What Does Self-fulfillment in Ecommerce Really Cost?
The biggest costs of self-fulfillment aren’t what happens, but what doesn’t happen.
A strong brand, memorable marketing, and loyal customers will set an ecommerce business apart in a highly saturated market. But if you’re spending all of your time troubleshooting logistics problems and making sure orders get from A to B, you have less time to dedicate to brand-building and loyalty initiatives.
These are just some of the costs of managing self-fulfilling orders as an ecommerce brand. As well as lost opportunities to build brand awareness, there are much more tangible financial costs to be aware of, too.
We’re going to take a dive into the other hidden (and not so hidden) costs of self-fulfillment that merchants should be aware of – and how partnering with an ecommerce fulfillment provider can address these challenges.
What is self-fulfillment in ecommerce?
Self-fulfillment refers to an online retailer choosing to manage the ecommerce order fulfillment process in-house, rather than outsourcing to a third-party logistics (3PL) provider. Opting for an in-house fulfillment strategy means taking charge of areas such as inventory management, order processing, picking and packing, shipping, and reverse logistics, as well as customer service and general warehouse management.
Self-fulfillment is often preferable to brands that have highly customized fulfillment processes and workflows, or who don’t have the order volumes to make outsourcing fulfillment cost-effective. However, self-fulfillment is also preferred due to concerns about finding an appropriate fulfillment partner in ecommerce.
How is self-fulfillment different from dropshipping?
Self-fulfillment differs from dropshipping in that fulfilling in-house requires a brand to manage every aspect of the fulfillment and shipping process itself. Dropshipping, meanwhile, sees a brand partner with a dropshipper to store, fulfill, and ship customer orders, with the brand only operating the online storefront and managing customer support. While a dropshipping model is much easier and to start and scale, it offers less control over the customer experience.
Is self-fulfillment more expensive than outsourcing fulfillment?
It’s easy to assume that fulfilling customer orders in-house is more cost-effective than bringing in an expensive 3PL. But the reality is a lot more complex.
Being able to oversee the entire fulfillment process gives a brand a high level of creative control when managing fulfillment. If you like to experiment with value-added experiences like unboxings or product sampling campaigns, in-house fulfillment is limited only by your own infrastructure and bandwidth. But when your business is responsible for coordinating every step of the ecommerce fulfillment process, that’s a lot of time you don’t have to focus on growth initiatives and how to scale your business effectively. Over time, these costs will begin to mount and take a toll on your ability to stay nimble and keep pace with customer expectations.
Let’s dive into these hidden (and not-so-hidden) costs of self-fulfillment:
The costs of self-fulfillment
Operational costs
These probably seem obvious, but they’re still worth mentioning as self-fulfilling brands, are on the hook for both the set-up and ongoing costs of ecommerce fulfillment operations.
Enough industrial space to run a fulfillment in-house operation is the primary requirement for self-fulfillment. This means square footage big enough to keep your inventory on hand, pick and pack, fulfill orders, receive inventory, and more. When you’re fulfilling in-house, it’s also your responsibility to source and pay for the materials you need to pack and ship orders, such as:
- Boxes
- Labels
- Mailer envelopes
- Packing tape
- Bubble wrap
- Packing peanuts
- Packaging inserts
But it isn’t just warehouse space or packaging you need to think about – you also need a team of people to run your facility. This also needs to scale effectively as order volumes increase.
However, operational logistics costs aren’t uniform throughout the year; customer demand fluctuates with the seasons and major holidays, meaning the amount of space, labor, or materials you require is always in flux. Because brands may be forced to take out enough space to correspond with the peak of their volumes, there’s a risk that you’ll end up paying for storage space that your business isn’t using
Shipping costs
Shipping is one of the biggest overheads for ecommerce businesses, especially with consumers expecting to receive their orders free and fast. Because emerging ecommerce brands are too small to qualify for wholesale shipping rates on their own, shipping can add significantly to the cost of fulfilling each order and reduce profit margins.
ecommerce merchants can opt for slower shipping speeds in a bid to reduce shipping costs. However, if customers are forced to wait longer to receive their order, this reduces customer satisfaction and this may prevent them from becoming repeat customers.
Slower fulfillment and returns processing
When your order volumes start to outpace the capabilities of your in-house fulfillment operation, you’re looking at some lengthy delays in fulfilling orders and processing returns for your customers.
Handling online orders seamlessly requires an advanced tech stack and reliable integrations between your ecommerce selling channels and your warehouse and fulfillment centers. Without a Warehouse Management System (WMS) to help workers locate different SKUs, order picking adds considerable time to the fulfillment process, resulting in a drawn-out fulfillment process full of bottlenecks and delays.
Merchants using self-fulfillment are responsible not just for outgoing orders, but also for any returns or exchanges that might eventuate. A sudden influx of returns, such as after a sale or following the holiday season, requires merchants to scale up returns processing and process refunds quickly. But if returned items are left to pile up at your facility, this leads to frustrated customers and lost resale opportunities.
Signs that self-fulfillment is no longer working for your business
These self-fulfillment costs are adding up for your business. But how do you know if now is the right time to outsource fulfillment?
Your order volumes are growing faster than you can keep up with
Rising order volumes are a good problem to have – if you can scale up to meet demand. If your fulfillment operation is under pressure, this will increase fulfillment lead times and feed customer dissatisfaction.
Manual processes are slowing down fulfillment
If you’re reliant on manually processing orders, picking items, or handling returns, your business is leaving valuable time on the table. However, automation technology is expensive and difficult to implement independently, and risks starving other areas of your business of much-needed resources.
You’re under pressure to expand/hire more personnel
If you’re constantly stuck on the hamster wheel of trying to find more fulfillment center space or hire additional warehouse labor, then it’s difficult for your business to consolidate its gains. Always being in catch-up mode affects your ability to identify inefficiencies in your operation and where they might be solved by other operational changes.
Managing fulfillment is taking up all of your time
The decision to manage order fulfillment in-house means exactly that; so, if your marketing and sales tactics are taking a hit because your focus is elsewhere, this is going to hurt your business in the long run.
Partner with ShippingTree and safeguard business growth
You can save your ecommerce business a lot of money and time by being proactive and recognizing the signs of a struggling in-house fulfillment strategy.
A fulfillment provider like ShippingTree which can provide a nationwide network of fulfillment centers enables ecommerce merchants to sidestep common self-fulfillment challenges, like slow shipping times or difficulty storing inventory. Leverage discounts with major carriers to access cheaper shipping rates and optimize your ecommerce fulfillment process with automated workflows for order processing, shipping, inventory management, and more. Contact ShippingTree today to find out how we can scale your fulfillment strategy.
