E-commerce retailers spend billions of dollars every year shipping items to their customers. The shipping cost itself is only a fraction of the total fulfillment cost per order, but it’s quite an important metric to inform your supply chain strategy.
Do you know how to calculate fulfillment rates for your business? Streamline Fulfillment specializes in Shopify and Magento fulfillment, among other platforms. Below, our fulfillment experts break down this business expense so that you can start improving your operations.
Metric 1: Calculate the Cost Per Order
Many business owners opt for a cost-per-order approach when figuring out their average fulfillment costs.
The cost per order adds all your order expenses together and divides the total by the number of orders you receive.
Adding all of your fulfillment expenses would need to include the following:
- Direct labor expenses: How much goes toward the employees handling order fulfillment? Think about warehouse staff or a third-party logistics company.
- Indirect labor expenses: If you’re outsourcing fulfillment, there might be fees to cover indirect labor, such as inventory supervision or administrative needs.
- Occupancy costs: What does the warehouse need to function? Lease payments and a cutting-edge order management system are just the start.
- Inbound shipping costs: As a retailer, you need to cover the costs of shipping your inventory to the warehouse for storage and eventual processing. When figuring out how to calculate fulfillment rates per order, you should count these costs.
- Packing materials: Doesn’t fulfilling orders require boxes, envelopes, and postage? Don’t forget to add these costs up, too.
Divide that total by the number of orders your business receives to get an idea of each order’s impact on your bottom line.
Metric 2: Determine the Cost Per Box
You might want an exact cost analysis based on your order volume. However, if you’re someone who regularly sends customers multiple boxes within an order, you may prefer to find the fulfillment cost per box.
This calculation is similar to the cost per order but divides the total by the number of boxes (not the number of orders).
Metric 3: Your Fulfillment Rate as a Percentage of Sales
If you want to improve your operational efficiency, you should also know how to calculate fulfillment rates as a percentage of your sales. Calculate your fulfillment expenses as explained above, but divide this figure by your net sales and multiply this by 100 to get the percentage. This figure tells you what portion of each sales dollar your business is paying toward fulfillment.
Of course, once you know that figure, you’ll also have a better idea of whether to change the way you’re doing things. Could you cut labor costs, packing materials, and miscellaneous expenses by outsourcing order fulfillment to a third-party logistics provider? That might put a greater percentage per sales dollar right into your pocket.
Streamline Fulfillment With Trusted, Affordable Third-Party Logistics Companies
Knowing how to calculate fulfillment rates helps you adjust your prices and profits. If you’re interested in controlling fulfillment expenses while mastering supply chain agility, why not leverage Streamline Fulfillment’s warehouses or e-commerce retailers throughout the West Coast? Call (509) 888-2880 today.