How do I compare a fulfillment proposal with my own operations?

A fulfillment proposal almost always seems expensive because you’re comparing it to an operation you currently run yourself—and which, as a result, doesn’t appear on any invoice. A fair comparison, therefore, doesn’t start with the proposal, but with getting your own side of the operation in order.

What you include on your own side

• rent and utility costs for the space where your inventory is stored
• hours worked by you and by employees who process orders
• packaging materials, labels, and printers
• your own carrier contracts and the rates specified therein
• software for inventory, orders, and shipping labels
• the time spent on exceptions and customer inquiries

That last item is almost always overlooked, and it’s often the most expensive. A lost package or an item sent to the wrong address takes more time than processing ten orders.

Do the math using your own numbers

Use an actual period from your records instead of an average. How many orders were there, how many items per order, and where were they shipped? Compare those numbers to the proposal so that you’re comparing a total amount rather than two separate rates.

Next, look at a period when you were running faster. It’s precisely during a peak that you can see whether your in-house operation can keep up and what an outsourced operation would cost at that time.

Be sure to factor in growth as well

Don’t just compare today’s situation. Consider what your own operation would require if you had twice as many orders: more space, longer hours, perhaps an additional employee, and an investment in equipment. When you outsource, that step doesn’t happen all at once; instead, it’s phased in gradually.

Also pay attention to what isn't expressed in monetary terms

Part of the profit isn’t reflected in the rate. Consider the time you’ll save on purchasing and marketing, not having to work late on a busy night, and the flexibility to grow without having to find a larger warehouse first.

On the other hand, you’re giving up control over day-to-day operations. So when you receive a proposal, be sure to ask what information you’ll have access to and how quickly you can reach someone if something goes wrong.

Ask for the full picture

Finally, ask whether all the items are included in the proposal: delivery, storage, setup, returns, special services, and any minimum order requirement. A proposal that explicitly lists these items is easier to compare than one that simply states a single amount per package.