When E-Commerce Sellers enjoy success, they scale up. The term “scale up” can mean one of two options for the seller. They can continue to operate “in-house” or outsource warehousing and order fulfilment to a 3PL partner. This article explores the several costs related to in-house order fulfilment.
What Is Your Time Worth?
Literally, how much money do you pay yourself as an employee? What is your own personal payroll. As master and commander of your e-commerce ship, how much an hour is your worth? This is the biggest component of any in-house order-fullfilment cost.
Firstly, map out your day. Hour by Hour, what do you do? How much time is spent on tasks X, Y, & Z? For example, do you spend 30% of your day on Social Media & writing content? Do you spend 20% of your day fulfilling orders? Do invest 10% of your time on optimizing your website? Perhaps another 20% is spent on Google Ads? Secondly, know exactly where you spend your time. Know how you spend your time. Thirdly, see which areas need more from you. Lastly, understand which areas need less from you – and perhaps from an employee instead.
What Is Your Employees Time Worth?
On that note, what is your employee’s time worth? The odds suggest, your employee’s time is worth less than yours. And that’s okay! The employee is probably in charge of less responsibility as well. In our experience, your first employee will be tasked with daily order fulfilment. So understand what your payroll will subsequently look like, as you potentially scale up in-house operations.
Warehousing Space – In-House Order Fulfilment Costs
What is the cost of warehousing space in your area? In Southern California, it’s nearly $1.50 per square foot. Yikes! That adds up each month, if you are storing a container’s worth of product. That translates up towards 30 pallets of goods. You probably need nearly 2000 – 3000 sq ft to operate efficiently with that much product. That’s $4500 per month in rent. So I hope you have high margins on your product. Goods news though – not every seller lives in Southern California. However, a lot of 3PL warehouses to take root here.
Why 3PL warehouses operate in Los Angeles, CA? Because Southern California is home to Long Beach Port & Port of Los Angeles. These are the two large ports in the country. And the less distance your products travel, the more you save. In other words, if your products do not need trucking from Los Angeles, CA to Dallas, TX – then you save money on transportation. Instead however, those savings go towards housing them in Southern California. Long story short, if you want to scale your e-commerce business in-house, understand the variable costs of logistics vs warehousing space for your storage and fulfilment needs.
Cost of Warehouse Materials
What are the in-house costs of order fulfilment, related to the warehouse materials needed? Well, again, if your the client who fits the profile of shipping a 20ft or 40ft container – you need quite a bit. For example, how will you store your products? You presumably want them palletized, as you unload your container. How much do pallets cost? How will you move a pallet around? You need a pallet jack. How much does a pallet jack cost? These are the key questions that the most basic of in-house fulfilment operations ask. Let’s look at a short list of items an in-house operation demands:
- Pallet Jack
- Pallet Racks
- Pallet Stacker
- Fulfilment Boxes
- Thermal Label Printer
- Prep Tables or Prep Stations
- Packaging Tape & Tape Guns
These are some of the basic material costs of warehousing & fulfilling your own products.
In-House Shipping Costs of Order Fulfilment
What will you pay to USPS or UPS or Fedex to ship your goods around the country? Do you enjoy any volume discounts with these shipping partners? Or do you receive regular retail rates of shipping?
Alternatively, would a 3PL warehouse offer a discounted rate, extended to them by these parties? For example, Amazon extends the lowest UPS rates in the country to it’s sellers, when shipping into FBA fulfilment centers. Will these volume savings offer more value than the cost of shipping from your location?