Introduction

Are you curious about the details behind 3PL warehouse pricing? How much do 3PLs cost? What are some 3PL pricing models? Look no further! In this ultimate guide, we will delve into the intricacies of 3PL pricing and uncover the secrets that can help you make informed decisions for your business. Whether you’re a seasoned professional or just starting out, this comprehensive overview is designed to provide you with valuable insights and tips. So, let’s dive right in and discover the key factors that influence 3PL pricing. Get ready to unlock the secrets of 3PL warehouse costs!

Types of 3PL Pricing

In general, you can think of your 3PL partner as a “warehouse for hire”. You are contracting them to serve as your company’s warehousing department. Instead of paying for (and dealing with the headaches of) a multi-year lease on a building, the payroll for pickers/packers/management, worker’s compensation, software, insurance, and other expenses, you can pay a third party logistics company to handle it all.

Most 3PLs operate under a pay-for-what-you-use business model. This means that any time the 3PL has to perform work or “touches” for your business, or otherwise incurs an expense attributable to your goods (i.e., storage) there is a fee associated with it.

Every 3PL has its own unique pricing structures and offers a variety of services. When it comes to fees, there are several types that you may encounter. These can include transportation fees, warehousing fees, handling fees, administrative fees, and value-added service fees. It’s essential to understand the specific fee structure of each 3PL to accurately assess the costs and services they provide.

1. 3PL Inbound Pricing

Most 3PLs have some type of inbound fee. These are fees associated with receiving, verifying, counting, inventorying, and put-away of your goods into the 3PL’s warehouse. 3PL receiving fees are generally on a per-unit basis, such as cost per 40ft or 20ft shipping container, cost per pallet, cost per case, or cost per each/unit. This will depend on how your inventory arrives to the warehouse.

2. 3PL Storage Cost

Storage costs are often one of the largest line items that you will pay to a 3PL partner. This is especially true if your 3PL is located in an advantageous location, such as Southern California, where quick access to the ports of Los Angeles and San Diego, as well as high population density, drives up the cost to lease warehouse space for 3PLs. These companies then need to pass this cost on to their customers.

Units of Measure for 3PL Warehouse Storage

Storage fees are typically assessed against a certain type of unit of measure (UOM). Most 3PL service providers assess fees on the basis of cost per pallet or cost per cubic foot (volumetric storage).

Billing Frequency for 3PL Storage Costs

There a multiple frequencies with which your fulfillment partner might bill for storage, each with their own advantages and disadvantages. It is worth asking prospective 3PLs how often they assess storage charges, because it may make a difference on your bottom line, depending on your throughput. Some of the options are listed below:

• Initial Storage: This is a fee assessed at the time inventory is received. Some 3PLs assess this in addition to a monthly storage fee, and it can be as high as 1 month of storage or as low as 1 week of storage. Some 3PLs, such as Ideal Fulfillment, have no initial storage fee, which can save you a lot of money.
• Daily Storage: This is often considered the most balanced method of charging for storage. It involves breaking the monthly storage rate into a daily rate, and then assessing a per-pallet cost or volumetric cost for the exact amount of utilized space on each day of the month.
• Weekly Storage:This method involves breaking the monthly storage cost into a weekly rate, and billing for the occupied space at the end of weekly period.
• Monthly Storage: This is perhaps the most common method, and the easiest to keep track of from an accounting standpoint. In this method, you are billed simply for the pallet count or cubic feet which your inventory occupies at the end of a given monthly storage period.

3. Outbound / Order Fulfillment 3PL Cost

Order Processing / Pick and Pack 3PL Pricing

Most third party logistics providers charge some type of order processing fee. This is often referred to as a pick and pack fee. The processing fee is assessed on a per-order basis. So if your brand does, for example, 1,000 orders per month on average, you can expect to be billed approximately 1,000 * [order processing fee].

Different providers include different items within this fee. For example, the processing fee might include the first pick for an order, or it might be a (hopefully lower cost) fee that is just assessed on every order, and a separate pick fee is applied for each item. This fee might also include a basic poly-mailer or other packaging item, or that might be an additional cost associated with the order.

Additional Pick 3PL Cost

The additional pick fee, or sometime simply the pick fee, is a fee charged for each pick in an order. 3PLs differ in how they might apply this fee. As mentioned above, sometimes the 1st pick of an order is included in the order processing fee. In this case, a 1-item order would have no “additional pick” fees.

Other warehouse service providers might charge a flat fee for every pick (including the 1st). Other variations include charging a different additional pick fee based on the weight of the picked item, or a lower pick fee if 2 or more picks come from the same location.

Rush Order 3PL Pricing

Most 3PLs have a certain cutoff time each day. Orders received by the warehouse prior to the cutoff will ship out that same day, whereas orders received after the cutoff may ship same day, but may not ship until the following day. If a hot order comes through that you need shipped same day after the cutoff time, your 3PL may consider this a “rush” order, and there may be a separate fee for this.

If you routinely have last-minute orders, it might be worth negotiating this line item when searching for a logistics partner.

4. Value-Added Service 3PL Pricing

One of the major benefits of having a competent, full-service 3PL provider is that you have a small army of labor at your disposal that you can turn on and off as needed. If you have a one-off special project or a recurring need for increased workload, your 3PL can manage the labor to get these done and only bill you for the exact level of service needed. There are several types of Value Added Service (VAS) fees

3PL Costs for Kitting and Assembly Project

Kitting is a value-added service which involves combining “raw” inventory into kits or “finished” inventory. This can involve creating boxes, filling the boxes with specific quantities of specific SKUs, adding promotional inserts, etc.

Assembly on the other hand typically involves tasks such as screwing parts together or otherwise assembling items. Kitting or assembly can also be known as bundling, in which products are bagged, boxed, wrapped, or even taped together to form a new bundled SKU. This is great if you have items that are often purchased together.

Kitting is one of the most common and powerful uses for the standing army that 3PLs have at their disposal. It’s important to find a competent kitting partner who has experience with quality control requirements and best practices, and can knock out your project quickly and accurately. At Ideal Fulfillment, kitting is a large part of what we do on a daily basis, and we have a dedicated team of >20 individuals who live and breathe warehouse kit assembly services. You can find more details about our kitting service on our website.

Kitting, assembly, and bundling are typically quoted on the per-finished-item (kit) basis. It is often best to get a per-item quote of this type to avoid unexpectedly high hourly charges. It gives you a predictable per kit cost so you can factor this in to your COGS line very easily.

3PL Pricing for Relabeling and Repackaging

Sometimes a manufacture will make a mistake and either neglect to label a product, or label it incorrectly. Alternatively, a certain retailer such as Amazon might have certain labeling requirements such as the application of FNSKU labels. This is a common example of where your chosen 3PL partner can help, often for lower cost than performing the work in-house or having Amazon perform the labeling.

Repackaging can involve removing outdated / incorrect packaging (for example, if a box was mis-printed) and placing items into the correct package. Or perhaps your goods come from your manufacturer in plain brown cardboard boxes, but you want to sell them in branded packaging.

Relabeling and repackaging projects are similar in nature to kitting and assembly in that they are generally quoted on a per-piece basis, so you can easily predict the expected project cost without concerns of unexpectedly high hourly labor charges.

3PL Pricing for Quality Control Inspection Service

If you need to check that your manufacturer is living up to their promises, your 3PL warehouse team can perform a QC inspection. This often involves opening some number of units and verifying that certain requirements are met. It may involve sending photos as documentation. Depending on the scope of the services requested, this service may be quoted at a flat cost, or on an hourly basis.

Other Hourly Labor 3PL Costs

3PLs can perform just about any project with your inventory that you request, for an hourly rate. A common request is one-off count of all inventory. Perhaps you have an internal or external audit and your inventory needs verification. You can instruct your warehouse to get accurate counts of what is on-hand. This type of service is generally billed on an hourly basis. This covers the 3PL’s labor costs associated with the activity, while ensuring they receive a certain profit percentage as compensation for the work involved.

5. 3PL Cost for Material

Material cost is an often over-looked billable line item when determining how much it costs for 3PL services. Warehouse operations require materials to be consumed whenever certain work is performed. Some examples include:

• Shipping supplies, such as boxes, mailers, and dunnage
• Pallets
• Pallet wrap and corner board

Shipping supplies is generally charged per piece. Most 3PL pricing is structured as a fixed amount per each standard box size they stock, or as a cost-plus-fee structure. For example, materials might be billed at “Cost plus 15%”, which means the warehouse will bill an additional 15% on top of the actual material cost as a facilitation and material inventory management fee.

Pallet material is typically billed during outbound of palletized goods (freight orders). Similar to shipping materials, pallets can either be billed at a flat fee, or at a fixed margin rate.

Pallet wrap is usually billed per-pallet which needs to be wrapped. This is because it’s not easy to determine how much wrap, in terms of linear or square feet, is used by a given account. If corner board is required to strengthen the integrity of the pallets, it is usually billed on a per-corner basis. Corner boards are often used for heavier cases to prevent shifting during transit / storage.

6. Transportation & Shipping 3PL Costs

Competing with 3PL storage cost as the largest line item on any customer’s invoice is usually transportation costs. Transportation costs include the value of carrier labels for small parcel shipments (such as UPS, FedEx, USPS, etc.), as well as freight costs for palletized orders.

It’s important to determine whether you should handle the transportation costs on your own accounts, or have your chosen fulfillment partner manage it. There are pros and cons to each. For smaller brands it’s often a no-brainer – it is typically better to let the 3PL handle it, as their combined order volume between all of their clients should allow them to get discounted rates that aren’t otherwise accessible.

Cost of 3PL Services

Now that you know all of the potential line items, let’s talk expected price range.

Actual prices will vary significantly between geographic regions, and even between providers within a given region. For example, markets like California have high minimum wage rates and business taxes, which force 3PL costs higher than more business-friendly regions. It is not unusual to see 3PL rates in these markets to be double that of southern or mid-west regions.

Most providers choose to hide their pricing structure and prices, forcing prospective customers to call and sit through multiple sales calls before getting to the point. That’s why at Ideal Fulfillment, we are fully transparent about our 3pl pricing, which you can find listed on our website. You can even use our handy 3PL price calculator tool on the same page to get an instant estimate of costs for your specific use case.

Note it’s not uncommon for fulfillment warehouses to waive a certain fee, but make up for it on another line item. For example, some 3PLs don’t charge for receiving, but then charge a higher storage rate or order processing fee. With this in mind, it is always best to compare 3PL pricing structures and verify that you are doing an apples-to-apples assessment before making a decision.

3PL Billing Terms

1. Monthly Minimums 3PL Pricing

Most 3PLs have a minimum monthly spend requirement. This can range from as low as $500 to as high as $2500 or more. Each warehouse provider has a different type of client they are most situated to handle, and the minimum is one way of filtering out which clients they can accept.

Ask your prospective 3PL partner if they have a monthly minimum spend to determine if it’s something you are comfortable with.

2. 3PL Payment Terms

There are 2 major ways that 3PLs structure payment terms – Net terms, and pre-payment terms.

3PL Net Terms

There are multiple ways that 3PLs handle billing in terms of frequency and Net terms. The most common form of billing currently in use is some kind of net agreement, such as net 15 or net 30. This means that the 3PL provider will perform the services, send an invoice, and then the customer has 15 days (net 15) or 30 days (net 30) to pay the invoice.

This can be very helpful for cashflow purposes – it provides the 3PL customer with plenty of time to receive payment for their sales from their customers before paying their warehouse for the work that was performed.

In the case of net 15 billing for example, an order that ships on the 1st of the month might not be billed until the end of month. There is then 15 days from the billing date before it needs to be paid. This is essentially a 45 day period of time where the 3PL costs are being floated by the provider.

Combine this with the ability to pay by credit card (with a 30 day billing cycle), and 3PL customers can extend the time between when a 3PL service is performed and when the payment is due to a total of 75 days in this scenario. This is an added benefit to partnering with a 3PL with net terms vs. handling fulfillment in-house.

3PL Pre-payment Terms

The other common way of 3PL billing is with pre-payment. In this method, a balance is pre-loaded by the client and held by the 3PL provider. 3PL charges are then deducted against this balance as they are performed. When the balance is drawn down, it is topped up by the client to continue services.

3. 3PL Billing Cycles

There are several ways that 3PLs typically structure billing cycles, which are explored in more depth below.

Monthly Billing

Monthly billing is the most common billing cycle in the 3PL industry. This cycle involves aggregating all charges and services provided throughout the month and issuing a single invoice at the end of the month.

Advantages:

• Simplified Accounting: A single monthly invoice can simplify accounting and budgeting processes for both the 3PL provider and the client.
• Predictable Cash Flow: Clients can anticipate their monthly costs and manage their cash flow more effectively.
• Reduced Administrative Work: Less frequent invoicing reduces the administrative burden for both parties.

Disadvantages:

• Delayed Cost Visibility: Clients may not have real-time visibility into their costs, which can hinder immediate decision-making.
• Potential for Discrepancies: Aggregating a month’s worth of charges can lead to discrepancies or disputes if not carefully tracked.

Ideal For:

• Companies with stable and predictable inventory movements.
• Businesses that prefer less frequent but more comprehensive financial reviews.

Weekly Billing

Weekly billing cycles involve issuing invoices on a weekly basis. This method provides a more frequent review of charges and services rendered.

Advantages:

• Improved Cash Flow Management: More frequent billing can help businesses manage their cash flow more effectively, as expenses are spread out over the month.
• Increased Transparency: Clients have more regular visibility into their logistics costs, enabling quicker adjustments and decision-making.
• Reduced Risk of Large Discrepancies: Frequent invoicing can help catch errors or discrepancies early, reducing the risk of large billing disputes.

Disadvantages:

• Increased Administrative Effort: More frequent invoicing can increase the administrative workload for both the 3PL provider and the client.
• Potential for Overwhelm: Clients may feel overwhelmed with frequent invoices if they do not have the resources to manage them efficiently.

Ideal For:

• Businesses with varying inventory levels and movements.
• Companies that need regular updates on their logistics expenses.

Real-time / Daily Billing

Real-time or daily billing cycles provide the most immediate and frequent updates on charges and services. This method involves billing clients daily or as services are rendered.

Advantages:

• Maximum Cost Visibility: Clients receive immediate updates on their costs, providing the highest level of transparency.
• Enhanced Responsiveness: Real-time billing allows clients to respond quickly to cost fluctuations and operational changes.
• Minimized Billing Errors: Immediate billing can reduce the likelihood of errors, as charges are recorded and invoiced in real-time.

Disadvantages:

• High Administrative Load: This cycle requires significant administrative effort to manage and process frequent invoices.
• Potential for Cash Flow Strain: Constant billing can strain cash flow management, especially for businesses with limited financial resources.
• Complexity in Reconciliation: Frequent invoices can complicate the reconciliation process, making it harder to track and manage expenses.

Ideal For:

• High-volume operations with frequent and significant changes in inventory.
• Businesses that require up-to-the-minute cost tracking and reporting.

Other Costs of 3PLs

In addition to standard service fees, engaging with a Third-Party Logistics (3PL) provider often involves various other costs. These additional expenses can significantly impact the overall budget and should be carefully considered when selecting a 3PL partner.

1. Technology Integration Costs

Technology plays a crucial role in modern logistics, and integrating a 3PL’s systems with a client’s existing infrastructure can incur several types of costs.

One-Time Software Integration Costs

One-time software integration costs encompass the initial expenses associated with connecting the client’s sales channels (e.g., Shopify, Amazon, WooCommerce) with the 3PL’s WMS platform. These costs can include:

• Customization: Adapting software to meet specific business requirements.
• API Connection: Connecting and testing Application Programming Interfaces (APIs) for seamless data exchange.
• Implementation: Costs for configuring and testing the integration.

These one-time costs can vary significantly depending on the complexity of the systems and the level of customization required.

Recurring Software Integration Costs

Recurring software integration costs refer to the ongoing expenses associated with use of 3PL’s software. 3PL’s either pay monthly for expensive warehouse management software, or they own their own software outright. In both cases, there are real, ongoing costs associated with use of the system, which are often passed through to the clients. These may include:

• Software Licenses: Regular fees for using the 3PL’s software.
• Support and Maintenance: Costs for technical support and system maintenance.

These recurring costs ensure that the integration remains functional and up-to-date, but they can add up over time.

Specialty 3PL Integration Fees

For use cases that require more unique or bespoke integrations, such as connection to an Enterprise Resource Planning (ERP) application, or a complex EDI integration, a 3PL provider may charge additional fees. These 3PL costs are imposed in order to cover the specialized labor of developers and other technical team members required to implement and test the integration.

2. Onboarding / Account Setup Fees

Onboarding or account setup fees are initial charges associated with starting a new relationship with a 3PL provider. These fees can cover a range of activities, including:

• Initial Consultations: Meetings and assessments to understand the client’s logistics needs.
• Account Setup: Creating and configuring client accounts within the 3PL’s systems.
• Training: Educating the client’s staff on using the 3PL’s technology and processes.
• Documentation: Preparing and distributing necessary documentation and user guides.

Onboarding fees can vary based on the complexity of the client’s operations and the level of support required during the initial setup phase.

Understanding these additional costs is essential for accurately budgeting and evaluating the total cost of engaging with a 3PL provider. By factoring in technology integration and onboarding fees, businesses can make more informed decisions and avoid unexpected expenses down the line.

Conclusion

Navigating the costs associated with Third-Party Logistics (3PL) services can be complex, but understanding the various pricing models, billing cycles, and additional costs is crucial for making informed decisions. From inbound and storage fees to order fulfillment and value-added services, each aspect of 3PL pricing plays a significant role in your overall logistics expenses.

Monthly, weekly, and real-time billing cycles offer different levels of cost visibility and cash flow management, allowing businesses to choose the best fit for their operational needs. Additionally, technology integration and onboarding fees are important considerations that can impact your budget, highlighting the need for thorough evaluation when selecting a 3PL partner.

By taking the time to understand these elements, you can better assess and compare 3PL providers, ensuring that you select a partner who not only meets your logistical requirements but also aligns with your financial goals. Armed with this knowledge, you can optimize your logistics strategy, improve efficiency, and ultimately drive the success of your business.