As e-commerce continues to expand worldwide, it is imperative that small businesses do everything they can to make their products visible and accessible to the average consumer. In the fight for consumers’ eyes and hearts, small businesses seemingly have the leg down compared to e-commerce giants like Amazon and AliExpress. These services are triply appealing to potential customers due to extremely expedient shipping times, massive variety of products, and often unbeatable prices. Many small businesses have asked themselves, “if you can’t beat ‘em… why not join them?” It is currently easier than ever for businesses of any size to partner with massive fulfillment companies, allowing their products to be bought and sold on some of the largest digital marketplaces ever conceived. But simply because small businesses can partner with giants like Amazon with just a few clicks or one phone call, this doesn’t mean that fulfillment companies are the right path for every small business.
Small business owners on the fence about outsourcing their products to a fulfillment company have many factors to consider before they should sign the digital dotted line to become a partner with any fulfillment company. In this article from our Shipping Unboxed series, consider if the following questions apply to your small business as to whether a fulfillment company is the right way to go.
How Many Orders are You Processing?
Depending on the number of digital orders your small business makes on a regular basis, fulfillment companies can be a massive time saver. Consider this example: A small business with 30-50 employees opened a digital store during the pandemic to supplement stagnant in-person shopping. The operation quickly became a substantial revenue stream while preparation and shipping duties could, at one time, be left up to employees with a little free time on their hands; the business is now spending as many hours packaging orders as ringing up customers in-person. This example is less conjecture and more wishful thinking, but this is also a perfect example of when a fulfillment company can be a great option for small businesses that don’t have the time or money to hire a full logistics team.
As a rule of thumb, if you are processing less than 50 small orders per week, the warehouse space square footage charge will likely cost you more than consumer-based shipping (and possibly even with packaging materials included).
What is Your Current Order Turnaround Speed?
Another reason working with a fulfillment company could fall in your favor to work is if your online orders take longer than normal to process. If you and your customers are concerned with speedy delivery, it is almost a certainty that outsourcing to a fulfillment company will speed up your operation. Especially if you partner with direct carriers like FedEx or UPS, you can cut an entire leg from your order processing speed: the amount of time it takes you to source the order and package it for delivery.
As seen with the advent of uber-expeditious services like Amazon Prime, consumers are seemingly more likely to make an order if they know it will get to their mailbox quickly. Secondly, partnering with fulfillment companies that have their own marketplaces like Amazon or AliExpress can lead to an increase in product exposure.
Who is Managing Your Inventory?
Fulfillment companies are, in essence, logistic companies; so you better believe their warehouse management is top notch. Companies like Amazon have become notorious for their order fulfillment speed and heavy-hitters like FedEx are close behind. This speed and convenience is especially tantalizing for small businesses, but without the warehouse or dedicated large-scale inventory space what are they to do?
Small businesses that already have internally managed inventory have some serious logistic questions to ask themselves before signing with a fulfillment company. There are several more possible configurations that would make local inventory more cost-effective than outsourcing.
Warehouse Rent + Logistic Time and Wages Vs. Fulfillment Receiving, Storage, and Packing Rates: Sit down with your financial team and trusted managers and run the numbers on your current warehouse information. Weigh your effective rent and all fees related to shipping alongside the relevant fees of your preferred fulfillment company. The most common fees are listed below:
Receiving Fees: Fulfillment companies tend to charge by the hour when receiving and processing your items. Essentially, from the moment your items enter the hands of the fulfilment company’s employees until those items are packed in the proper bins you are charged for their handling. Shipbob, for example, charges $25 per hour for the first two hours in receiving and then $40 per hour after that. Other companies like Fulfillment by Amazon do not charge for receiving as long as packages are considered “planned” in their system, meaning they were approved inventory ahead of time, otherwise, Amazon will charge for the unexpected labor based on their own calculations.
Storage Fees: Storage fees are often based on the type of warehouse space being used: pallets, shelves, or bins. If you anticipate using bins, Well-known carriers charge around $5 per month per bin used. Some carriers, however, charge by total square-footage used in their warehouse (Fulfillment by Amazon) which is difficult to calculate without speaking directly to a representative.
Pick and Pack Fees: These are the fees charged for each time at the warehouse one of your items are “picked and packed” for final delivery by a logistics worker. These fees are more straightforward and range from $0.20 per item on Shipbob to $1.79–$13.23 for products up to 20 lbs on Fulfilment by Amazon.
While these are the most universal fees among fulfillment companies, there are likely several more you will have to take into consideration depending on your choice of carrier. But some carriers like Fulfillment by Amazon charge account management fees of $40 per month. Outsourcing is meant to be a time and money-saving tool for businesses who lack the resources to maintain larger operations; once outsourcing becomes a chore and is outsizing your business, it isn’t doing its job anymore.
How Much Control Do You Want Over Customer Experience?
Like all cases of outsourcing, fulfillment companies take the lead for all of your orders, successful or missing in action. If an order from your business doesn’t go smoothly from the fulfillment company’s end, it can be very frustrating for the source business. While fulfillment companies all have their own customer support teams and helplines, small businesses lose out on a chance for customer retention when they do not handle orders that don’t go smoothly. Speaking directly to an employee from your company rather than a nondescript customer service agent from an international logistics company can help customers feel like their order actually matters to your company and can turn a negative experience into one that builds trust with your customers. While having a hands-off shipping experience with companies like Amazon gives you more time to run your business in-person, you equally risk neglecting your online customers’ experience with your business.
Small businesses who ship their own packages are also appealing to customers who are searching for grassroots or locally sourced products; these types of consumers usually turn to small businesses before big corporate players anyway, so you can comfortably assume that those customers who consciously chose your business over a big-name company would consider personalized or handmade packaging to be part of their customer experience.
So, Do Fulfillment Companies Fulfill Your Needs?
Unfortunately, it is notably difficult to run any kind of trial with a fulfillment company since you have to send them your inventory in advance; returning inventory can incur further fees to boot. In most cases, however, small businesses who would benefit from a partnership with a fulfillment company likely already have a good idea why: as soon as your ecommerce operation gets big enough to impede your primary operations, fulfillment companies can save you a massive amount of time. Also, the time it takes to go from your first quote to being warehouse-ready can be very quick. Another perk? When you’re at an in-between stage of growth fulfillment companies can be a stopgap between hiring a logistics team or renting your own warehouse.
No matter where you fall on the small business spectrum of size, scope, and efficiency, running a successful shipping operation is well within your grasp.