Fulfillment Cost

What Is Fulfillment Cost?

Fulfillment cost is what a brand spends to get products from inventory into customers' hands. When a brand outsources to a 3PL, fulfillment cost is made up of several separate fees plus shipping postage. When a brand fulfills in-house, it includes rent, labor, packaging, software and equipment. Either way, understanding fulfillment cost is essential to knowing how much profit each order really earns.

How It Works

For a 3PL, fulfillment cost usually breaks into a few categories:

• Receiving: checking in inbound inventory, often charged per pallet, carton or hour.
• Storage: holding inventory, often charged per bin, shelf, pallet or cubic foot.
• Pick and pack: picking items and packing each order, often a per-order fee plus a per-item fee.
• Packaging: boxes, mailers, inserts and fill, which may be supplied by the brand or the 3PL.
• Postage: the carrier's shipping charge, usually the largest single cost.
• Other services: returns, kitting, special projects and account fees, where they apply.

For example, a brand might add up one month's receiving, storage, pick and pack, packaging and postage invoices, then divide by orders shipped to find its average fulfillment cost per order.

Why It Matters for Ecommerce Brands

Fulfillment costs can quietly erode margins, especially on low-priced products. Comparing 3PLs on a single headline rate can be misleading if other fees add up, so brands should compare total cost using their own order profile, such as items per order, order volume and storage needs. Reviewing fulfillment cost regularly also helps brands set shipping thresholds, choose packaging and decide when to adjust prices.