It’s a tough pill to swallow, but it’s something you realize quite quickly as your ecommerce business grows – you can’t do it all. And if you try to, it can be costly. The first area of business you’ll want to look for support? Likely your logistics.
While evaluating third party logistics providers can seem daunting, the sunk costs (both time and moneywise!) and the risk from not evaluating your needs critically is even more daunting.
Let’s take a look at four major areas that trying to do it all, logistics-wise, can cost you.
They say that time is money, and whoever they are, they’re not wrong. When you run a business, every minute counts. Time spent packaging orders can lead to major costs on other sides of the business. If you don’t have time to market your product or look for ways to improve them, you will find your business falling flat fairly quickly.
You may be thinking, what’s a few packed orders a day? You can afford to lose an hour or two to avoid paying somebody. But you have to consider the hours spent on logistics outside packing orders. This includes sourcing supplies, going out to get said supplies, negotiating with packaging vendors, and countless trips to the post office. And with the expectations consumers have for a speedy delivery, you have to go to the post office to ship things out ASAP.
Some industry providers suggest that if you’re packing more than five orders a day, you want a 3PL. So let’s break these tasks down into weekly time commitments, assuming five orders a day are being picked, packed, and shipped:
- Packaging orders: 30 minutes/day = 3.5 hours/week
- Commute to post office (biweekly): 30 minutes/week
- Time spent at post office: 1.5 hour/week
- Ordering supplies and sourcing suppliers: 2 hours/week
- Total = 7.5 hours/week
You see fast how these hours can add up! Based on five orders a day, you’re already losing a full day a week to logistics at the least! What happens when you start to get more orders? Time across all of these functions will increase.
But what does this cost? For sake of analogy, give yourself a minimum wage salary to cover these costs, and you’re looking at anywhere between $85.88-$120.00 a week. That can be close to $500 a month lost just on time alone – minimum. We haven’t even gotten into materials!
Which segways nicely into...
Even if you spend hours negotiating with vendors (which ties right back to lost time on logistics!), materials are still expensive. Some materials you may be sorting through when managing your own logistics include:
- Boxes – $21.50/order of 25 boxes, sized 12 x 9 x 4 (naturally, different sizes are different prices!)
- Packing peanuts – $30/bag of plain white packing peanuts
- Packing Tape – $27/pack of six rolls
- Mailers – Standard white bubble mailers are around $67 for 250, whereas the smallest glamour mailers start at $102 for 72
- Air support pillows – $166 for a roll of small bubble quilt film, upwards of $293 for large packaging
- Air pillow machine – $1,949 for a small air pillow machine, upwards of
- Label printer – $144.99 for an address printer, upwards of $369.99 for a full shipping label printer
It adds up quickly – based on these numbers alone (and the chance there are materials you need that aren’t listed here are quite high!), materials are costing between $2,405.49 to $2,792.49.
And keep in mind, these are the basic models of everything. Unboxing has become a huge party of online ordering, so paying for custom packaging can cause these prices to jump even more.
Now, you still have to pay a materials cost if you outsource this to a third party logistics company, but you’ll pay less – up to 17% in savings for some customers! Let’s look at how those savings could translate.
It won’t always break down this simply, but it’s clear that over time these savings can make a huge difference to your bottom line! You also won’t have to pay for things like air pillow machines or label printers – those will all be a part of your 3PL partner’s offering and mean more savings!
Once you get all the materials, there’s more costs associated with sending out your orders – shipping fees.
You have to pay somebody to get orders from you to your customers. If you’re working on logistics in-house, you likely rely on postal service providers or courier companies, like UPS, Canada Post, or FedEx, to name a few.
The hardest part about shipping rates is that, from one order to another, there can be a huge change in the price. This is because there are a few major factors that go into your shipping rate, like:
- Package size: The rule of thumb tends to be that the bigger the package, the more you pay for shipping
- Package weight: The same rule above applies here – if the package is significantly heavier, the price to ship goes up
- Shipping speed: Typically, faster shipping means more expensive shipping when you go through a local post office or courier.
If you work with a 3PL partner, there is room for savings here as well, and who doesn’t want to keep valuable dollars in their pocket? Since 3PLs work with so many couriers and postal companies, they tend to get preferential rates, which can be passed on to you.
By working with third party logistics, some vendors have saved up to 14% on their shipping costs! Let’s see how that best-case scenario, and an average scenario, looks for shipping a few different sized items. This will include the savings, assuming you’re sending 100 packages a month.
These savings can (clearly) make a huge difference to the bottom line over tens, hundreds, or thousands of orders.
Being Your Own Last Mile Carrier
Now, depending on the product, some businesses opt to try and be their own last mile carrier. This means making all of your own deliveries. If your business focuses on “big and bulky” products, like furniture, you may be considering the cost of getting these orders shipped out yourself.
This could be doable at the start. Rent a truck and pay some friends in beer and pizza to help with moving, but as you grow, this becomes unsustainable quickly. You will eventually need to lean on help and rentals.
Even if you decide to deliver items one day a week, this gets pricey. Let’s break down how these costs add up, depending on how many days a week you need to make deliveries.
* Based on UHAUL’s 29.95 + 0.89/KM rate, quoted at 90km driven/day, roughly 45km below a delivery truck’s average driving in the GTA
** Based on eight hours days at the lowest minimum wage in Canada
*** Based on eight hour days at the highest minimum wage in Canada
Just like everything else in logistics, it adds up quickly. And again, this doesn’t even include the hours spent finding help or picking up and dropping off trucks. Trying to be your own last mile carrier, with only one person paid for help and one truck can cost you thousands each month. Even if you choose to take on all the delivery alone, the truck fees are substantial.
So, how does a 3PL save you money here? Simple – you don’t pay for these things. Most third party logistics companies have their own staff and truck fleets, meaning you don’t have to give mileage, scheduling staff, and booking truck rentals a second thought.
Bonus? Wherever you’re storing your inventory can be another expense saved. Most third party logistics providers will actually store the product for you. Win win!
So, What’s The True Cost?
The truth is, there’s no way to calculate 100% of the true cost of running your own logistics. Every business has such individual needs that your own research is crucial. However, even based on the above ballparks, logistics are clearly expensive for your business. By trying to manage it on your own, you could be costing yourself valuable dollars from your bottom line.
But, based on the above averages, running your own logistics can cost you anywhere between (drumroll, please)...
$3,802.17 to $10,549.89 a month!
And to make that true cost hit home a little bit more, here are some fun things you could do with that money instead.
- Buy 66 to 183 five pound gummy bears – hope you have a sweet tooth!
- A suite rental for a Toronto Blue Jays game
- Gone to a Coldplay concert. There's nothing quite belting out Fix You with 19 to 53 of your closest pals (because that's how many tickets you could afford on average!)
- Book six to 18 one-way tickets from New York to Honolulu. Return trip? That's a later you problem.
- Find a logistics partner and still have at least $2,802.17 leftover for something fun
As a business owner, you have to take on a lot. And as somebody who likely started the business, you probably want to take on a lot. You pour your heart and soul into getting things off the ground – but things are off the ground now, and you deserve to take something off your plate.
And, as you can see, trying to keep everything on your plate can be costly, especially in a space as complicated as shipping and fulfillment. By bringing in a logistics partner, you can save more and focus on everything else on your plate. It’s still pretty packed.