So you’re finally diving into eCommerce, fueled by the positive reception of your product when you first tested the waters. You’ve done the math and the numbers indicate it will be a profitable venture for you. It’s all good - there’s a strong demand for your product, which means the customers are just there, waiting to give you their money.
You forecast a spike in demand as the holidays near. You chuckle and joke that you’ll probably be buried in orders to fulfill you won’t have time to eat and sleep.
That joke, however, is a possibility that happens all too often in real life. While it’s good that you already have a robust customer base hungry for what you have to offer, you need to think about how you are going to fulfill all their orders.
Now this may sound a bit harsh, but it’s true nonetheless: Not being able to have time for yourself because you have to see to this aspect of your operations isn’t a sign of success; it’s a sign you were unable to include order fulfillment in the equation.
When we say order fulfillment, we’re talking about the steps that need to be undertaken between the time your customers place and pay for their orders up to the time they receive their orders.
Proper order fulfillment involves warehouse organization, order and inventory management, packaging and shipping, and customer communication. The specific steps involved would depend on the type of eCommerce fulfillment service you choose for your business.
You may already have an in-house system in place for fulfilling orders, but as the demand for your product starts increasing, you would need additional support to keep your business running.
It’s easy enough to handle 10 orders a day and package and ship them yourself, but if that number grows to a hundred or more a day, you’ll need to consider where you can store your products and how you can track everything to make sure your customers receive their orders as soon as possible. Keep in mind that customer satisfaction depends heavily on your ability to deliver the right item at the shortest amount of waiting time, so you really have to think about ecommerce fulfillment services.
So what are your options? Here’s a closer look at the three most popular ecommerce fulfillment strategies so you can select the right one that will keep your business going and growing.
In the dropshipping model, you don’t own or keep inventory before you make a sale. You act as a middleman who focuses on marketing and selling a product. You don’t actually have the product on hand. Once a sale is made, you have the product shipped directly to the customer from your partner dropshipper or the product’s authorized distributor (most manufacturers don’t do dropshipping - but you can certainly try asking!).
With dropshipping, you essentially outsource the logistics of order fulfillment. You make a profit from the difference between your selling price and the price you pay your dropship source for the product (this includes any other associated costs such as the dropship fee).
Dropshipping is an easy and inexpensive method to get you started in ecommerce or add new products to your online store. Because of its low price of entry, it’s a good order fulfillment strategy for startups and other businesses that want to alleviate the risk of buying too much of a product that won’t sell.
Dropshipping also helps new businesses understand how the market behaves toward a product before fully committing to buying in bulk or creating a custom or exclusive item. If a product doesn’t sell as much as you’d thought, then you won’t be losing money because you haven’t really built up an inventory.
If you’re a startup just breaking into your target market, dropshipping is a good ecommerce fulfillment model to use because it allows you to establish your brand and earn enough income to purchase bulk orders in the future.
Established brands can also use dropshipping to test customer interest in new product lines before fully investing in them.
If you think dropshipping is just what you need right now, then you need to forge a partnership with a reliable dropshipper. There are two ways you can do this - let’s assume you already know the product you want to sell.
Through the manufacturer
Through a dropshipping site
Note that most dropshipping sites contact the suppliers and ship your orders to your customers directly, saving you from the extra step of having to contact and manage suppliers yourself. Also note that some sites require you to sign up and pay for membership in order to access the directory and the site’s features. Here’s a list of some of the best dropshipping companies you can check out.
To sum up, dropshipping as an order fulfillment strategy is good for those just getting into online retail and those who would like to test new markets with new products. As demand for your product/s increases and requires you to invest in bulk purchasing, you may need to change it up and go for another strategy: third-party order fulfillment, or more commonly referred to as 3PL.
In the third-party ecommerce fulfillment model, you own the inventory before a sale is made. You are no longer a middleman. You manufacture or purchase the product but the inventory is stored with the third-party logistics (3PL) provider. Packing and shipping are done by 3PL company. Marketing the product is still up to you.
With 3PL, once a customer places and pays for an order, you already have the inventory and need only to contact your 3PL provider (you can use ecommerce software to automate this process). The 3PL company then packs and ships the item to your customer.
You can look at the 3PL order fulfillment model as having an off-site storage and shipping hub. You outsource part of the fulfillment process (picking, packing, shipping), allowing you to focus on the marketing and customer service side of things.
With dropshipping, you essentially outsource the logistics of order fulfillment. Look at it as having an off-site storage and shipping hub. Your profit is what’s left after you subtract the price you pay for each product and the fees you pay your 3PL provider from the retail price.
The 3PL ecommerce fulfillment model is ideal for startups and up-and-coming brands that have their own product but no space for inventory. If you’re seeing an increase in demand while also noticing a decrease in your office space, it’s time to move those products out of whatever room you’re in and find a 3PL fulfillment warehouse.
Third-party ecommerce order fulfillment is also ideal for existing small- and mid-size businesses where the distribution aspect remains a weak link. It’s also recommended for seasonal businesses, or companies that anticipate a spike in order volume during certain times of the year, such as the holiday shopping rush.
If you think 3PL is the ecommerce solution for you, you need to find the best fulfillment company for your specific needs.
If you’re going for 3PL ecommerce fulfillment services, it’s vital that you pick the right partner to work with you, so take time to do your research and communications with providers. Tip: you don’t have to work with just one, especially if you handle a lot of international orders. It makes sense then to work with multiple 3PL providers or at least with one provider with multiple warehouses in various regions.
Working with 3PL providers and using a fulfillment warehouse may work for your business, but there are situations where it may be better for your to establish your own product distribution. Let’s get into self-fulfillment!
Also direct fulfillment, self-fulfillment is the model in which you not only own the inventory but also fulfill (pick, pack, and ship) orders in-house. It’s probably what you’re doing right now, albeit on a smaller scale. If this is the case, then think of self-fulfillment as a leveling-up of your current fulfillment operations.
When you go into the self-fulfillment route, you lease a warehouse (if you don’t have the extra storage space on site) and hire staff to do the inventory tracking as well as the picking, packing, and shipping of items as orders come in. The warehouse then serves as your distribution hub where all of your order fulfillment operations are conducted.
The inventory should always be updated and monitored; missing and/or depleted stock can cost you a lot of money of you don’t keep track of inventory carefully. This is why it’s imperative that you use a warehouse management software when you’re doing your fulfillment processes in-house.
In this ecommerce fulfillment model, your profit is the difference between the retail price you set and the costs associated with inventory buying, inventory storing, and order fulfillment.
If you sell handcrafted or customized items, valuable goods, or high-end products, then self-fulfillment would be the viable ecommerce order fulfillment method for you (it would not be wise to send your products to a 3PL fulfillment warehouse).
Startups handling less than 50-100 orders a day will find self-fulfillment to be adequate, allowing them to meet customers’ expectations with same-day delivery. However, once orders really start picking up, they would have to look into other ecommerce fulfillment services - particularly 3PL if they have their own products - to keep customers happy. A waiting period of 5 days just doesn’t cut it anymore; two-day shipping has become the standard.
Even larger organizations with the financial capability to establish an in-house distribution hub may find the endeavor challenging, as they would have to consider rental rates for warehouses, taxes, location (proximity to customers), warehouse machinery, inventory management and warehouse management software, staff hiring and training, shipping rates, and the like.
When choosing an ecommerce fulfillment strategy to use, you need to first determine what your goals are. Are you looking to add a new product to your store or expand your product offerings? Or perhaps save on shipping costs? Or are you aiming to improve your order fulfillment efficiency?
Another thing to consider when thinking about order fulfillment methods is the status of your business. Evaluate what stage it is in and what you hope to achieve with a different order fulfillment strategy. Your assessment will help you decide on which model would best fit for your products and your business as a whole, so think carefully!