How to Calculate Warehouse Expenses
Discover the ins and outs of warehouse expenses, including how to keep costs manageable.
The rise in e-commerce has made it essential for many businesses to invest in warehouse space. Still, making the jump to a warehouse can come with its own considerations and costs, especially if you’re only just becoming familiar with how warehousing for e-commerce fulfillment works.
The benefits of keeping your goods in a warehouse, rather than onsite at your business, can be multifold. Warehousing can keep track of inventory levels better, expedite packing and shipping, and make returns smoother for you and your customers. That being said, there are several warehouse expenses you’ll need to factor into your business startup costs (or cash flow, if you’re already up and running).
Whether you’re just starting out or expanding your existing e-commerce business, there are ways to determine—and lower—your fulfillment costs per order.
What to Know About E-commerce Fulfillment
E-commerce fulfillment incorporates everything that happens after a customer finishes a purchase online. That means receiving, picking, packing and shipping orders—be it by way of self-fulfillment or with the assistance of a fulfillment company. There’s much more to these steps, however: the way you choose to facilitate e-commerce fulfillment can have a significant impact on your shipping speed, warehousing overhead and business startup costs.
There are a variety of options available to e-commerce retailers looking to take the hassle out of their fulfillment operations, each with certain advantages in terms of cost and scalability. The more hands-off you want to be with order fulfillment, the more costly your overhead might be.
Warehouse Expenses to Consider
Whether you’re just starting to warehouse for the first time or are looking to move your inventory to a new partner, there are several expenses you’re likely to incur as you get underway. Here are some of the most common expenses as well as estimated expenses, according to a recent industry survey:
- Setup fees: Your warehouse partner will usually charge you for setting up your account. This fee is usually tied to the size of your company and the complexity involved in warehousing and fulfillment. These costs typically range from $100 to $1,000.
- Receiving, intake, and storage fees: You’ll have to pay for your provider to receive, process, and place your items into storage. These fees tend to break down hourly (commonly ranging from $20 to $50 an hour) or by units—usually measured by the pallet (typically $5 to $15 per pallet).
- Fulfillment and returns processing: Much like receiving, intake and storage, your fulfillment and warehousing partner will expect payment to take care of getting orders out and returns in. Costs can be hourly or per-item, depending on your vendor and volume. Most providers usually charge $30 to $50 an hour or $3 to $3.75 per item.
- Shipping services: The exact cost of shipping services depends on your order volume and the specifics of your inventory, making it hard to create a general price estimate. Most warehouse and fulfillment providers’ shipping programs can approximately save you 10 to 30 percent versus shipping orders yourself.
- Account Management: Your provider may also offer customer service and query support for shipments and returns. You can pay by the hour or through a monthly flat-fee. Hourly fees often range from $40 to $60; monthly flat-fees can be anywhere from $75 to $250.
Keeping Warehouse Expenses Manageable
Warehouse expenses can add up quickly, and varying pricing models can make it hard for business owners to understand what the best options are for their e-commerce venture. There are a few ways in which you can keep your warehouse costs low, which can help you improve your business startup costs and improve cash flow.
1. Know Your Fulfillment Cost Per Order
Your fulfillment cost per order helps you figure out how much you have to spend in order to fulfill one order. This number includes fixed costs, which affect all inventory items evenly, as well as variable costs that are exclusive to the item ordered. You can calculate your fulfillment cost per order by adding your shipping costs together over a certain period and dividing it by the number of orders fulfilled in that window. Be sure to factor in any other flat fees you have to pay as part of your warehousing agreement.
2. Don’t Pay for Services You Don’t Need
When picking out pricing and support options from your warehouse and fulfillment partner, make sure you’re right-sizing your needs. For example, if you don’t need fulfillment help and merely need storage space, you should determine if you can pay less in exchange. On the other hand, if you’re moving a large amount of orders, you should make sure you’re not paying too much. Warehouse partners typically offer bulk discounts, which, when combined with flat-fee payment options, can end up saving you a significant amount of money.
3. Consider Long-Term Contracts for Better Rates
Warehousing partners usually offer better terms to clients who are willing to sign long-term contracts. If you foresee your needs staying the same for a year or more, a long-term contract can often help you get a deal or potentially a lower price increase. It's not unusual for most providers to increase their prices 3 to 5 percent yearly, which you could potentially minimize or avoid if you’re willing to lock in for the long term.
4. Shop Around
Like with most major decisions, shopping around for the best offer can end up saving you a significant amount of money. Don’t just get pricing from one vendor: it always helps to get a quote from several companies, especially when you’re just starting out and want to keep startup costs low. If you’re already working with a warehouse partner, don’t be afraid to shop around for better offers, either.
Staying On Top of Warehouse Expenses
Growing your e-commerce business to the point where you can no longer handle orders without a warehouse is an exciting milestone. With this growth comes a series of important decisions you’ll need to make, however. Although signing a contract with a warehouse isn’t going to be cheap, there are ways in which you can control costs by right-sizing what you include in your contract. If you’re able to balance current business with flexibility for future growth, you can get what you need from your warehouse without having to pay for things you don’t.