Editor’s Note: Today’s blog is from Red Stag Fulfillment who show us how an Order Fulfillment Solution can help reduce risk.
Want to lose customers and sink your business into the ground? All you must do is make late deliveries with busted boxes, and the wrong products. It couldn’t be simpler. Of course, you probably want your business to thrive. So, what do you do to avoid costly delays and terrible packaging? You choose the right option to order fulfillment solution and get your products quickly into the hands of customers — who will become satisfied customers — with as little hassle and wait time as possible
Great, now all you have to do is figure out how. The good news is that you essentially have three options for getting your goods into people’s hands. Our friends over at Big Commerce have put together an in depth resource guide to help you navigate each option, and choose which is best for your business.
A Simple Breakdown of the Big 3
Getting your products to the people who will love them and hopefully buy more is as easy as one, two, or three. So, let’s get some quick definitions and understanding down of the three chief methods that you’re looking at for an order fulfillment solution:
- 3PL fulfillment
Each has its own merits, and you may start to understand them from this brief overview.
Drop-shipping involves selling goods that you don’t specifically own before a sale. Your storefront is essentially a middleman who handles securing goods on one end and securing the buyer on the other, with your warehouse partner holding the goods and delivering them to the customer once the sale is made.
In a drop-shipping model, you’re worried about selling someone else’s product and are focused on the marketing of your store as a whole. Think of it as outsourcing everything but the digital shopping cart.
Third-party fulfillment (3PL) happens when you own the inventory that you’re selling, and you use a third-party warehouse to manage your inventory and ship your goods once you make a sale. So, someone will make a purchase with you first. Then, your order fulfillment solution will pack all the products and ship them to your buyer. It’s common when companies expand or want to focus on sales of a unique product, but don’t have space for a true warehouse.
DIY self-fulfillment is also called direct fulfillment because the seller directly fulfills all of the order. Someone makes a purchase from you, and your own in house team team is responsible for getting all those products from your warehouse, boxing them up, and shipping them to your customer.
You’re in control, and you are also aware of all the different costs associated with each step.
When Does Drop-Shipping Work?
Drop-shipping is likely the easiest business model of the three because you only need to focus on getting the sale. This may cut into some profits, however, as you’re essentially buying a product each time it is sold.
Your profit calculation is: Profit = Sale price of product – purchase and shipping costs from the drop shipper
Drop-shipping is good for a growing business because it’s easy to start and to offer new products, whether you’re growing in general or branching out into new areas. It tends to be very affordable and allows you to run limited tests of new products while focusing on your core sales business.
The downside is that you typically can’t customize products or packaging, you don’t have control over the quality of the goods, and you are almost always competing solely on price. It’s a tough market and drop-shipping options reduce your branding options for the package themselves, so many look past drop-shipping when they try to scale.
Target business we recommend for drop-shipping: startups and e-commerce-only websites.
Check out this video from Red Stag Fulfillment, explaining the differences between a drop-shipping model versus a traditional ecommerce fulfillment model.
Is 3PL Fulfillment Right for You?
It can be hard to run a warehouse — you need true professionals if you want your goods to be packed and shipped properly. The smoother things go, the fewer returns you’ll experience and more revenue you can keep.
Here’s what the profit calculations for using a 3PL looks like: Profit = Sale price of product – storage and shipping cost per unit – general 3PL fees
The chief benefit of a 3PL fulfillment service is that they tend to be able to deliver anywhere your customers are at reasonable rates. The offer fast delivery, support bulk purchasing of your goods, and limit your costs when it comes to physical space of your business.
The downside is that they come with picking, packing, and storage fees that can hurt if you already run thin margins. You still don’t have much control over how a product is packed unless your 3PL offers the options. Some will use standard boxes while others may offer custom options, but you’re paying for those options.
3PL fulfillment services tend to be good for growing businesses and those who will benefit from the deals 3PLs can get with carriers. So, if you’re shipping custom, oblong tables every now and again, a 3PL might make more sense when you look at how much you’d pay during direct fulfillment.
Target business we recommend for drop-shipping: small businesses with limited staff or space who are growing but not large enough for their own volume discounts and warehouse space.
Should Your Business Try DIY Self-Fulfillment
Self-fulfillment is where most businesses want to be eventually because it can be a big opportunity for branding and competitive advantages. The downside is that expenses can quickly get away from you.
Here’s your business calculation: Profit = Retail price – costs of buying and storing inventory – costs of shipping the products to each customer
You get complete control which is a terrific way to understand fully and work to minimize costs. However, that means you need to have the warehouse space, equipment, and staff to get orders out on time. As you grow, you can access bulk shipping rates and options.
It’s a significant investment but can pay off for growing businesses.