Fulfillment costs: How to measure and reduce them in e-commerce?

Whether you decide to handle it yourself or outsource it, e-commerce fulfillment has a cost. A cost that you obviously try to keep as low as possible, while maintaining your attractiveness at its highest level to attract more potential buyers.

In this article, we'll take a look at the main factors impacting your logistics costs, along with our tips for reducing your logistics budget without cutting quality!

What are fulfillment costs?

Fulfillment costs, or logistics costs, are all the expenses incurred by a company in managing its products, such as storage, order preparation and delivery.

These costs are crucial to a company's overall strategy, as they directly affect customer satisfaction, market competitiveness and profitability. However, they represent a major expense item, especially for e-commerce companies, estimated at around 11% of a company's sales.

What are the logistics costs involved in e-commerce?

Goods storage, order preparation, parcel dispatch... Find out below about the main costs to consider, whether you manage all these factors in-house or via a logistics provider:

1. Fulfillment costs for product storage

It's generally one of the highest costs in any sector.

Depending on the quantity of merchandise in your possession, you'll need to find the right warehouse, manage its routing, reception and shelving. Warehousing costs include :

• Rental or depreciation of storage space (if you rent or own)
• Maintenance of the site and the equipment it requires
• Insurance to protect your products from accidents that may occur on the storage site

In addition, there may be other costs, such as taxes on the space or warehouse management software.

All these logistics costs vary according to warehouse location, capacity in m3 and storage time.

2. Order-picking fulfillment costs

Your logistics costs include those associated with order preparation. These include :

• item picking - also known as "picking" - and
• sorting according to destination
• packaging
• pre-shipment inspection of your products.

This preparation is a key stage in logistics, as it has a direct impact on service quality and speed.

3. Transport fulfillment costs

Another point that can have an impact on your budget and the selling price of your goods is the cost of transporting them.

The faster your transport, the higher the price, and this can have an impact on the delivery costs of your products.

Delivery is one of the factors most closely watched by consumers. Reducing delivery times as much as possible is a key challenge for boosting your business.

4. Fulfillment costs linked to customer service

Product lost, damaged during shipment, not conforming to the advertisement, management of customer returns... The more you sell, the greater the risk of imponderables. That's why it's essential to provide quality after-sales service. Quality comes at a cost, which is sometimes difficult to reduce without losing efficiency and responsiveness.

5. Insurance

Insurance is essential for all retailers and e-merchants, to protect your merchandise in the event of theft, breakage or loss.

 

How much does your logistics cost?

Are you spending too much on logistics?

According to a study conducted by Supply Chain 24/7, the average logistics cost for a company is estimated at 11% of sales. This estimate is growing every year, due to the ever-increasing budget being invested in delivery times, a key factor in retailers' efforts to meet the expectations of consumers now accustomed to receiving their orders ever more quickly.

Over 50% of logistics costs are allocated to delivery management. The rest is shared between good storage, order preparation, after-sales service and insurance.

To increase your company's profitability, you need to find the right balance between your e-commerce logistics budget and your customers' expectations. A satisfied customer is a repeat buyer. It's all about pampering them, as long as you don't jeopardize your business by doing everything you can to seduce them. Hence our next question:

How can you reduce your fulfillment costs while taking into account consumer expectations?

There are several easy-to-implement sales tips designed to help you in your cost-cutting endeavors. Here they are:

1. Optimize inventory management

The more goods you store, the higher your storage costs. And vice versa. Beware, however, of relying on a minimum amount of stock in the warehouse, which multiplies the risk of stock-outs. The right logistics strategy is to define a minimum stock level that you must always have in your warehouse.

Below this threshold for your products on sale, replenishment is the order of the day.

This minimum stock must always meet demand, and take into account major one-off shopping season events such as Sales and Black Friday. It must also allow sufficient time for replenishment.

2. Increase the average basket

By increasing your customers' average basket, delivery and logistics become less expensive. One tried-and-tested strategy is to offer free delivery on minimum orders.

According to the French Institut National de la Consommation (INC), by 2022, 58% of shoppers will have added one or more products to their basket to reach this psychological threshold and benefit from free delivery.

3. Optimize your product packaging

By reducing the size and weight of your packaging, you can have a direct impact on the cost of storing and transporting your products, especially if you manage to get your products into your carrier's lower price bracket.

4. Outsource your e-logistics

Saving time and money is a dream goal for many companies. One of the best ways to achieve this is to outsource logistics. And preferably to a single service provider, to cut costs considerably.

By opting for our Rakuten Fulfillment Network method of outsourcing your e-commerce logistics, you are choosing a single partner to handle every stage of your supply chain: I want to reduce my logistics costs