When Should You Outsource Fulfillment?
Growing an eCommerce business takes a ton of work. In order to get started, you need to conduct market research and find or create the right products for your audience. Then you have to figure out the best way to market them and the best way to take care of customer service issues on top of that.
Then, of course, there’s order fulfillment. That can become time-consuming very quickly, not to mention expensive.
There are few entrepreneurs who dream of spending their days putting their items into boxes, packing them with bubble wrap, sealing the boxes with tape, and affixing shipping labels. Yet for many who spent their quarantine days setting up a Shopify store, that’s exactly what they wound up doing.
Thankfully, this just isn’t necessary! Order fulfillment is one of the easiest parts of a business to outsource, which is why so many companies do it. In this article, I’ll talk about why outsourcing fulfillment is a good idea and when it’s appropriate to do so.
Why Outsource Fulfillment At All?
The main reason to outsource fulfillment is simple: leverage. By having another company do the grunt work, you not only save time, but you can also save money too. You can then spend your time doing something else that grows your business, instead of simply running it.
To be more specific, here is how outsourcing fulfillment gives you leverage. First, when orders come in, you can use software integrations to pass information right to your shipping company. From that, they can see what your customer ordered and the destination to which the package must be sent.
Basically, when orders come in, you don’t have to do anything.
It’s not just orders, though. Outsourcing fulfillment also means that someone else will be taking care of counting inventory, so you don’t have to track everything by hand when it goes out the door. Additionally, fulfillment companies will receive fresh inventory and most handle returns when customers aren’t happy as well.
In short, the fulfillment company will take care of day-to-day operations. This will free up your time to do market research, create new products, and generally grow your business.
Isn’t It Expensive?
Of course, the biggest reason why a business would not want to outsource fulfillment is money. To be sure, if you outsource fulfillment too early, it can be expensive. But don’t write it off entirely for this reason, because, as counterintuitive as it may sound, if you outsource at the right time, you can save money.
In this blog post, we talk more about how fulfillment pricing works. To save you a click, though, it usually makes sense to outsource fulfillment once you are shipping between 50-100 orders per month or more. That’s the point at which shipping your own orders becomes a real pain for more people and the cost savings isn’t worth it.
Fulfillment companies typically charge per order, and the more orders you ship, the less you are charged per order. This charge is usually around $2 per order. Most fulfillment companies will also charge you on a monthly basis for account maintenance fees and storage, but once you’re shipping 50 or more orders per month, these fees quickly fade into the background.
That $2 per order charge might sound like it would add up quickly. In reality, you end up saving money through a number of ways. First, fulfillment companies do a lot of shipping and are often able to negotiate much more favorable postage costs than are available to the typical consumer.
However, beyond that, you can save money on business expenses that are hard to track, but easy to feel. That includes:
- Labor costs. If you outsource fulfillment, you will likely also end up reducing overtime hours for your staff and training costs.
- Labor allocation. Even if your employees work the same amount of hours, you’re likely to be able to assign them to more value-adding activities.
- Supply costs. For basic supplies like boxes, mailers, and padding, fulfillment companies won’t charge you. If you need more specific supplies, your fulfillment company will be able to get them at a lower price than you otherwise could.
- Customer retention costs. If you let professionals ship your items and they show up faster, you are more likely to retain customers. Customer retention can end up saving you a lot of money on customer acquisition costs.
6 Signs It’s Time to Outsource Fulfillment
I’ve made a strong case for outsourcing fulfillment and we’ve talked about the different costs that you can reduce by doing so. I’ve even provided a range of orders per month – 50 to 100 – at which outsourcing fulfillment makes sense.
But let’s be honest. That 50 – 100 figure is a wide range, and on top of that, there’s no guarantee that your business will consistently ship that amount of orders per month in the future. It could go way up or way down.
So with that in mind, here are six general principles to consider when making the decision to outsource fulfillment or to continue to handle it in-house.
1. Your customer base is growing faster than you can keep up. This happens to small business owners sometimes, especially when they position themselves in growth markets. If you find that your customer base is growing so quickly that you can’t manage orders, fulfillment is one of the first things you should consider outsourcing to buy yourself some time. (Accounting is another idea, too!)
2. You can’t properly fulfill orders on-time or accurately. People expect fast, reliable shipping. If you are unable to ship orders on-time or to the right addresses the vast majority of the time, then it’s time to outsource. Slow or inaccurate shipping breaks customer retention, and that costs a lot of money in the long run in lost revenues.
3. Your employees are working too much. Running a small business is no joke! I’ve done it, and I can personally attest to how much you end up working, as do your employees. Burnout can set in very quickly if you’re not careful.
If your employees are working too much, and a considerable amount of that work is spent on shipping, then it’s time to outsource. Even if that means incurring an additional expense, it will likely wind up being worth it as your employees become more productive with newly freed up schedules.
4. Your business is too complex to understand. If you find that it’s hard to describe how your business works, then that’s a sign that something needs to be outsourced or eliminated. For eCommerce businesses, order fulfillment is one of the easiest things to outsource. It’s worth doing this if only for freed-up headspace and clearer decision-making.
5. Shipping is getting expensive. If you find that it’s really expensive to ship products, consider outsourcing fulfillment. In addition to being able to negotiate lower rates on postage and shipping supplies, fulfillment companies are very good at finding the cheapest possible way to get something from Point A to Point B.
6. You’re out of physical space. If you are storing your own inventory and it’s taking up a lot of space, don’t rent a storage unit. That’s really expensive and going back and forth between your office and the storage unit can become time-consuming. You’re better off outsourcing to a fulfillment center in this scenario.
Need Help with Fulfillment?
Think it’s time to outsource fulfillment? Request a quote from Fulfillrite here or call (855) 961-7766.