Fulfillment Fundamentals: Cost Management
We recently held a webinar to explore the fundamental elements of order fulfillment. Capacity's co-founder and CSO Thom Campbell identified five key areas to focus on if you truly want to develop a fulfillment process that keeps customers coming back to your business time and time again. Today we look at how you can keep fulfillment costs down, with regular process reviews and by building constructive partnerships in the industry. You can read the rest of the entries in this compelling series under the tag Fulfillment Fundamentals. The fulfillment landscape can be complex, even confusing if you have little experience with the industry. That's especially true when it comes to pricing, which makes it all the more important to understand how providers set their prices and how you can use that knowledge to better manage your own shipping costs. Fulfillment providers work from a variety of cost models. Some ship goods based on an agreed percentage of a client's gross revenues, while others set prices based on the cost of transactions. Most service providers who specialize in B2C fulfillment offer transactional pricing, where orders and items shipped have a set fee. Some providers prefer to use cost plus pricing, whereby prices are marked up according to a set percentage. In this scenario, you hope that the company details specific costs, otherwise you have far less visibility of where service expenditure ends and profiteering begins. Percentage-based pricing can be attractive because it clarifies what order fulfillment will cost as a proportion of your gross. Here it's important to focus on a collaborative partnership with your fulfillment provider in order to keep costs down. For a closer look at how to evaluate fulfillment provider pricing, read our full post on the topic. So how do you know when to outsource and when to keep your fulfillment in-house? There's very little research at the low end of the volume spectrum, mostly because there is not very much data. It's fair to say that the early days of a business see smaller volumes that can be managed by a skeleton staff. As volumes grow and a company expands, however, the idea that your time is valuable, and perhaps better used across other functions, should fuel the consideration of outsourcing at an early stage. Even if you find time and again that you do not need to outsource, going through the exercise is a valuable monitor. There are several reasons to keep your fulfillment and customer service functions in-house at the beginning:
- You gain an understanding of what’s involved and your company's unique fulfillment challenges,
- You can document the fulfillment process and create standards specific to your business,
- You get closer to your customers, creating more touch points with them and learning opportunities,
- You ensure your brand is being represented by its #1 brand ambassador: you.