillment channels in the late 20th century^Daycentury. With technological advancements over the past 30 years, we are now also able to offer more innovative enterprise pricing options. This is where variable versus fixed pricing comes into play, and that's what we're going to talk about today.

Today I'm going to break down fixed versus variable pricing for 3pl costs. Both structures are similar, but only oneCapable of saving you money. I will also discuss these 3pl pricing methods and how they compare so you can make the best choice for your thriving business.

Table of contents

2) Fixed pricing model

3) Variable pricing model

4) What 3pl costs are associated with eCommerce fulfillment?

5) Other non-related order fulfillment costs

6) Learn about custom models and flexible pricing

7) 3pl Pricing Example

8) Advantages of courier partners in order fulfillment

9) Fixed vs. Variable Pricing: The Big Difference

3pl Cost Ecommerce Fulfillment

When you are dealing with any 3pl provider, there are different pricing options. No one pricing structure fits all companies; sometimes, you need a custom solution. This may vary depending on company size, monthly order volume or product availability. It may also depend on services you specifically require, such as custom packaging. Knowing the pros and cons of each pricing structure will help you make the best decision.3pl pricing models include:

fixed pricing model

Most of the time you're dealing with fixed costs, a predictable and easier to understand pricing structure. you keep the same ratewarehouse storage,Pick and Pack Servicesetc, it won't change (£8, £9, etc). Shipping costs will still vary based on the courier method, size and weight of your parcel, but general 3pl warehouse charges will not change. What you quote is what you get.

Variable Pricing Model

Next up is the variable pricing structure, which cements your spending limit cap but allows you to earn lower fulfillment rates based on what you spend. So what you spendCapable of lowering. It is more closely tied to your performance, directly aligning costs with efficiency.

The 3pl fee includes:

1. Warehousing and inventory management costs
2. Pick and Pack Costs
3. transportation cost
4. Returns Processing Fee

* More details on various 3pl costs

3PL Fixed Pricing Model Example

The fixed pricing model is also known as a "flat rate" structure, which means that the business pays a flat rate for each order. You will pay fixed costs for storage, pick and pack, kitting, customer packaging (if you require it) and delivery. Fixed models are often preferred for companies that prefer easy predictability of costs. This is considered an advantage for sellers as they can easily manage sales forecasts, but they do run the risk of paying higher margins without being able to renegotiate their contractual pricing obligations with the 3pl.

Let's extrapolate this with the 3pl fixed pricing cost example: (fictional scene)

£1.50 per order (excluding shipping) for your fulfillment needs of 2,000 orders per month

= £3,000. Simple math.

The problem is this fixed cost -- let's say you negotiated on 2,000 orders per month, but surged in Q4 and ended up fulfilling 10,000 orders. In this fixed scenario, your costs stagnate at £1,500, even though processing large amounts of data at that rate brings economies of scale and some cost savings throughout the operation. None of this is passed on to the seller. Usually, it costs less to ship more goods per unit.

The certainty of a fixed price brings confidence to all members of the board when it comes time to plan. They look for internal optimization and efficiencies in other areas and accept the cost of the 3pl. If sales are low - that's a sales and marketing issue. If rates have been high, they can renegotiate rates to reflect the latest performance. It's all a bit slow and wasteful, but it gives the calculator a hard-to-count number.

3PL Variable Pricing Model Example

The 3pl variable pricing model is a "consumption based pricing model". This is a hybrid approach to 3pl pricing that offers businesses greater flexibility and scalability. You only pay for what you use, not for services you don't need.

So instead of paying a "flat rate" that never changes for each order, you pay a "variable rate" that can change for each order. Costs are reduced (based on warehouse efficiency) and capped to ensure inefficiencies do not result in incorrect charges. Look at it this way:

If you want certainty, base your cap price cost on it and be happy with the savings when typical 3pl costs are much lower. This can be an expensive option when taken at face value from a certainty standpoint. Remember, you can only be sure of so much when predicting the future of e-commerce—often based on early performance.

If you dig a little deeper, you'll find that the average price is well below the cap, and the difference from the year-round average is close to 4%. This change is a direct reflection of changing seasons and the volume of orders being processed. At Selazar we currently have a pick and pack fee capped at £1.20 for a standard single order, but the average cost is a staggering 67p. If we add 4% to 67p we get 70p. So, trusting the past performance of variable pricing structures, we can do some simple math:

Deterministic point of view:(fixed price perspective)

£1.20 per order (excluding shipping) for your fulfillment needs of 2,000 orders per month

= £2,400.

(Video) Understanding your fulfillment costs for FBA, a 3PL, and Deliverr

Believe in mutable structures:( my 3pl partner is trying to be efficient)

£0.70 per order (excluding shipping) for your fulfillment needs of 2,000 orders per month

= £1,400.

The big difference is the price you pay when your order volume inevitably increases. If you're processing 2,000 or 20,000 orders a month, your cost-to-profit ratio won't change much.

Using this model, it can be more challenging to know your exact costs at first or track them because they vary, but over time the savings will work in your favor. Balancing cost and service that meets your brand standards is challenging, but embracing the future of fulfillment will help you stay ahead.

*NOTE - Fixed and variable pricing structures are not just completely separate single entities. They can be mixed and matched based on different service charges. A 3pl can take either fixed or variable structures, but they can also use both (fixed variables) like we do.More on this as we progress.

See Also

Service Fusion and Amazon SES Integration: How to Connect Service Fusion to Amazon SESAmazon SES and EBid Integration: How to Connect Amazon SES to EBidThe Beginner's Guide to Selling on AmazonAs 9 principais alternativas do Amazon SES para 2023

Amazon FBA "fixed pricing - profit sharing" pricing model

Another 3pl pricing model worth mentioning is Fulfillment by Amazon (FBA). If you have used FBA or are considering their services, there are more costs associated with working with them due to their eCommerce platform. You will be charged Amazon Fulfillment Fees (Fulfillment + Storage + Optional Services) as well as the "Selling on Amazon Fee", which is 15% of your product profit margin.

This profit-sharing pricing model is not recommended for businesses looking for easy scalability, as increased costs will hinder your growth. You also lose your brand identity when selling through Amazon, but the volume of sales can be large enough to not be casually ignored.

What 3pl costs are associated with eCommerce fulfillment?

Depending on which 3pl you decide to work with will depend on what you will pay. Prices will vary from storage to delivery, custom packaging and return costs. Also, in our structure, you only pay for what you actually use. There are no additional fees such as profit sharing or annual fees.

Below are common 3pl costs associated with order fulfillment.

Storage cost

This is the cost associated with workers receiving the inventory you send and sorting them into the warehouse. This is usually a flat rate fee.

*Selazar is currently at40 penceevery minute.

Warehousing Inventory Storage

After you send your inventory to the warehouse, you will be charged a monthly storage fee. It depends on which 3pl you use.

*Selazar Inventory Storage Costs:

35 penceWeekly/fixed per standard size box

£2.50per pallet weekly/fixed

Pick and Pack

Pick and pack costs are related to warehouse workers actually walking around the warehousePick your product from the shelf and pack itPut in a box for delivery.

This is a critical part of the process, and the details make or break the difference. Common 3PL mistakes can lead to headaches, and this is what some 3PLs do better than others. Technology-first approaches are preferable today because they tend to bypass common human errors. Special scanners that can be updated in the cloud should be used, so details such as SKU numbers can be used throughout the day to confirm transactions with order numbers. This way, the right product arrives at the right station, in the right packaging, to the right customer. You need to make sure that the items in your order are correct.

Selazar smart technology optimizes routes for pickers, finding the best route to save money. We time operations down to the second, so there are no padding or hidden fees. Our current average picking time is24p, with an upper limit of40 pence per minute.We are also 99% pick and pack accurate thanks to our smart storage technology. It ensures smooth operations and seamless product delivery.

Selazar Pick and Pack Cost:

pick

capped at40 penceper piece – the current average is24p(variable pricing)

Package

capped at80pPer order - currently an average of 43p (variable pricing)

matching

Also known as pre-bundling,matchingis the cost of packaging items that arrive individually but need to be organized into a group. There's also Go Kits, which is the opposite of a kit -- packs and organizes them as a single item for resale.

In a common warehouse, this could be a double charge for unsuccessful experiments with bundled items. A big contrast is when using cloud-based technologies. Bundles are actually grouped together, allowing one SKU to have multiple items at once. Sellers can endlessly create new kits for free before purchases and order processing happen. Why guess what works best when you can try them all?

Selazar package cost based on fixed hourly time40 penceevery minute. (same as our pick fee)

custom packaging

custom packagingMeant to use your own custom boxes, inserts, paper and gifts. If you're a brand-focused seller, it's important that your packages arrive the way you want them to. If you have thank you cards, coupons or gifts in there, you can add them for an extra fee.

This fulfillment option is a service offered to customers who want to take their marketing efforts one step further and add a little "wow factor." Not every 3pl you work with will offer this service. However, if you don't want custom packaging as an option, then you don't have to use it or pay for it.

Custom pack charges vary per 3pl. For example, Selazars custom packaging is based on the flat rate time used to create a custom order at40 penceevery minute.

Amazon is an example of a 3pl serviceCustom packaging not available.All items arrive in an Amazon box, so sellers have no chance of being presented as a major brand ambassador upon delivery.

Parcel delivery 3pl fee

This is the cost of delivering the actual package to the customer. This is done by a courier network of suppliers including brands like Royal Mail, Hermes, DPD, Yodel and UPS.

3pl fee parcel delivery example

Some couriers deliver to different locations such as local, domestic and international.This is why most 3PLs work with multiple couriers. Express charges are passed on to you by the 3PL.

These are fixed costs. Variables include the size and weight of the package, its destination, and preferred arrival time.

See some examples of 3pl shipping rates below.

Returns (Reverse Logistics)

Package returns or reverse logistics are contrary to standard 3PL operations. Now, for whatever reason, the end user needs to return the package instead of the goods being delivered to the end user. This could be a product defect, wrong size, wrong color, etc.

When managing package returns, there are costs associated with the process. If the package is sent back to the 3PL instead of the manufacturer or supplier, someone needs to do a quality check on the item to see if it can be restocked for resale. This can be checked and processed within 2 minutes. This operation incurs a small fee of course.

Returns can be a major source of frustration for any online retailer. No returns for every 3 pl you use. Be sure to check this detail before signing any contract. A good returns process will help you maintain customer loyalty and retention, and you won't have to deal with these headaches!

92% of consumers would buy from a retailer again if the return process was easy.

*Selazar return cost based on hourly time cost/variable pricing or40 penceevery minute.

Order fulfillment process disrupted at Selazars

You've seen the fees, now here's a rundown of our order fulfillment process, a straightforward one. When an order is received on your website, our warehouse is immediately notified in real time (left image below) and begins the entire packing process and delivery (right image below).

From the moment a customer hits the buy button to the moment they receive their package, the system automates for you, customizing to your specific needs through intelligent AI. You will be charged for the time it takes to complete this process and any additional costs for packaging and delivery (courier fees). For easy understanding, the picture outlines the realization of the previously outlined costs.

Other non-related order fulfillment costs

Some 3PLs choose to add various other fees to their services. Much like banks or gyms charge extra for signing up, many times they are just the cost of doing business with them. Hmm, how is this calculated? Did you know that administrative fees are calculated? You should scrutinize these seemingly random fees. At the end of the day, various unexpected expenses can add up and affect your profit margins.

3pl registration and subscription fees

When choosing to use a 3pl, it is important to understand the overall cost-benefit ratio. Why are you being charged? Selazar as a partner wants to help eCommerce businesses grow faster and cheaper, that's why we don't add cost. This is just one of the reasons we don't offer registration and annual fees. You shouldn't be paying for it. If you see these in your 3pl, my advice is, ask what do you get out of this club membership?

Second is the hidden volatility cost.

seasonal adjustment

Not all services are created equal. Some are designed to benefit providers more than sellers. In the case of Amazon, operating expenses vary seasonally.look here.

This means you have to foot the bill during the busy peak season when business volumes increase. Obviously, this is to cover their operating costs. But why should you pay these extra fees?

This is a matter of fixed costs. Companies are free to increase costs as the seasons change. These rates are already "fixed" in your contract. Make sure to keep an eye out for irrelevant or hidden costs when entering into any contract.

3PL software

Every 3pl needs some kind of Warehouse Management System (WMS) for inventory storage and organization. Now, not all 3PLs are created equal in this regard.

For example, we are what we call "Software as a Service" (SWAS). We've worked with our in-house technology team to build the platform for you. From one online platform, you can control all storage and shipping operations. Every 3pl you use will not provide this service. It is also offered as a free bonus when signing up with Selazar. This is service!

When working with a 3PL, you need to understand what the software is offering you, and how good it is. This is because outdated operations can lead to warehouse inefficiencies that can reduce your bottom line.Survey of 250 supply chainsIt has been revealed that the average business loses over £280,000 a year due to warehouse inefficiency (if not properly done)Pick and Pack.

34% of businesses also delayed shipmentsBecause the products sold are not actually in stock. It comes down to software and responsibleinventory management.good technology andTwo-way inventory synchronizationsolved this problem.

Our proprietary API integrates with your Shopify or WooCommerce store for simple automation and fulfillment. This gives us flexibility in our operations. Make sure your 3pl provider can provide you with the right technology your business needs to thrive and compete in the digital marketplace.

Learn about custom pricing models

Custom pricing includes fixed pricing and variable pricing. We provide both. Selazar's custom pricing is "variable pricing" with fixed caps for some services and fixed pricing for others. Technically, you could call it fixed variable pricing. Sounds confusing, but it means designing a service with a flexible pricing structure that can save you a lot in processing warehouse orders. All this can be done by giving us atoll freeShould you want to know more now?

3PL Custom Pricing Examples Fixed and Variable:

Inventory Handling and Kitting - Fixed

storage - fixed

select - variable

package - variable

Packaging and Shipping - Secure*

*This price will vary based on custom packaging use and destination.

Built-in Cap and Efficiency

So, let's discuss the cap. AA pricing cap means that the price will never exceed this.So, you may ask, what is the difference between a capped price and a fixed price?there is nothing, at first glance. Pricing caps are fixed prices. The difference is that a variable pricing structure allows changes to drop and fluctuate below a ceiling agreed upon price (for some services) that you set. The difference is that the fixed price will always remain the same regardless of the service.

Variable pricing structures can go up and down, but itused torise forever.

Wait, why did the variable price structure change again?

We have a consumption based model. You pay for what you use. Let's be more specific:

Why would we charge you £3 if a single pick and pack time for an order cost our staff £2 to do the work for you?An extra £1 will add up in time. £1 x 50,000 orders per year = £50,000 extra!

These additional 3pl costs are built into outdated fixed pricing structures. This is where companies take advantage of your invoices. Their labor cost and some margin might only be £2 for a pick and pack, but you're paying £3. Why? Well, fixed pricing structure.

With Selazar, when we save, you save. It's that simple.

3PL Pricing Examples Fixed and Variable (Custom)

Therefore, Selazar custom pricing is "variable pricing" with a fixed ceiling and fixed costs. So, if your capped pricing is £5 per delivery, you know you'll never be more than £5. But will it fall below that threshold? can youlittle change? Well, it means more money in your account! Yes, please.

Let's extrapolate based on custom model pricing of 5,000 units per month and pick and pack costs (variable) and delivery costs (fixed).

Fixed picking and packing and parcel delivery

Assuming £1.20 for pick and pack (fixed or capped price) and £0.60 for packing material

5,000 units, pick, pack and pack £1.80 per order = £9,000

Shipping plus $3.30/5,000 pieces = £16,500

Total =£25,500

VARIABLE pick and pack and package delivery

Assuming a pick and pack charge of £0.70 (average cost + variance) and a packing material charge of £0.60

5,000 pieces at £1.30 per order, pick pack and pack per order = £6,500

Shipping plus $3.30/5,000 pieces = £16,500

Total =£23,000

That is, 5,000 units saved $2,500 in 30 days

That means 60,000 units saving £30,000 over a 1-year period

Here's a straightforward example that clearly demonstrates the savings that variable pricing can bring. In fact, the average cost of picking and packing varies more sporadically from day to day, throughout the day. In a single day, the variable pricing structure can go from £4.23 to £3.68 to £2.50 to £3.20 and so on. Might be more challenging to understand, but a cap is put in place so you know you won't be overcharged.

You can choose to save even more money here.

Advantages of Courier Partners in Order Fulfillment

Finally, it's important to remember that we're not a single operation. We are two operations, each with a separate cost. We provide an in-house service as well as a cooperative service with our courier companies. You don't need to do anything as we've already taken care of the supply chain for you.

It's a mutually beneficial relationship, which is another great advantage of working with a 3PL. We are connected to a vast network of national and international courier companies. no matter yourTargeted marketYes, we can make it happen, and we work with our partners to align your costs. You will be notified of any changes. You don't have to do any work.

Working closely with the courier network ensures we can give you the best possible service when sending, tracking and delivering your customers' packages to their front door. So are weDue to our working relationship and mutual business interests, we are able to negotiate prices for our clients. We manage service offerings and negotiate optimal costs for your convenience and savings.

Save 3pl costs with Selazar

The pay-as-you-go consumption model eliminates the need to tie up capital on warehouses, equipment, staff or software. No setup or monthly fees, combined with an easy-to-use customer portal, make our automated end-to-end fulfillment solution an excellent choice for anyone looking to maintain control of their brand as it grows.

For smaller businesses, this can mean savings of several hundred dollars per year. That could mean savings of tens of thousands of dollars, if not more, for other large companies.

3pl Cost Ecommerce Fulfillment

Fixed vs. Variable Pricing: The Biggest Differences

All in all, you need to think carefully about your pricing options when using a 3pl. Make sure you ask questions, and don't be afraid to embrace new variable options if it's a bit difficult to understand at first. It is important to your business and long-term relationship that you get the best return on investment. Some pure fixed pricing options that are traditional standards may be easier to understand, but variable fixed pricing structures will save you more money and help you grow your business. Simply chasing a flat price figure when deciding on your fulfillment provider may not be the best solution and could leave your business vulnerable.

As a partner in your business, essentially an extension of your brand, it is vital that your 3pl provide you with the ultimate benefit to automate and scale effectively. From them, you should have flexible pricing options, convenient solutions, superior technology to streamline the process, and a dedicated customer service team.

We can set up your order fulfillment automation in a matter of days.call usSo we can learn more about your business and streamline your operations.