Are Online Fulfillment Services Worth Using for E-Commerce?

kathryn by Kathryn Hawkins on March 27, 2013
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E-commerce is a rapidly growing industry. U.S. consumer spending online reached $186.2 billion last year, an increase of 15 percent over 2011 — the strongest annual growth rate since before the recession, according to comScore. If you haven’t already, adding e-commerce to your retail mix could substantially increase the potential audience for your products.

Online fulfillment service providers purport to make the shift to e-commerce easier for small merchants who ship physical goods. But how do they work, and are they worthwhile? Let’s take a look.

What Is Online Fulfillment?

E-commerce fulfillment providers are companies that allow you to outsource the entire fulfillment process. You ship one or more pallets of your merchandise to the provider, and the company manages your inventory by packing and shipping each order as it is received. In most cases, you’ll never need to participate in the transaction.

What’s the Pricing Model?

Every online fulfillment provider has a slightly different pricing structure, but Shipwire’s is fairly representative of the industry as a whole: There’s a base price, plus an additional fee that varies, based on the number of sales you have and the number of items in each shipment. For instance, if you sell an average of 95 orders per month with an average of four items in each one, you would pay $5.13 per order, or $552.25 per month, excluding storage and shipping costs. Shipping fees vary, but may be lower than you would pay independently, because fulfillment companies are often able to negotiate bulk rates.

Is It Right for You?

Can’t you just ship the items on your own? Of course you can. But you’ll need to take the time to pack and ship each order individually — or hire someone else to do it. You may also need a garage or warehouse to store your inventory. All of this cuts into time and space you might otherwise be spending more productively.

If you only occasionally ship products that are ordered online, it may not be worth the cost of using an online fulfillment company. And, if you sell perishables or fragile items, your inventory may not be accepted.

However, if you are working to build a strong e-commerce base to either supplement or replace a traditional retail store, and you don’t want to invest in the storage space and staff it would take to run the operation yourself, you may save money and reduce your own time investment by contracting with an online fulfillment service.

Online fulfillment may also be a viable option if you run a seasonal business and receive a high volume of orders only at certain times of the year. If you manage inventory and shipping on your own, you may not be prepared for the influx of orders and could have trouble filling them all in time. By outsourcing your order fulfillment, you can make sure that you’ll be able to handle orders of any scale.

Have you tried an online fulfillment service? Share your experiences in the Comments section below.

kathryn

Kathryn Hawkins is a business writer for Intuit and is passionate about solving small business problems.

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