Third-party order fulfillment companies charge retailers a monthly set of fees based on the services used to fulfill their orders. As a retailer, the total cost owed to your partner fulfillment company mostly breaks down into four fees: inventory receiving, storage, pick and pack, and outbound shipping.
The periodic cost of each of these processes depends on order volume and complexity, as well as product measurements. Additional services and customizations—like branded boxes and item assembly—can contribute to your fulfillment expenses as well.
Typical Order Fulfillment Costs
- Inventory Receiving: $25–$45 per hour (or $5–$15 per pallet)
- Storage: $8–$40 per pallet per month
- Pick & Pack: $3–$5 per order
- Outbound Shipping: Varies based on size, weight, and destination of your products. This will be your largest expense. Fulfillment companies typically have 10%–30% discounts off standard shipping rates
Additional costs include a one-time onboarding fee (averages $550), inbound shipping fees, return handling fees, and account management fees (averages $50–$1,000 per month). Services like custom packaging and product kitting or assembly will incur additional costs.
Some retailers choose to fulfill their own orders in-house rather than outsource the task to a third-party company. When it comes to efficiency and cost-effectiveness, this method usually works best for startups and small-scale sellers. Check out our in-house vs outsourced fulfillment comparison to learn more.
Let’s dive deep into how fulfillment services are priced.
How Order Fulfillment Costs Work
Although there are four basic cost centers that go into fulfillment services pricing (receiving, storage, pick & pack, and shipping), each company varies greatly in how it structures its fees. Some fulfillment partners itemize and quantify each service, while others use flat-rate overall charges.
There are no set industry standards for fulfillment costs, so fulfillment companies often model their pricing to work for specific types of retailers. For example, Red Stag Fulfillment specializes in working with high-value inventory and fulfilling orders weighing 20 lbs. or more (think furniture or large electronics).
Conversely, ShipBob primarily fulfills orders clocking in at 20 lbs. and under, and it doesn’t have prohibitive order minimums (making it great for new, startup, and small businesses).
Implementing a much different structure, Whitebox charges an all-in fulfillment cost that covers nearly everything you’ll need to fulfill your orders and optimize success throughout other parts of your business. Its format is geared toward sellers seeking a more versatile and comprehensive retail partner.
Standard Fulfillment Fees
In addition to the four primary fulfillment costs, retailers will also encounter a few additional fees—including onboarding, inbound shipping, return management, and account management fees.
Here’s a breakdown of all of the fees and how they are calculated.
Onboarding Fees
When first partnering with a fulfillment company, a sizable amount of setup must be done, including integrating your online store, creating storage infrastructure, and training staff to handle your goods.
This step is often labor-intensive on the provider’s end, so most companies charge a one-time onboarding fee to cover it. The charge ranges from $100 to multiple thousands based on the scale and complexity of your inventory, but it averages around $550 for small businesses.
Some fulfillment partners, like ShipBob, offer service contracts with no initial setup fee.
Inbound Shipping
You’ll pay the freight or container shipping cost to send merchandise from your supplier to your fulfillment center, which varies depending on the quantity, size, weight, and origin of your goods.
Many fulfillment partners receive discounted rates that they’ve negotiated with shipping carriers and extend these savings to you. This can help decrease your inbound shipping costs substantially.
Inventory Receiving
Receiving your stock includes coordinating shipments as well as unloading, inspecting, tagging, and sorting your goods—all of which require lots of time and manpower. For this reason, it’s usually billed by the hour. Expect to pay about $25–$45 per hour that it takes to receive your merchandise—unless your provider charges a flat rate on a per-unit basis. This cost averages $5–$15 per pallet.
Storage
Storage fees are primarily charged based on the space your inventory takes up. You will also need to pay higher rates for climate control or if your products need extra security. Fulfillment partners charge anywhere from $8 to $40 per pallet per month to store your goods, with the average cost running $14.79 per pallet, according to a survey by FulfillmentCompanies.net. Some companies calculate this cost using cubic feet or individual bin occupation instead.
During peak dates (usually October–December) some providers, namely Fulfillment by Amazon (FBA), will drastically increase their storage costs due to volume and demand fluctuations. It’s not a common factor, but be sure to review your contract for seasonal inflation.
If your goods require special services like climate control or hazmat handling, storage costs will include a premium of about 73%.
Pick & Pack
Many fulfillment providers bill this process as a fee labeled “fulfillment charges.” It covers the labor of picking items for an order and the materials used to package them.
Often, fulfillment companies charge a flat per-order fee—usually of about $3–$5. Some providers refine this cost by using a slightly cheaper base fee and tacking on an item charge per additional unit in the order. The size and type of packaging material required to safely ship your goods can contribute to the pick & pack cost as well.
Outbound Shipping
Fulfillment companies usually offer great flexibility when it comes to the shipping process, but you should expect the associated fee to be one of the largest on your monthly invoice.
As a retail partner, you can choose to use your own carrier or go through the company’s preferred service. Though each option comes with benefits, it’s important to keep in mind the deep discounts offered to fulfillment providers due to the massive volumes that they regularly ship. If you choose to go with the fulfillment company’s carrier, you’ll likely see 10%–30% discounts on your standard rates.
The actual cost of shipping your orders depends on the size, weight, and destination of your goods.
Returns
Handling your customers’ unwanted orders is a service that not every fulfillment company offers but is a valuable amenity for most sellers.
Fulfillment providers who have a returns service will incorporate charges for processing and restocking. The total fees are charged at about the same rate as the pick & pack step, plus the cost of return shipping. If elevated inspection is required to determine whether returned goods meet your store’s standards, it will likely result in an additional fee.
Account Management Fees
It’s common for fulfillment providers to charge a monthly fee that covers any additional services performed to keep your account functioning smoothly. This involves communicating with you and your suppliers, handling incidentals, updating software, and more.
The cost itself varies substantially based on your business’ size, complexity, and needs, but usually ranges from $50–$1,000 per month. Some providers calculate a flat monthly rate that covers account administration for the length of your contract, while others charge $40–$60 an hour for any tasks involved.
Optional and Add-On Fulfillment Costs
Depending on the specific needs of your business, you may incur additional fulfillment costs, including:
After all service fees are said and done, order volume is one of the dominant variables in determining pricing. When working with retailers who receive large quantities of orders, most fulfillment centers offer a significant discount on their services.
Volume discounts are an important factor: FulfillmentCompanies.net reports that more than 50% of fulfillment companies surveyed offer an average discount of 14% for storing 250+ pallets per month.
Fulfillment Contracts and Legal Fees
A fulfillment agreement is a legal contract between you and your fulfillment company that clearly defines the basics—such as fee structure and payment requirements—as well as less obvious, crucial details like insurance and liability.
When solidifying your partnership with a fulfillment provider, you’ll need to review and sign such a document. It works to protect both parties from any discrepancies or issues down the road and ensures a comprehensive understanding of the business relationship. Each contract is different, but common considerations include:
- Term Length: The minimum amount of time you agree to pay for and use the company’s services
- Charges: A thorough and explicit description of how your fees will be calculated and how frequently they will be charged
- Annual Price Increases: The anticipated adjustment of your costs to reflect inflation and changes in the provider’s expenses
- Error Rates: The level of accuracy guaranteed by your fulfillment provider
- Claims: An explanation of the procedure used to handle losses and damages
- Insurance: The details of insurance policies held by the fulfillment company, its employees, and its shipping partners as they affect your property
- Arbitration: A section defining how disputes between parties will be handled
Page 1 of a 12-page fulfillment agreement
(Source: FulfillmentCompanies.net)
These agreements are usually lengthy and intricate. There are many details to cover, and the stakes of fulfillment relationships are high—you’re entrusting your valuable merchandise and the loyalty of your customers to a separate enterprise.
For this reason, many retailers choose to hire an attorney to assist them in reviewing the contract before signing. The guidance you’ll need shouldn’t be extensive, but it’s important to factor in the cost of hiring counsel if it’s an amenity you plan to use.
Some providers offer the opportunity to try their services for a certain period before signing a full-fledged fulfillment agreement. This gives retailers the chance to make sure they’re a good fit for the company’s services and fee structure. For example, Red Stag Fulfillment offers a 30-day risk-free trial and promises to waive all fees if you aren’t satisfied with its performance.
How to Calculate Fulfillment Costs
The only way to accurately calculate how much you’ll pay to outsource your fulfillment process is to contact the pros themselves. FulfillmentCompanies.net provides a matchmaking service that compares your specific needs to hundreds of prescreened partners—or you can find contact info on the website of any fulfillment center you’re interested in. They’ll be able to provide you with a specialized quote based on the individual details of your business.
When comparing rates (or just analyzing your existing fulfillment method’s efficiency), there are some key metrics to look at. Here’s how to run those numbers:
Cost Per Order (CPO): Total fulfillment costs within a time period
(i.e., one month, quarter, or year) ∕ number of orders fulfilled within the same period
Cost as a Percentage of Sales: Total fulfillment costs within a time period
(i.e., one month, quarter, or year) ∕ net sales within the same period ✕ 100
Fulfillment costs comprise a hefty portion of any retailer’s expenses, regardless of how it operates. It’s important to keep in mind the impact fulfillment details have on customer retention and conversion rates. With companies like Amazon shaping high expectations around shipping speed and return policy, having top-notch fulfillment capabilities is necessary now more than ever.
Did You Know?
68% of online shoppers reported that they choose to abandon a purchase about half of the time if free shipping isn’t offered.
20% of shoppers stated that they wouldn’t place an order if the delivery date was unclear. (Source: Digital Commerce 360)
When Outsourcing Fulfillment Is Cost-Effective
The cost of third-party fulfillment may seem high, especially for startups or small-scale sellers that have never had to worry about things like account management fees. When considering hiring a third-party fulfillment company to assist your business, keep these details in mind:
- You have to pay someone to do this: The fees you pay a fulfillment partner represent the cost of facility, staff, incidentals, and other overhead expenses that you’d inevitably incur running an in-house operation. Even if your fulfillment staff is a one-person team (i.e., you), your hourly time is valuable and should be considered in the outlay you’re comparing.
- There are perks: Due to the great volumes they buy and ship, fulfillment companies receive much lower rates on packing materials and shipping costs. Most providers pass these savings on to their clients, creating an effective perk to working with them.
- Your time may be better spent elsewhere: When your daily priority is processing, packing, and shipping orders, important tasks that actually help to grow your business often take a back seat. Outsourcing your fulfillment duties frees up precious time that you can redirect to more profitable areas.
- Fulfillment services scale effortlessly: Third-party providers allocate resources as needed, so you never pay for staff and space that you’re not using.
As your business grows or as order volume rises during peak seasons, your fulfillment partners can easily and instantly accommodate fluctuations. You’ll never be left with too few resources to handle the holiday craze or too much leftover afterward cutting into your profits.
Bottom Line
Fulfillment costs are a substantial part of any ecommerce store’s overhead expenses. The process itself has a huge impact on customer experience, sales, and overall profit—making effective fulfillment a worthy investment.
Partnering with a fulfillment company is a step toward maximizing efficiency and driving growth. The associated costs are detailed and complex, but the level of personalization those calculations provide means you’re only paying for what you use—which always works to your benefit.
Visit FulfillmentCompanies.com to get matched with a fulfillment company that meets your needs, or read our fulfillment company buyer’s guide to find the best company for your business.
