Understanding your Fulfillment Costs: 3PLs vs. FBA
3PL or FBA — which is the best option for your fulfillment budget? We’ve put together a brief guide explaining fulfillment costs for FBA vs. 3PL.
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Choosing to outsource fulfillment is a big step for many D2C eCommerce companies, who may have no previous experience with fulfillment at all. Opting for a third party fulfillment provider brings many advantages to such enterprises: it provides cost-savings, ensures quick and efficient shipping and keeps customers happy.
Whether you decide to use 3PL or a solution like FBA, it’s essential that you understand fulfillment pricing for both options — and how to calculate your estimated fulfillment costs — in order to make sure you get the best deal for your business.
This is key knowledge that you need to have both prior to choosing your fulfillment provider and once you’ve started working with them. This way, you wil know how much of your budget you need to allocate to fulfillment. Plus, you won’t be shocked by any “hidden” costs that suddenly appear on your bill at the end of the first month.
So, we’ve put together a brief guide explaining fulfillment costs for FBA vs. 3PL. This way, you can do all your calculations in advance and easily decide the best provider for your budget!
3PL (Third-party Logistics) vs. FBA (Fulfillment by Amazon)
Outsourcing to a 3PL
Outsourcing to a 3PL provider means handing over the entirety of the fulfillment process to them. From receiving inventory, to packing and shipping, to restocking returned products, to quality control, to customer services, and more, 3PLs cover it all.
If you have very little knowledge of fulfillment, many 3PLs will take you through what you need to figure out in order to get a quote from them first. Once you have gathered the information, 3PLs will generally give you an overall quote based on your business’ individual needs for all aspects of fulfillment. They can also guide you towards the fulfillment services (that they provide) that are most appropriate for your organization.
In this way, 3PLs tend to offer a more complex but significantly more tailored pricing service than FBA.
Overview of Typical 3PL Fulfillment Fees
1. Administrative Costs
Set up Fees
Some 3PLs include setup fees — one-time charges that cover things like integrating software, creating infrastructure and offering training to your staff for their software — as part of the fulfillment package. Others can charge anywhere from €500 euros upwards for this service. If you use a service like Codept, these fees are typically waived.
Account Management Fees
Account management fees can be a high hidden cost and generally come in at around €30 — €500 euros per month, depending on the 3PL and your company’s fulfillment needs and scale.
3PLs generally have a highly collaborative approach, and offer frequent communication opportunities before and after you begin working with them. Importantly, 3PLs generally sort out fulfillment issues without you necessarily having to be involved, saving you time. While account management fees can seem expensive initially, they may save you money on internal staff hours in the long-run.
2. Inbound and Outbound Shipping Fees
Inbound Shipping and Receiving Fees
This fee covers the costs of the 3PL receiving shipments of your inventory from your warehouse or manufacturer. Rates and services can vary greatly per 3PL and also per country.
Most of the fee covers the hourly rate of the employees who unload and store your products. The weight, size and amount of products you ship and the average wage in the country in which you operate can, therefore, influence this fee. However, some 3PLs simply charge a flat rate, which may vary per order, pallet or item.
This is the cost of shipping your product(s) through different carriers. The main cost variables are how quickly you want to fulfill your item and whether your items will be shipped by air, sea, or land, or a combination of.
3. Storage and Warehousing Fees
As with FBA, most 3PLs charge storage fees based on the volume of space your pallet or product is taking up in their warehouse per month. You will be charged by the pallet, square foot, or square meter, depending on the 3PL and the country.
Some 3PLs may offer you a flat overall fee per month if you know the exact quantities/size of items that will be stored and for how long. Others may offer a variable approach, charging only per item per space per month, if your selling model is less predictable.
4. Returns Processing Fees (Reverse Logistics)
Some 3PLs may accept returns on your behalf, but — note — others will not. So, if you need returns processing, make sure to make this very clear when asking for a quote.
The returns processing fee typically includes return shipping and a processing fee of approximately €1 — €5 for restocking. Be aware that if you’re selling certain products — like shoes — that have very high return rates, you will need to incorporate the potential cost of reverse logistics into your fulfillment budget.
5. Picking, Packing, Boxing
Box and Packaging
The costs of packaging and boxes for shipping your items may be included in the overall fulfillment fee or be an extra. Packaging will generally cost €0.10 — €2 per package, depending on size and customization levels.
Pick and Pack
Again, this rate is often included in overall fulfillment or box/packaging fees. It is generally charged on an hourly or per-item basis if this is the case.
Label Printing and Order Inserts
Order inserts and label printing, now a pretty common part of online orders, generally cost from €0.10 or more each. If you need this service, you should include it in your quote request.
6. Additional Services
With 3PLs, every fulfillment service is intrinsically adapted to each customer’s operations and requirements; thus, 3PLs automatically offer some degree of customization to all customers as part of the deal. This stands in contrast to Amazon’s standardized and non-customized service. If you have extra needs, like specific storage or shipping conditions — e.g. refrigeration — you will need to pay an extra fee for this.
Most 3PLs offer specific customer branding for all packaging — box, bags, etc. — as part of their service. Some will offer this as a given part of the boxing and packaging or overall fulfillment fee; others will include a standard or customized branding fee, depending on your needs.
B2B and B2C
For businesses that need both B2B and B2C fulfillment, it is a good idea to opt for a 3PL that provides services for both and to ask for a quote that includes this.
How Do I Calculate My 3PL Fulfillment Fees?
As you may now have gathered, your 3PL costs will vary depending on the chosen service provider, the country they are operating in and their rates.
This means you will need to get in touch with a number of different 3PLs, on the phone or by email, to ask them for a quote before deciding the best price option. In order to ask for a quote from any 3PL, you will need to provide them with the following information:
- What is your current volume of monthly shipments?
- What are your future projections?
- How many unique products or SKUs (Stock Keeping Unit) do you have?
- How many units will you be sending to the 3PL to fulfill?
- Are you importing goods from overseas?
- How long do(es) the product(s) take to travel from your manufacturer to the site or country of fulfillment?
- What’s the overall timeline (including importation time, if necessary, and the time it might take to transport between D2C and fulfillment provider) for getting your inventory to a fulfillment partner’s warehouse?
- Are you shipping within your country of operation or beyond it? Will this be on an international scale or within Europe only? Which countries specifically will you ship to?
The 3PL should provide you with a quote for a total monthly fee, that will include:
- Total Administrative Costs Fee: all account management, problem-resolution, possible extra hour fees, etc.
- Total Receiving Fee: number of units received each month x receiving fee per unit
- Total Storage Fee: number of pallets x storage fee per pallet
- Total Pick/Pack Fee: (number of orders per month x pick/pack fee per order) + (number of units per month x pick/pack fee per unit)
- Total Monthly Fee: total administrative fee + storage fee + total pick/pack fee + total receiving fee
- Some 3PLs may also provide a total fee per order, or you can figure this out by dividing the total monthly fee by the total number of orders per month
Fulfillment by Amazon and Amazon Multi-Channel Fulfillment
Fulfillment by Amazon (FBA) is where you sell your items on Amazon’s marketplace and Amazon fulfills your items for you. Once a customer buys your item via Amazon’s marketplace, Amazon is in charge of picking, packing and shipping your item(s) to the customer. This involves sending your inventory to be stored in and shipped out of Amazon’s warehouses.
Amazon Multi-Channel Fulfillment (MCF) is FBA but without listing your products on the Amazon marketplace. With MCF, you still send your chosen inventory to an Amazon fulfillment center but you create your inventory listings on your own website or another marketplace(s). Once a customer buys the product from your selling channel, you tell FBA to send the shipment out. FBA then picks, packs and ships the order, and processes any returns made.
Fees on Amazon appear to be quite fixed, but often they vary more than you would think. FBA costs will depend on the size and weight of your products, where you’re shipping to and how long your products will be stored in the warehouse. Amazon provides online calculators and information to help you to calculate your fulfillment costs on your own.
Overview of Amazon’s Main Fulfillment Fees
The three primary FBA fees are:
- Fulfillment services fee: FBA includes all their fulfillment costs in one straightforward fee, which takes care of items from pick to shipment.
- Storage fee: per month, per cubic foot, depending on the time of the year; price also depends on the country.
- Optional Services fee: including packaging services, returns handling and remissions. These are all charged separately.
They can be broken down into:
How Do I Calculate My FBA Fulfillment Fees?
If you already have an Amazon Marketplace account, you can use Amazon’s Fulfillment by Amazon Revenue Calculator for individual items. You have to fill in the item’s Amazon Standard Identification Number (ASIN) and it will give you the exact cost and breakdown, including your net profit and net margin.
The FBA price is split into two parts:
- The Selling on Amazon fee, which is 15%. This is a commission that you only pay when your item sells.
- The Fulfillment by Amazon Fee = fulfillment + storage + optional services.
If you don’t have an Amazon Marketplace account and wish to use FBA (you want to go the MCF route), you can figure out the cost by using the Amazon fulfillment fee calculator found here and the country price lists on the same page. Beware — Amazon pricing is different for all European countries, so don’t make the mistake of using France’s fee page to check your FBA fees in Italy. In order to calculate the costs, you will need to know a number of details about the products you are shipping:
- Are your products “standard-size” or “oversize”? Amazon gives you examples on their page
- What dimensions and weight are your product(s)?
- (In some cases) how much does your product cost?
- Are you shipping within your country or to different European countries?
FBA vs. 3PL Pricing: Takeaway
It is very difficult to know how much the different fulfillment options (FBA vs. 3PL, or a combination of both) will cost until you have done exact calculations for the specific products that you ship. However, some overall conclusions can be drawn regarding value-for-money for both types of services.
FBA Offers a Great Standardised Service That’s Affordable for Small Starter Sellers
FBA is clearly a great option for very small or starter eCommerce businesses, especially those that are happy to use the Amazon marketplace as their main selling platform and are not bothered about fulfillment branding and customization. FBA undeniably gives sellers access to one of the best fulfillment systems in the world and can save you money if you ship beyond your borders — through the Pan European Program and the European Fulfillment Network.
Growing eCommerce Companies May Find 3PLs Can Offer Better Value For Money on Customized Services That Can Scale
If you are shipping large items, want more control over fulfillment or have specific fulfillment needs, then partnering with a 3PL is probably the best solution. FBA is not designed for larger and growing eCommerce companies. It simply cannot cover all their various needs, and this may mean extra service costs and provide barriers to scaling fulfillment in the long-run.
For instance, let’s say you are an organization that needs to store inventory for a longer time or in specific storage conditions: a fine arts company selling antique art and furniture. Here, a 3PL can offer you a package deal, including extra care and special storage conditions for your products, as well as exclusive delivery to clients. FBA can’t offer this because it uses one standardized fulfillment system.
Overall Conclusion: FBA Can be A Good Starter Solution but 3PL is Better for Growing Businesses in the Long-Term
Thus, if you are a small seller and you are happy to plug into Amazon’s existing system, FBA may be a perfect pricing fit for your starter company — at least, for the time being. But if you sell large products, are growing, and have specific fulfillment needs, going with a 3PL could be best for your budget, now and in time to come.
Overall, though, you must understand what kind of fees both types of fulfillment providers will charge before choosing the best one for you. This is where our guide comes in: refer back to it when you need to and make sure to get the best fulfillment deal for your budget!
To learn more about us and the product we are building in the e-commerce fulfillment space, make sure to visit our homepage!