Why it’s important to understand your fulfillment costs?

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E-commerce has offered an immense market spanning almost the entire globe to both the sellers and buyers. But the expanse also means an increased competition level, where the buyer has to ensure a lot of things like marketing the product, packaging, shipping ,managing returns, etc. and all this cost effectively so that the profit margin is not compromised. Sacrificing profit would mean sacrificing the business. A good profit not only is a good source of encouragement but also helps in the growth of the business or business expansion.

If, we want to ensure a good profit margin we first need to consider the costs that we will incur in the entire process of marketing, promotion, storing, packaging, and shipping. Most of these steps are a part of the order fulfillment and therefore while calculating the input costs the most important inputs that need special attention are the fulfillment costs.

This would include the cost of- ware housing the product, packaging, shipping, managing returns. Each of the steps involve a different set of cost :

  • Ware house – Rent, maintenance, labour, and cost of automation (if any).
  • Packaging- Packaging material, labour for packaging.
  • Shipping- Charges of shipping companies.
  • Managing returns – receiving the returned item, cost of the damaged product (if the product returned is damaged), re-packaging, re-shipping.

A sum of all these costs would be the cost of fulfillment. If a business hires a fulfillment service for doing all the above mentioned tasks then their charges would mean the fulfillment cost of the seller.

Therefore, now comes the point where we should know the importance of knowing the fulfillment costs by the concerned business. The following points highlight the same:

  • Calculating the input cost or Budgeting: Until and unless a seller is aware of his cost for fulfillment he will not be able to calculate his total input cost. Knowing the input cost would also help him/her decide the costs the business can bear for other things like promotion and marketing.
  • Offering free shipping: In today’s sphere of e-commerce free shipping is slowly becoming a norm. If the seller is unaware of the cost of fulfillment he will not be able to decide whether it is possible for him to offer free shipping at all or on the method that h can employ for offering free shipping.
  • Determining the price of the product : the price of the product has to be determined keeping in mind the profit margin of the seller which would have to include the cost of fulfillment. Usually a the price of a product displayed on an e-commerce website offering a free delivery is determined by adding the price of the product to the cost of fulfillment.

A seller can calculate the exact cost of fulfillment and also reduce the cost through efficient management of fulfillment. Mastering fulfillment is possible only through experience and a proper use of common sense it is not a one day task!

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