Business growth is something every company wants.
But it comes with challenges…
One of these challenges includes logistics, shipping, and fulfillment as they increasingly become complex the bigger your company grows. Not only that, but with marketing and product development on your already busy plate, there isn’t much time left to take care of logistics.
That’s why many growing eCommerce companies opt to outsource to 3PLs (Third-Party Logistics) instead.
In fact, 3PLs are in such high demand that the market will reach $1.59 trillion by 2028. And one of the biggest contributors to that is the skyrocketing eCommerce industry, projected to increase by $2.3 trillion in the next year to reach worldwide sales of $8.1 trillion by 2024.
But how do you find a good 3PL that’s worth its price?
In this blog, we’ll explain how 3PL pricing works according to the types of 3PL services. By the end, you’ll understand 3PL quotes, so you can partner with the most suitable 3PL companies.
6 Factors That Affect 3PL Pricing
So, how much does a 3PL service cost? There’s no single answer to this question, as 3PL providers will have different fee structures with varying costs per service. Instead, you’ll find a breakdown of all the factors that affect 3PL pricing below.
Keep these factors in mind to evaluate the level of service your company needs from a 3PL provider.
1. Company Size
The size of your company can play a role in your 3PL cost. For example, larger companies usually require larger logistics solutions as they can be transporting goods by the thousands. This results in higher costs, although we can’t say exactly how much—the pricing structure and fees can vary greatly from one 3PL to another.
On the other hand, smaller eCommerce businesses can have lower shipping volumes. This means that it’s more cost-effective for them to work with 3PLs that specialize in small and medium-sized enterprises (SMEs).
Moreover, look for 3PLs that offer scalable solutions. As your business grows, they should be able to adapt their services to accommodate increased demand without significantly raising costs. Once you’re a larger company, you can benefit from economies of scale—negotiating for lower rates with 3PL providers because of your higher shipping volumes.
2. Warehouse Size and Location
The size and capacity of the 3PL warehouse required for your inventory storage can impact costs. The more warehouse space you need, the higher the expenses. So, consider your expected inventory growth. If you anticipate increasing your product offerings, choose a 3PL with warehouses capable of accommodating your expansion without exorbitant fees.
Additionally, opt for 3PL warehouses that are strategically located to minimize shipping costs.
For instance, a Hong Kong warehouse allows you to directly work with your Chinese supplier and thus, avoid the cost of slow transit times and exorbitant storage fees. At the same time, you can also save on taxes and fees.
3. Services Required
The range of services you need from a 3PL provider, such as order fulfillment, inventory management, kitting, and returns processing, will affect pricing. More extensive service requirements typically result in higher costs.
So, if you’re just starting, focus on essential services like order fulfillment and inventory management. Add more complex services like kitting or returns processing as your business matures.
If you require integration with your eCommerce platform or specific technology solutions, additional setup and maintenance costs may apply. However, doing so can improve efficiency and reduce errors, ultimately saving you money for years to come.
4. Distance Goods Must Travel
Next, the distance your goods need to travel to reach customers or distribution centers impacts transportation costs. As with anything, the farther the distance, the higher the cost. Choose 3PLs with distribution centers located near your target customer base. This minimizes shipping distances and can lead to cost savings on shipping fees.
Plus, consider the number of shipping zones your products need to cross, as this affects carrier charges and overall logistics costs. Some 3PLs work with multiple carriers, offering flexibility in choosing the most cost-effective shipping options based on destination and delivery times.
5. Contract Agreements
While the duration of the 3PL contract isn’t often considered in 3PL costs, it can affect your pricing in the long term. Shorter-term contracts allow smaller businesses to initially assess the compatibility and performance of a 3PL. However, longer-term contracts can provide cost stability once you’ve established a successful partnership.
Plus, some 3PLs may offer discounts if you commit to a minimum volume of shipments or storage space. You can try to negotiate volume-based discounts to optimize costs and secure better rates, especially if you’re an emerging business with clear volume growth in the near future.
6. Hidden Fees and Scams
Be aware of hidden or unexpected fees, such as accessorial charges for services like liftgate deliveries, inside deliveries, or storage beyond a certain period. Not all 3PL providers are honest, but some of them are—you just have to look for the reliable ones.
So, ensure the accuracy of billing and audit processes to avoid overpaying for services. Insist on a detailed breakdown of all potential charges, including accessorial fees. Then, regularly review invoices and audit billing accuracy.
Catching errors in 3PL quotes early can prevent overpayments.
Moreover, much like any other industry, there are 3PL scams out there that you must avoid. Some may engage in unethical practices or impose hidden fees to inflate costs. So, thoroughly research and vet potential 3PL providers to avoid falling victim to fraudulent or unscrupulous operations.
Find a 3PL Partner That’s Worth the Investment
All eCommerce businesses should approach 3PL selection with a clear understanding of their specific needs and budget constraints. Careful consideration of these factors can help you find a 3PL partner that meets your logistics requirements and supports your growth while keeping costs manageable.
Lastly, remember to prioritize transparency and integrity in your partnership to safeguard your business against scams or hidden fees. Your 3PL should be a partner in business growth.
Looking for a reliable 3PL company to work with?
At San Legend, we help eCommerce businesses scale their brands and break into new markets by providing customized, agile, and forward-thinking third-party logistics solutions. Reach out today to see how we can help.