- February 7, 2018 at 9:35 pm #159744
Is there math that says if you require more than X amount of square feet at $10/ft and more than Y headcount dedicated to the warehousing function at $20 per hour = outsource to 3PLFebruary 7, 2018 at 9:47 pm #159800
There are more factors involved than just space and labor costs. What are you shipping – large or small items? Breakables? Perishables? What are your product handling and packaging needs? What are your storage needs? What is your gross profit? As an owner, are you a good operations and people manager or is your time better-spent building out your line?
There are SO many factors in the equation and each business has a different set of answers. Here’s what I consider when comparing in-house and outsourced 3PL fulfillment costs:
On my average order in an average month, what is my total fulfillment cost?
This figure includes the storage, labor, packing materials, and shipping costs of getting that order out the door. After I know that figure, I see if a fulfillment center can do it for less at my current volume. Sometimes it’s a definite yes or no. If yes, then hand it over! If no, or borderline (which tends to be the case in my experience), you need to decide if you want to spend a good portion of your time managing a warehouse (that includes making it work efficiently during sales spikes and lulls) or focus on other areas of your business.
Here’s an article where I ran a sample comparison of in-house and outsourced fulfillment costs. It will give you a closer look at these factors and a starting point for your own math.
That is how I approach it. Since there are so many product, packing, shipping, and profitability variables, a flat formula never seems to apply for most small business fulfillment needs.
I hope this helps, good luck!