5 Ways to Calculate the True Cost of Order Fulfillment

Examining the actual cost of fulfillment can highlight areas for improvement or opportunities to partner with a third-party logistics (3PL) provider for third-party fulfillment services (3PF). Your business’s success often relies on meeting customers’ fast shipping demands, all while keeping costs down. However, there are often less visible or hidden costs that contribute to the total cost of order fulfillment. Suppose you’re struggling to meet buyer demand or bring your products to market faster. Taking a deep dive into your fulfillment operation can show how much your business expenses actually cost.

Evaluating the Actual Cost of Order Fulfillment

1. Cart Abandonment

When customers get to the checkout and abruptly leave, it isn’t fun, but it could be for many reasons. Your inventory may be inaccurate, causing it to appear unavailable at check out. Products could even go out of stock as customers are going through the checkout process. High shipping costs can also cause cart abandonment. Whatever the reason, immediate revenue is lost, and now you’ve eroded the customer relationship due to a poor experience. 

2. Bad Reviews

Your business is only as good as its online business reputation. Thanks to the internet, any bad review on your website or social media is posted, shared, and communicated with the reviewer’s friends and their friends. A single bad review can drive off one potential customer out of every 10. For example, if 300 people see the terrible review, multiply your average sale with the 30 potential new customers you just lost. Business owners can minimize this cost by accumulating as many positive reviews to outweigh your negative reviews and establish positive customer expectations.

3. Miscalculated the Cost of Shipping 

Shipping fees are often one of the most miscalculated costs. Errors are due to looking only at the “contracted rated chart,” which can be off by 3-7% depending on your shipping service. Also, if you use the average cost of your “zone chart” or only use one “zone,” you create an inaccurate view of your shipping costs. A third-party fulfillment company (3PL, 3PF) can often pass along discounted or bulk outbound shipping costs from the carrier to the client, reducing overall shipping costs.

4. Mis-Shipments

Ideally, fulfillment provider mis-shipments would never happen, but we don’t live in a mistake-free world. Sometimes an incorrect item gets shipped to a customer from the fulfillment company, or the product uses the wrong shipping service label. Now, you’re eating the costs for the original pick and pack, an additional picking cost for the replacement, packaging for the replacement, returning shipping costs, inspecting the returned item, customer service time, and possibly other incentives to please the customer. Outsourcing fulfillment to a 3PL can help solve mis-shipment errors as they often use integrated software to avoid such circumstances.

5. Human Error

Everybody makes mistakes. However, an abundance of errors in the fulfillment center of your business translates to your bottom line. Manual picking can lead to picking the wrong quantities or wrong items. It could be that your inventory is mislabeled or isn’t properly stored. Other issues include no warehouse map, inefficient picking routes, lack of storage space, or using worker experience to fulfill orders. You can reduce human error by automating the picking process, utilizing a warehouse management system, or even mobile apps to assist with picking and inventory management.

Fulfillment Cost Savings

Working with a third-party fulfillment provider can help you save money on additional costs and time, allowing you to focus on areas of your business like product development, marketing, or business growth. A trusted 3PL like BR Williams functions like a partner, taking on fulfillment tasks that have become too costly or are an ineffective use of your time. Contact BR Williams for a quote for all your e-commerce order fulfillment services and explore how to grow your business.