What Are The Costs of Ecommerce Order Fulfilment?

For startups in the eCommerce space, understanding fulfilment costs is essential for managing expenses and creating a sustainable growth model.

As orders increase, so do the complexities and expenses associated with processing, packing, and shipping them.

Fulfilment costs go beyond simple shipping fees, encompassing a variety of factors that collectively influence profitability.

By breaking down these components, eCommerce founders can make informed decisions, optimise operations, and improve their bottom line.

In this guide, we’ll explore each component of fulfilment costs, from warehousing and picking to shipping and returns, so you have a comprehensive view of what goes into your fulfilment budget.

Warehousing Costs

Warehousing costs are a foundational component of fulfilment. They cover the expense of storing inventory until orders are ready to be fulfilled.

Depending on the type of fulfilment solution (in-house vs. third-party logistics), these costs can vary significantly.

Types of Warehousing Costs

• Storage Fees: Charged based on the amount of space your products occupy, usually per pallet, shelf, or bin.
• Long-Term Storage Fees: Some fulfilment providers apply additional fees if products remain in storage for extended periods. This encourages efficient inventory turnover.
• Facility Management: If you’re using an in-house solution, factor in costs for utilities, rent, and property maintenance.

Optimising Warehousing Costs: To minimise storage expenses, consider using a “just-in-time” inventory strategy, where you only stock the amount of inventory needed to meet demand. This approach reduces long-term storage fees and frees up valuable space.

Picking and Packing Fees

Picking and packing are labour-intensive processes that involve selecting items from inventory and packaging them for shipment. These fees are generally charged per order and are one of the core components of fulfilment costs.

Types of Picking and Packing Fees

• Per-Item Picking Fee: Many fulfilment providers charge a fee for each item picked from the inventory, especially if orders include multiple products.
• Packing Material Costs: This covers the cost of boxes, envelopes, padding, and other materials necessary for secure packaging.
• Assembly Fees: For orders that require special handling, kitting, or bundling, additional fees may apply.

Optimising Picking and Packing Costs: Consider simplifying your product selection or optimising SKUs to streamline the picking process. Working with fulfilment providers that offer bundled fees for multi-item orders can also help reduce costs.

Shipping Fees

Shipping costs are among the largest components of fulfilment expenses, especially for businesses shipping nationwide or internationally.

Shipping fees are calculated based on factors such as package weight, dimensions, shipping speed, and destination.

Types of Shipping Fees

• Carrier Rates: Fees charged by carriers (e.g., Royal Mail, DHL, FedEx, UPS) vary based on distance, package dimensions, and the service level (standard, expedited, etc.).
• Fuel Surcharges: These fluctuating costs are influenced by fuel prices and may be added to the base shipping rate.
• Residential and Remote Area Fees: Deliveries to remote or residential areas often come with additional surcharges.
• Customs and Duties: For international orders, these fees cover taxes, duties, and customs handling costs at the destination.

Optimising Shipping Costs: Partnering with a fulfilment provider that has negotiated carrier rates can help reduce shipping fees. Additionally, offering slower, economy shipping options for non-urgent orders can lower expenses without impacting customer satisfaction.

Returns Processing Costs

Returns are a natural part of eCommerce, but they come with their own set of fulfilment costs. Managing returns involves inspecting items, restocking, and processing refunds, all of which add to operational expenses.

Types of Returns Processing Costs

• Return Shipping Fees: While some businesses pass these costs to customers, others absorb them to enhance customer satisfaction.
• Inspection and Restocking: Returned items require inspection to assess their condition, with fees for repackaging or restocking where needed.
• Disposal or Refurbishment Fees: If a product is damaged or unsuitable for resale, there may be disposal costs or expenses for refurbishing the item.

Optimising Returns Costs: Improve product descriptions and provide accurate sizing charts to reduce the likelihood of returns. Streamlining your returns policy and offering store credits instead of full refunds can also help manage costs.

Technology and Software Costs

Effective fulfilment requires technology to manage orders, track inventory, and monitor shipments. For startups, investing in technology may be necessary to automate processes and improve efficiency.

Types of Technology Costs

• Warehouse Management System (WMS): A WMS helps monitor stock levels, optimise storage, and streamline picking and packing.
• Inventory Management Software: Real-time inventory tracking helps prevent stockouts and overstocking, allowing better inventory planning.
• Order Management System (OMS): An OMS consolidates orders from multiple sales channels, making it easier to track and manage them in one place.
• Integration Costs: Some fulfilment providers charge fees to integrate their technology with your eCommerce platform, CRM, or ERP system.

Optimising Technology Costs: Look for fulfilment providers that offer technology as part of their service to avoid investing in expensive software. Cloud-based solutions and SaaS options can also help manage technology costs without requiring major upfront investment.

Custom Packaging and Branding Costs

For eCommerce brands that value customer experience, custom packaging is an important part of fulfilment. Branded or unique packaging can enhance the unboxing experience but typically comes at an additional cost.

Types of Custom Packaging Costs

• Branded Boxes: Custom boxes with your logo or brand colours add a professional touch but are more expensive than standard packaging.
• Personalised Inserts: Thank-you notes, promotional cards, and product samples increase engagement but add to fulfilment costs.
• Eco-Friendly Materials: Sustainable packaging options may cost more than traditional materials but can align with brand values and appeal to eco-conscious consumers.

Optimising Custom Packaging Costs: Consider using custom packaging selectively, such as for high-value orders or repeat customers. Additionally, sourcing sustainable materials in bulk can help lower per-unit costs.

Labour Costs

Labour is a significant cost factor in fulfilment, particularly for in-house operations. As orders increase, so do labour requirements, which can affect profitability for startups with limited budgets.

Types of Labour Costs

• Warehouse Staff: Salaries for staff handling picking, packing, and shipping.
• Seasonal Labour: Temporary staff hired to handle seasonal demand spikes, such as during holidays or sales events.
• Training Costs: Ongoing training for warehouse staff ensures efficiency and reduces errors, but it’s an added expense.

Optimising Labour Costs: Automating tasks and outsourcing fulfilment to a third-party provider can help startups reduce labour expenses. For in-house operations, investing in cross-training staff can also increase flexibility and reduce the need for seasonal hires.

Administrative and Management Fees

Beyond the hands-on fulfilment tasks, there are administrative and management fees associated with overseeing the entire process. These fees cover the cost of managing inventory, tracking shipments, handling customer inquiries, and coordinating with suppliers and carriers.

Types of Administrative Costs

• Inventory Management: Costs related to monitoring and managing stock levels, reordering products, and handling stockouts.
• Order Tracking and Customer Support: Assisting customers with tracking inquiries and providing updates on order status.
• Accounting and Billing: Managing payments for suppliers, carriers, and service providers.

Optimising Administrative Costs: Automated order tracking and self-service customer portals can reduce the burden on support staff. Additionally, using fulfilment providers that offer inventory and order management services can help reduce administrative overhead.

Handling Unforeseen Expenses

It’s also essential to budget for unforeseen expenses that can arise during the fulfilment process. From damages and delays to supply chain disruptions, unexpected costs can affect fulfilment operations.

Examples of Unforeseen Expenses

• Damaged Inventory: Costs associated with replacing or refurbishing damaged goods.
• Shipping Delays: Fees related to expedited shipping if initial deliveries are delayed.
• Supply Chain Disruptions: Unexpected events, such as raw material shortages or transport strikes, that lead to higher inventory or sourcing costs.

Managing Unforeseen Costs: Maintain a contingency fund to cover unforeseen expenses, and build strong relationships with reliable suppliers and fulfilment partners who can help mitigate unexpected issues.

Conclusion: The Key to Managing Fulfilment Costs

Understanding and managing fulfilment costs is essential for any startup looking to achieve long-term success in eCommerce.

By breaking down each component—such as warehousing, picking and packing, shipping, and technology costs—you can identify areas for optimisation and make data-driven decisions to improve efficiency and profitability.

Partnering with a third-party logistics (3PL) provider like E-PickPack can help simplify your fulfilment operations and reduce costs.

With scalable solutions, real-time inventory tracking, and cost-effective shipping, E-PickPack offers the support your startup needs to streamline fulfilment and focus on growth.

Ready to optimise your fulfilment process? Contact E-PickPack today to learn how our tailored solutions can help reduce costs and enhance your customers’ experience.