The recent growth in the e-commerce start-ups and emerging companies (between $2 to $5 million in sales), especially on the global levels, has been mind-blowing over the past recent years. As the studies suggest to us, successful direct-to-customer businesses learn quickly how to provide good customer service at the lowest possible costs.
It’s essential to jot down that it usually takes two to five years to access financial breakeven for any type of business. We will talk about a few crucial factors on which all the emerging companies need to put their attention to establish timely and efficient fulfillment services.
1. Knowing Fulfillment Costs for Each Order
While we compare fulfillment costs between two or more companies, we have seen a pattern where outbound shipping and employee benefits have been excluded because they vary widely and distort the counting.
The following mentioned fulfillment center usually costs comprise 95-97% of the total expenses:
- Indirect labor: hourly based employees for all the departments
- Direct labor: supervisors and managers
- Shipping supplies: including envelopes, cartons, dunnage, etc.
- Occupancy: space, maintenance/housekeeping, utilities
When we exclude all the outbound freight and employee benefits, the final numbers we get for a completely loaded cost per order keeping in mind the efficient companies are $2 to $6. Whereas, the small-sized companies usually jiggle in understanding and managing their cost per order.
For all the start-ups and emerging companies, this usually ranges between $8 to $12 as they’re often not as focused and managed on production costs and controlling costs as larger businesses.
For the well-organized establishments, the total fulfillment costs according to their net sales in percentage would be around 6% or less which shoots up to 15% to 25% of the total net sales when we talk about the emerging companies.
For most of the companies, the outbound shipping cost is way much more than the sum of the fulfillment expenses listed above, often 10% to 12% of total sales. For the bigger items heavy who get affected by their dimensional weight, the pricing offered from the major carriers can go very high.
Assessing your accounting data periodically helps in managing all your major expenses which are categorized above. Then the next shift is from the order processing system for the same period, using the order count and the carton count to calculate the cost per order, carton, and percent to net sales. Over the next year, assess how these costs can be reduced and customer service improved.
2. Distinctive Contemplation
Until you are not satisfied with your sales volume try building and working with your temporary staff that is flexible enough to make it work for the sales volumes but make sure you have a full-time manager to manage all your fulfillment services.
The hourly wage rates for the temporary staff have to vary according to the market and the availability of people. In the case of low unemployment, as is currently, employees can earn $10 to $17 hourly.
3. Catalogue Administration Thought
Managing and accessing the inventory is typically the largest balance sheet asset for any scale of business. Whether your e-commerce business gets the order depends on product availability and getting order fulfillment to customers in seven days or less. Don’t hold on to the slow-selling product. Cut the retail price at least 20-25% to recover as much product cost early.
4. Career Structure Thought
Many emerging companies start their fulfillment process with large scale establishments of the market side by side working on establishing their fulfillment. Along with this most of them refer to contract programmers to write-up a small system or help interface commercial and homegrown code.
Unfortunately, the downside often noticed is that few of these emerging companies choose to select their way with two to three different commercial platforms before making their final choice based on a measurable metric and stable order management that has the key of direct customer service, warehousing, inventory, and some marketing functions.
Software as a Service is also found out to be a better financial option for most of these companies. With this, you have the liability to pay for system use based on a transactional fee or a monthly fee keyed to volume. The key is to select and implement an affordable system with your designed metrics and direct the customer functions which meet your needs for five to 10 years.
5. Assess Arbitrator Fulfillment as an Alternative
Instead of developing an internal fulfillment process, companies prefer to sign a contract with a third-party logistics firm who are specialized in direct customer fulfillment. However, this is not a compulsion and is found in few selected organizations only who believe in a cost-effective and excellent customer service option along with the elimination of all the issues related to the staffing, space requirements, and saving on capital expenditures.