Why should you care about your ecommerce fulfillment strategy? Well, *takes deep inhale*…
Over 60% of online shoppers will abandon their cart if costs for shipping, taxes, and other fees are too steep. Around half of all online shoppers report that delivery time plays a significant part when deciding to complete their online orders. Over a third of online shoppers that had a poor delivery experience will never return to that brand. One in four online shoppers has canceled their order due to slow delivery.
Shall I go on? Your company’s fulfillment strategy directly affects your bottom-line as well as your brand reputation. Making the right decisions early on is crucial, because switching fulfillment strategies later on is a costly, and frankly unfulfilling (couldn’t resist), venture.
In three easy steps, we’ll break down the process for deciding your fulfillment strategy. Let’s briefly discuss your choices, then dive into how to select the right strategy for your business.
Step 1: Understand your options when it comes to e-commerce fulfillment
The first step in choosing the fulfillment strategy that fits your business is to understand what’s out there, and there are essentially three options when it comes to fulfillment.
- Option 1: In-house
- Option 2: Outsource to a third party
- Option 3: Dropshipping (goods ship directly from the manufacturer)
There are plenty of resources that explain the pros and cons of each in excruciating detail, but in summary, here are the three dimensions to consider for each:
Pretty straightforward, how much is it going to cost? For in-house e-commerce fulfillment, think warehouse rental/mortgage, maintenance, shipping costs including DIM weight, wages; for outsourced fulfillment, consider subscription cost, inventory, per item margin, etc.
How much time and effort is required by your business? Are you willing to invest in and develop long-term infrastructure and fulfillment best practices?
How much freedom does the business have in customization? Does your business provide some consumer value through fulfillment? Do you want the flexibility to do bundles or custom boxing?
Customization example: Your business wants to offer a limited-time bundle of two of your best-selling products. You want them in the same box for a span of time. This may seem simple, but many 3PLs (third-party logistics) and Dropshipping providers do not allow this.
Let’s look at each option through the lens of these three dimensions.
Option 1: In-house (AKA Doing It Yourself)
Storing the inventory, picking, packing, shipping, all done by your company.
To DIY, you’ll need space to house your inventory, and efficient processes to handle orders and ship in a timely manner, not to mention a process for handling returns. Overhead costs are high to house inventory yourself, but this rewards your business full autonomy.
Regarding customization, you are completely free to customize because you have full control, but the more you customize on your own, the higher the complexity and the higher the price. You would need to make a considerable investment in infrastructure as well as fulfillment software to manage customizations after a certain point.
You’ll also have to select a delivery partner and be sure to have an awareness of your DIM weight costs for each carrier.
SUMMARY: Price is variable, energy is the highest, and customization is high but costly.
Option 2: Outsource to a Third-Party Logistics (3PL) Company
Hand your inventory over to 3PL and smart fulfillment companies like ShipHero who invest heavily in infrastructure and software to create global networks of warehouses and to provide a wide array of cutting-edge fulfillment capabilities.
For many 3PLs, the fulfillment software is built to integrate seamlessly with whatever e-commerce platform you use, and they provide you intuitive interfaces to manage your inventory.
These high-quality services come with higher costs, but each day more and more brands find that the added benefits and business growth potential outweigh the costs, not to mention 3PL companies can become important business partners.
SUMMARY: Price is high, energy is low, and customization depends on the provider.
Option 3: Dropshipping
Dropshipping is when the manufacturer ships directly to the consumer, completely bypassing the retailer. This is typically used by businesses that are just starting that don’t have the capital for inventory, so the price to start a business is low.
However, dropshipping has notoriously low margins because the manufacturers charge high premiums to carry the sole responsibility of fulfillment. Branding and customization during the fulfillment process are only what you can negotiate with your manufacturer, and is also notoriously low.
SUMMARY: Price is highest, energy is lowest, customization is lowest.
Step 2: Determine What’s Right for Your Business
What’s important for your business in terms of fulfillment? What are your business goals? Perhaps after reading the above list, one option immediately jumps out as correct, but take the time to carefully deliberate your growth strategy. Successful businesses are always growing and scaling, and the last thing you need is to be limited by a poor choice in fulfillment strategy.
After you have your business goals in mind, look at other companies in your industry. What is your competition doing? Does it work for them? Do you think they’d be better with more customization, or is speed the name of the game?
Finally, what do your customers want? Quick shipping? Free returns? A completely customized unboxing experience? Sometimes it’s not just what you sell, it’s how you sell it. Also, where are the majority of your sales coming from? Nearby or far away?
A good fulfillment strategy can provide a significant competitive advantage to your company, and the choice should not be taken lightly. If at this point you have already chosen to go the DIY route, then good luck and godspeed.
For those of you looking into outsourcing logistics, follow us to Step 3.
Step 3: Choose the Right Fulfillment Provider
When perusing the long list of fulfillment companies vying for your business, you must have clear-cut criteria on which to evaluate each. This boils down to three important questions:
Does the ecommerce fulfillment provider have the capabilities to fit your business needs?
You may be a hometown hero today, and a local fulfillment company can give you cheap rates, but when you become a nationwide phenomenon, will that fulfillment company grow with you? Select the fulfillment provider that not only fits your needs today, but can also adapt quickly to fit your needs tomorrow.
Modern fulfillment companies like ShipHero are SaaS companies at heart, built around agile methods of process-building and problem-solving.
Can the ecommerce fulfillment provider integrate with your business systems?
Ensure that the chosen fulfillment provider is able to integrate with your business systems and sales channels for inventory and demand forecasting. Fast and reliable delivery that scales with your business is entirely dependent on data and automation, so your fulfillment provider needs to not only keep up in terms of technology but push the envelope… get it?
Does the ecommerce fulfillment provider have a proven track record of offering reliable services?
Choose the ecommerce fulfillment provider that has a proven record of success. Look for testimonials or references, and look to see their client list for companies in your industry. Ask if they have staff that is well-trained and experienced in your particular area of business; not all businesses handle fulfillment the same way, so ensure that they have the expertise necessary, from call center specialists to fulfillment operators to app developers.
We posed a lot of questions here today, and you may have been hoping for answers. But the fact is that the choice is highly dependent on the exact business, industry, location, lifecycle, angle of Venus in retrograde, etc. so the best you can do is dig deep and answer the hard questions. Isn’t it worth your future success? I’ll answer this one for you, yes. Yes, it is.
ShipHero is an outsourced fulfillment company that prides itself on offering fast and reliable fulfillment, helping your business grow while taking the hassle out of logistics.
This is a guest post from Nicholas Daniel-Richards, Co-founder of ShipHero