Shopper's Guide to DTC 3PLs: How fulfillment pricing works

By Nish George, CEO

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One of the top questions I hear from brand owners is, how much does fulfillment cost?

Most 3PLs make pricing way more convoluted than it needs to be. So today, I’ll be radically transparent on how fulfillment pricing works for direct-to-consumer (DTC) brands.

Overall costs: in general, for US domestic ground-speed orders weighing a couple pounds or less, you should expect to spend $10-14 in total end-to-end fulfillment costs.

For US domestic, ground-speed orders weighing a couple pounds or less, expect to spend $10-14 in total end-to-end fulfillment costs.

This includes all fixed and variable costs to round-trip your stuff through a 3PL to your consumer's doorstep: pick & pack, postage, shipping supplies, storage, inbound, account management, and returns. This excludes manufacturing costs, air/sea freight from your manufacturer to your 3PL's dock, or customer-acquisition costs.

That $10-14 breaks down as follows:

1. Postage: 50%
2. Pick & pack: 25%
3. Receiving & Returns: 8%
4. Shipping Supplies: 7%
5. Storage: 5%
6. Other fixed costs: 5%

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Notice that postage is the #1 logistics cost for every DTC brand, followed by pick & pack. When shopping across 3PLs, you'll be best served by focusing on those 2 categories above all else.

Postage is the #1 logistics cost for every DTC brand, followed by pick & pack.

Now for the secret sauce: how do you lower these costs?

Throughout my journey of saving Amazon $250MM per year in fulfillment costs, and now as I run a DTC 3PL serving several dozen brands, I've discovered 3 main levers to lower fulfillment costs that every DTC brand needs to know and discuss with their 3PL:

1. More units-per-order: Extra picks are cheap - typically $1 or less. So if you encourage your consumers to basket-build, you will cut your costs per unit. For example, a 3-unit order cuts your fulfillment cost per unit from $10-14 down to just $4-5 (+$2 or less for 2 extra picks, but now divided over 3 total units). This is exactly why most DTC brands advertise free-shipping thresholds (often $50 or $100 of total order value): brands spread their fulfillment cost over more units & share some of that benefit with the consumer.
2. Ready-to-ship packaging: If you send your product to your 3PL in ready-to-ship condition (already boxed for consumer shipping & just needs a postage label), that dramatically reduces the amount of labor the 3PL spends on packing your orders, which they can share back to you in lower packing fees. As a side benefit, by having just-right-sized boxes, you might score lower postage costs and carrier-damage claims as well. Just note that orders with 2+ units may still require overboxing, which eliminates the packing benefit (but still a great thing because you make more money overall thanks to reduced per-unit postage costs, which is the #1 logistics cost for most DTC brands).
3. More orders per month: Easier said than done, right? Assuming you can pull it off, volume growth helps you in 2 ways. (1) Spreading out fixed costs: Your fixed costs (storage, account management, tech fees etc) are roughly 10% of a typical order’s cost. With more orders, you spread that fixed cost over more orders, which reduces your cost-per-order. (2) Picking efficiency: One of the core competencies of a good 3PL is slotting: putting each SKU in the most optimal locations within their warehouse. Your 3PL will slot faster-turning brands and SKUs into “prime” warehouse locations, which reduces per-unit pick costs for them and pick fees for you.

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There are other money-saving tricks as well, although they're not as broadly applicable. For instance, you could try to reduce your "average shipping zone" (distance traveled from your 3PL to your consumer), which would reduce your postage costs. To do that, you'd analyze where your customers are based, and then you'd ship your product from multiple 3PLs, each located close to a group of consumers (i.e. east and west coast). This works best for brands with 10K+ orders per month or heavy/bulky product (where shipping costs vary drastically with distance), where the benefits outweigh the cost and complexity inherent to multi-warehouse fulfillment.

Do these numbers still feel too expensive for your brand? Are you only making $0.50-3.00 per unit sold after production and customer-acquisition costs? That usually means direct-to-consumer is not the best sales channel for your product, at least based on today’s US logistics landscape (which will change … I'm happy to discuss what's coming in our industry privately). In that case, your best sales channels might be traditional retail or wholesale. Just bear in mind that retailers typically expect you to sell to them for 50% less than retail price.

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About Fetch Fulfillment

Fetch Fulfillment is for brand owners who want direct-to-consumer fulfillment to be the least stressful part of their business. Most 3PLs are good at one thing, like shipping on-time, or having modern tech, or picking up the phone. What makes Fetch unique is that it's stellar at all 3: it provides high-end boutique-grade customer service -- as seen in its glowing reviews and +92 net promoter score -- combined with its real-time cutting-edge tech and well-managed operation. The Fetch team lives by its motto: they are Your Brand's Best Friend.