How much does a 3PL cost?

In this article, we break down how much it costs to use a 3PL to fulfill your ecommerce store orders. We'll cover:

• What is a 3PL?

• The factors that influence the cost of a 3PL

• The components of a 3PL's cost

• Some real examples of what ecommerce store owners pay in 3PL fees, using 2024 data

• Tips for choosing a 3PL, especially if you're a small or medium sized store

What is a 3PL?

Before we delve into the costs associated with 3PL services, let's clarify what 3PL actually means.

A 3PL refers to a "third party logistics" provider. These are businesses that offer logistics and supply chain solutions — such as warehousing, pick and pack, order fulfillment, transportation, and postage — to other businesses, such as ecommerce stores.

Ecommerce businesses often utilize 3PL providers to handle tasks like picking and packing orders, managing inventory, and shipping products to customers.

Why use a 3PL?

There are multiple reasons, but the main one is normally that it makes life easier.

If you're an ecommerce store owner and you're spending 4 or 5 hours per day picking, packing and posting orders, this is time that you aren't spending on more important tasks, like getting more customers or growing your business.

Apart from time, space is another key reason. Many ecommerce store owners don't want to store pallet loads of inventory in their house, apartment or garage, or pay for a storage locker that might be a 30-minute drive from where they live.

What factors influence 3PL costs?

Understanding how much a 3PL will cost your ecommerce business requires considering several factors:

1. Volume of Operations: The more products you sell, the more services you will require from your 3PL provider, and consequently, the higher the cost.

   
   

2. SKU Count: Generally speaking, you'll pay more if you stock a large number of products (called "SKUs"). Every unique item is a separate SKU — so if you sell a green T-shirt in 5 sizes and a white T-shirt in 5 sizes, your store has an SKU count of 10. Higher SKUs mean more complexity for the 3PL, so you'll pay more.

   
   

3. Services Required: The scope of services you require plays a significant role in determining the cost. If you only need basic warehousing and storage, your expenses will differ from a business needing storage plus full-scale pick and pack, shipping services and returns processing.

   
   

4. Location: The location of your 3PL provider's warehouse can impact costs. High-demand urban areas may come with a higher price tag than facilities in less congested regions. If your 3PL's warehouse is far away from your customers, you'll also pay more in shipping, which is why good 3PLs have fulfillment centres all over the country.

   
   

5. Seasonal Fluctuations: If your business experiences seasonal fluctuations in sales, your 3PL costs may vary accordingly. Some providers offer flexible pricing to accommodate these changes.

   
   

6. Technology and Automation: The level of automation and technology used by the 3PL provider can influence costs. Advanced automation can increase efficiency but often comes at a higher cost.

Breaking down the costs

Let's break down the typical costs associated with 3PL services.

1. Warehousing Costs: Ecommerce businesses rely on 3PL providers to store their products. Warehousing costs can vary widely depending on factors like location, storage space required, and the type of products stored. Storage costs are normally calculated per square foot or per pallet.

   
   

2. Ecommerce Fulfillment Costs: This aspect includes pick and pack services, order processing, and shipping. Pick and pack costs depend on the complexity of the process and the number of items in each order. Some 3PL providers charge on a per-order basis, while others may offer tiered pricing based on order volume.

   
   

3. Transportation Costs: Shipping is a significant expense for ecommerce businesses. Some 3PL providers offer discounted shipping rates due to their volume and partnerships with carriers, such as Fedex, UPS or DHL. These discounts can help offset the cost of using a 3PL.

   
   

4. Technology Costs: If your 3PL provider employs advanced technology for inventory management, order tracking, and other logistics functions, this may be factored into your costs. While technology can improve efficiency, it can also add to the overall expenses.

   
   

5. Additional Fees: Be aware of potential additional fees, such as storage fees for long-term inventory, returns processing fees, and special handling fees for fragile or oversized items. Many store owners only look at the "headline" fee that 3PLs quote and ignore additional fees. However, these rapidly mount up and are often where 3PLs make most of their money.

   
   

6. Scalability: One of the advantages of 3PL services is their scalability. As your ecommerce business grows, your 3PL costs may increase proportionally. However, this scalability can also be a cost-saving factor since you only pay for the services you need.

Real examples [2024 data]

To provide a clearer picture, let's consider two real ecommerce businesses based in the United States. The names have been changed, but the following data is real.

Business A is based in Florida and sells small consumer electronics and outsources its entire fulfillment process to a 3PL. The annual volume is around 10,000 orders. They require pick and pack services, inventory management, and domestic shipping. Throughout 2024, their 3PL costs ranged from $4 to $6 per order.

Business B is based in New Jersey and specializes in apparel. It uses a 3PL for seasonal warehousing and shipping services. During peak seasons, they have an order volume of 50,000 orders per month. Averaged out over the year, Business B's 3PL costs ranged from $2 to $3 per order.

These examples illustrate the variability in 3PL costs based on factors such as order volume, services required, and seasonal fluctuations.

How to choose the best 3PL provider

Selecting the right 3PL provider is crucial to managing costs effectively. Here are some tips for making the best choice:

1. Evaluate Your Needs: Assess your ecommerce business's specific needs, including order volume, types of products, and required services. Do you need international shipping? Next-day shipping? Returns processing? Special packaging? If so, make sure your 3PL actually offers these services. Many don't, or else they have high MOQs (minimum order quantities) for custom services.

   
   

2. Get Multiple Quotes: Reach out to several 3PL providers to get quotes tailored to your requirements. Give them as much detail as possible, and remember to ask all questions up front. Compare pricing structures and services offered.

   
   

3. Consider Location: Choose a 3PL provider with a warehouse location that aligns with your customer base to reduce shipping costs and transit times. Good 3PLs will have fulfillment centres all over the country to reduce transit times.

   
   

4. Review References: Check references and reviews from other businesses that have worked with the 3PL provider to gauge their reliability and performance. Reddit, Quora, TrustPilot, Google reviews of the 3PL, and e-commerce Facebook groups are all good starting points.

   
   

5. Look for Scalability: Ensure the provider can accommodate your business's growth without exorbitant cost increases.

Conclusion

Understanding the costs of 3PL services is crucial if you want your store to be profitable.

The expenses associated with a 3PL can vary significantly based on factors such as order volume, services required, location, and technology.

By carefully evaluating your business's needs and exploring your options, you can find a 3PL provider that offers cost-effective solutions for your ecommerce warehousing and fulfillment requirements.

Remember that while 3PL services come with a price tag, the efficiency, scalability, and potential cost savings they offer can make them a valuable investment for your business in the competitive world of ecommerce.