Running your own operation can be a challenge. We get it, many business owners have trouble handing the keys over. Some of the clients we help were doing self-fulfillment for several years because they thought this saved the company money. However, when you dive deep into self-fulfillment costs, most of them never realized just how expensive self-fulfillment can be.
If you’re doing your own fulfillment, you have costs all around you. This is especially true when it comes to order fulfillment – that involves inventory storage, retrieving products, packing items, and shipping orders to customers. When you do this in-house, besides paying for shipping, self-fulfillment is free, right? Well, not exactly.
What Are The Hidden Costs Of Shipping Orders?
While you may feel you’re only paying a flat rate fee to ship each package out, you do have both direct and indirect expenses you have to account for. For example, if you’re renting warehouse space, you may be hit with a rate increase soon. Even if it’s a year or two down the road, that rate increase can definitely cut into your profit margins.
What about all the other hidden costs and expenses?
(1) The Cost Of Packing Materials And Supplies
One of the biggest costs we’re sure every business owner is aware of – packing supplies and materials. These expenses can add up fast, especially if you’re shipping out hundreds of products a month or more. If you oversee your own ecommerce fulfillment in-house, you likely have a wide variety of different supplies and materials you need for packing orders.
Now, some carriers and services do provide some packing supply options, others do not. Due to that, there could be a wide array of items you’re going to be responsible paying for.
This includes but is not limited to:
- Boxes, poly mailers, and envelopes
- Labels and paper
- Printer and inks
- Packing tape
- Bubble wrap, dunnage, air pillows, other products that offer protection
(2) The Costs Of Driving
Another costs you have to plan for is transportation costs. If you’re using major carriers, that expense is built in to your carrier pricing. If you’re doing your own order fulfillment, shipments have to go out to your customers, so you’re going to be responsible for sending that order out. For most of you, that means you need to take a trip to your local post office, a carrier facility, or a UPS Store.
While you will have to pay shipping costs, there’s other expenses you have to be aware of:
- Wear and tear on a vehicle
- Gas or electric for vehicle
- Time involved in the trip
If you’re the business owner, that time can add up over a month, few months, a year. You have to ask yourself, “is this worth my time?” More than likely, it’s not, you could take that time to focus on the growth of your company.
While the costs for one trip may is nothing to worry about, these expenses can add up to a lot of money in over time.
(3) The Costs Of Infrastructure
For bigger self-fulfillment operations, you’re likely aware of building costs, its very expensive. an infrastructure for self-fulfilment but have you considered the cost that you will incur in its constant maintenance and upgrades? Buying or renting a storage facility, equipment, and more for storing your inventory and fulfilling your orders, isn’t a one-time investment; you have to incur the following costs periodically:
- Fixed cost of storage rental
- Maintenance cost of the facility
- Maintenance cost of the assets that you are using, such as computers, printers, handheld devices, storage racks, and more
(4) The Costs Of Equipment
When you’re running a warehouse, it takes a lot of money to get the proper equipment you need to operate at 100 percent. It’s one of the most costly self-fulfillment costs of all – specifically for the bigger operations.
Here at Thill Inc., we have several warehouses – the equipment it takes to operate all of them are valued in the multi-millions of dollars. While you likely don’t need as much equipment as we have, there’s going to be equipment you’ll need to operate.
(5) The Costs Of Employees
While equipment can do a lot, you still need employees to operate that equipment. You’re also going to need employees for picking, packing, and shipping.
This may not be such a hidden self-fulfillment costs as others, but having employees is just the 1st step of a few you’re going to have to take.
For example, these employees are going to need workers compensation protection just in case someone gets hurt. If your company has employees, you understand how expensive it can be to operate a business.
(6) The Cost Of Being Inefficient
If retail fulfillment is not your core business, you don’t always know the best practices. When your processes consist of manual, redundant steps, you can make common but costly shipping mistakes. As more orders roll in, you duplicate these inefficiencies.
You also lose additional efficiencies without:
- Bulk Discounts: If you’re not shipping tens of thousands of packages annually, you’re likely not getting the best shipping rates. If your shipping a lot of products out each month, shipping discounts may be available for you. Our clients save a lot on shipping when they ship by bulk.
- Technology Integrations: If you’re not leveraging technology, you’re going to lack efficiency, speed and automation. Sure, you want to make sure your ecommerce integrations are available, which is something Thill Inc. offers. We can connect with Shopify, Ebay, Amazon, Walmart, and dozens of other ecommerce platforms. More so, we’re talking about making crucial business decisions based on data – this is why having data analytics is so invaluable.
- Multiple Locations: Another big handicap you may have is shipping out your orders from a single location. If you ship orders from a single location, you’re operating at a big disadvantage. More than likely, you’re paying more to ship orders across multiple shipping zones. For this reason and others, Thill Inc. has strategically placed fulfillment centers and warehouses throughout the United States, this helps us our clients save money.
- Accuracy Matters: Another big advantage 3PLs like Thill Inc. provide is “accuracy” through the whole shipping process. Think about this example – you have a customer that orders $100 in product every month. If that customer receives the wrong order or their product is shipped elsewhere, you can lose that customer. While $100 this month may not seem like much, over the course of 12 months, that turns into $1,200. Now, what if that customer was going to start buying $500 a month in product, that’s $6,000 a year. Accuracy is vital and as you ship more and more orders, it gets harder and harder to be 100 percent accurate with your shipping.
(7) The Cost Of Slow Shipping
Your customers should always be a priority – you want to keep them happy and coming back. A lot of merchants that are fulfilling orders in-house usually try to get the cheapest shipping options available. While that may be fine when you only have a handful of customers, you can hurt your business, brand, and name if you’re starting to grow and scale. While “cheaper” is a good option for you, it’s likely not a good option for your customers.
Think about this example. If you’re housed in Seattle and you need to ship out an order to Miami, it can take a fair amount of time to reach your customer. While expedited shipping is an option, it’s going to take some time to travel that far.
If your shipments are taking a long time to reach your customers, you could be hurting your brand. Your customers want their order as fast as they can get it. Unless you have a unique product that no one else is selling, your customers can abandoned you for a quicker shipping option. In fact, you could be losing sales due to the amount of time it takes customers to receive an order.
Nobody likes to wait. Slow delivery times can fail to meet expectations in your customers’ eyes. When this happens, they are less likely to become repeat customers.
(8) The Costs Of Your Time
Opportunity cost refers to the loss of potential gains from other alternatives when one option is picked versus another option.
While we touched on this above to an extent, this is very important. Time is an asset you never get back, your time is precious and you want to make sure you’re using your time to best of your ability. The big question – are you?
If you’re the one that is picking, packing, shipping, and driving to the post office or carrier, it’s likely that you’re not using your time wisely.
We’re not here to drag you down, of course, you can do what ever you want with your time – but think about it.
If you spend your valuable time reviewing new sales, driving to the post office, waiting in line for shipping labels, and everything in between, you’re missing out on the opportunity to focus your attention where it should be – that is growing your business, that’s building new products, that is marketing your business, looking for talent, and everything else that is important to your success.
How do you get your time back? You outsource receptive tasks that anyone can do.
Every growing business needs a team, outsource the repetitive work that others can do so you can focus on fueling the growth of your company.
Now, some of you already do that, you have full teams in place, employees to manage, this is where you want to be efficient. If you can’t get to being fully efficient, it may be time to outsource the work to a team that specializes in warehousing, fulfillment, and shipping.
(9) The Cost Of Shipping Insurance
When it comes to shipping insurance, everyone customer isn’t going to take insurance for their order. While it varies from one carrier to the next, you could be covered against loss or shipping damage if the contents of your package are worth $100 or less.
That’s fine – if you’re shipping orders that are worth $100 or less. What is your order is worth $500? $1,000?
If you’re not covered, guess what? Shipping insurance is another cost you’ll be responsible for.
If your package is stolen, lost, or damaged, you still have to file a claim for it. If you do just that – that is more money, that is more of your time.
(10) The Costs Of Your Time
Opportunity cost refers to the loss of potential gains from other alternatives when one option is picked versus another option.
While we touched on this above to an extent, this is very important. Time is an asset you never get back, your time is precious and you want to make sure you’re using your time to best of your ability. The big question – are you?
If you’re the one that is picking, packing, shipping, and driving to the post office or carrier, it’s likely that you’re not using your time wisely.
We’re not here to drag you down, of course, you can do what ever you want with your time – but think about it.
If you spend your valuable time reviewing new sales, driving to the post office, waiting in line for shipping labels, and everything in between, you’re missing out on the opportunity to focus your attention where it should be – that is growing your business, that’s building new products, that is marketing your business, looking for talent, and everything else that is important to your success.
How do you get your time back? You outsource receptive tasks that anyone can do.
Every growing business needs a team, outsource the repetitive work that others can do so you can focus on fueling the growth of your company.
Now, some of you already do that, you have full teams in place, employees to manage, this is where you want to be efficient. If you can’t get to being fully efficient, it may be time to outsource the work to a team that specializes in warehousing, fulfillment, and shipping.
Self-Fulfillment Costs Can Add Up
We just discussed (10) hidden self-fulfillment costs, that doesn’t cover everything!
Look, when money is tight, doing as much as you can by yourself may feel like the best option to take. While self-fulfillment may seem mostly free, there’s a ton of hidden costs and a lot of costs you already know about. For some, while it may not add up to a lot, all of them should still be calculated in your total costs of fulfillment.
In some cases, our clients have realized that these self-fulfillment costs are more than the cost of outsourced fulfillment.
Keeping fulfillment in-house is the right call for some of you. For others, you can save money, time, and all the major headaches by outsourcing your order fulfillment to a 3PL like Thill Inc.
If you want to learn more, be sure to reach out, we look forward to helping you.
