The holidays are coming quickly, and for many eCommerce store owners, that means a huge rush of orders. Making money through holiday sales is exciting, but shipping out all those orders is exhausting! That’s why many eCommerce businesses like to outsource shipping to a third-party logistics company, or 3PL.
This is a tale as old as eCommerce. It’s very easy to start an eCommerce store and it’s not terribly difficult to scale one. But shipping out dozens of orders per day can quickly make you feel like you live at the UPS store.
Obviously, that’s not the best way to live. But turning over all your inventory to a third-party company and letting them handle your orders - and with it, your reputation? That can be scary, which causes a lot of eCommerce store owners to wait for a long time before making the leap.
7 Ways To Choose The Best 3PL
In this article, we’re going to provide seven steps you can follow to find the right 3PL for your eCommerce business. This will allow you to reclaim your time and energy while remaining confident that you’ve made a solid business decision.
1. Make Sure You Need To Outsource Fulfillment To a 3PL.
First things first, you need to make sure it actually makes sense to outsource fulfillment. Outsourcing to a 3PL lets you take advantage of their economy of scale, which means discounted postage and supplies. But, of course, they will also charge you for labor and storage. You want to have steady order volume before you outsource, or else you might end up spending a lot of money and not getting much time back.
But how do you know when to make that call? As a general rule of thumb, it makes sense to outsource order fulfillment after you are shipping at least 100 orders per month. This is the point at which 3PL discounts often start to match - or at least get close - to the additional labor costs. It is also a point where shipping on your own is generally a pain. We’re talking over 3 packages per day, which can be upwards of half an hour when you account for the inevitable Office Space-style fighting you will do with your printer.
Don’t get too caught up on that number, though. Ask yourself these questions, and if you answer yes to any, it’s probably a good time to hire a 3PL:
- Do I have reason to believe my customer base will keep growing rapidly?
- Am I unable to ship orders out on-time?
- Do I feel generally overworked?
- Am I spending more than 30 minutes per day on fulfillment?
2. Choose The Best Location.
When you choose to hire a 3PL, one of the most important things you can do is pick one in a favorable location. That means you want a 3PL that is as close as possible to your customers. The farther packages travel, the higher your expenses will be on postage, which is by far the largest shipping expense.
For example, if 80% of your customers are on the West Coast, you’ll probably want a shipping location in northern California, Oregon, or perhaps even western Nevada. If 80% of your customers are on the East Coast, you’ll want a warehouse around New York or New Jersey, or perhaps eastern Pennsylvania. If your customers are spread out throughout the US, you’ll want a location somewhere in the middle of the country, like western Tennessee or Kentucky.
You get the idea. If you have sufficient order volume, you can also hire 3PLs with multiple warehouse locations or even multiple 3PLs with single warehouse locations. (In the latter case, you’d need to manage your inventory with inventory management software like Skubana or NetSuite). With a high enough order volume, you may even be able to justify a global presence!
3. Figure out Which Services You Need and Find a Partner To Match.
Most 3PLs offer the order fulfillment and returns. These are the basic services that just about every B2C eCommerce operation needs. But not all 3PLs are the same, and many have unique specialties.
First, consider the nature of your products. If they are hazardous, fragile, perishable, require refrigeration, big and bulky, or contain CBD, you’re going to need to find a warehouse equipped to handle that. Your standard eCommerce-ready 3PL does not necessarily have the proper tools to handle these special cases, so you will need to do your research.
Also consider the extra services which 3PLs provide as well. Many provide services like kitting and assembly, where items can be respectively bundled together and assembled on-site to ship as whole units. Others provide customization and personalization, which is really good if you’re running a heavily brand-forward company (which seems likely since you’re reading the Arka blog).
Make sure you list out your special shipping requirements and any value-added services you consider essential. You will want to find a 3PL that ticks all those boxes.
4. Rule out 3PLs When You See “Red Flags.”
When researching 3PLs, there are some universal red flags that mean you should turn and run, regardless of the services or prices provided.
If a company is slow to communicate with you or they are vague in their communication, don’t hire them. Nothing can be quite as devastating as hiring a 3PL that won’t talk to you, especially when you run into issues. If a company is slow to communicate with you during the sales process, this is an especially bad sign because they are specifically trying to win you over.
Long-term contracts with complicated rules are another sign. Most reputable 3PLs have straightforward pricing and terms these days. Anything you don’t understand is a bad sign.
If the company doesn’t provide service for returns, don’t even consider getting a quote. A very high percentage of eCommerce orders are returned, so you have to have a very good process for handling them.
Lastly, if their software is clunky, don’t work with them. Even if you have a dedicated account representative, the software is going to be the primary way that you communicate with the company. There is no reason in 2022 to work with a company that requires orders to be sent via CSV file. Stick with companies that integrate directly with your shopping site and automatically handle orders.
5. Check Online Reviews.
This is relatively self-explanatory, but nevertheless important. Check as many review sites as you can. Check Trustpilot, Google Reviews, Yelp, G2, Clutch.co, and even the Shopify App Store. The more sites you check, the better chance you have of reading truly unvarnished reviews.
Try to find case studies and references if you can and don’t be shy about contacting current or former customers. Online reviews are a great place to start, but many companies aggressively manage them, so go out of your way to find honest and direct reviews from people.
Read the 1-, 2-, and 3-star reviews especially closely. Some people just like to complain, it’s true. But if you notice the red flags from above coming up in the negative reviews over and over again, then that’s a sign to find a different company to work with.
6. Request Quotes and Do a Price Comparison.
After all this initial work, it is now time to request quotes and start comparing prices. Some 3PLs have started listing all-inclusive prices on their websites, but it’s still not the norm. In fact, most use a pricing model that looks something like this:
Total price of service includes:
- Pick-and-pack fees: the cost of pulling items from storage and putting them in custom folding cartons.
- Supplies: the cost of custom shipping boxes, bubble wrap, etc.
- Postage: the cost to actually ship items where they need to go
- Account and storage fees: the cost of storing items with the company, plus any minimum monthly requirements
- Value-added service fees: the cost of additional services
Take a cross section of orders of different weights and sizes to different locations and compare multiple 3PLs to one another. You don’t necessarily want to hire the cheapest option, but you’ll want to pick one whose prices are at least competitive.
You may also want to double check the fees associated with things like “improper receiving documentation.” Much like looking at a bank’s overdraft fees before opening a checking account, you just want to make sure the fees are not astronomical compared to other options.
7. Use The Sales Process as a Chance To Do Some Last-Minute Vetting.
By the time you start comparing prices, you likely have narrowed down your 3PL options to a handful of good ones. Take your time really getting to know how the businesses work. Evaluate the company through the sales staff before you sign on.
Do you feel like the company is going to be able to take care of your needs? Are they nice to you? Do you feel like you understand what they are going to do with your inventory if you sign on? These are the questions to be asking yourself. Think of it like a job interview, but you are the interviewer.
At this stage, you will have already confirmed you need fulfillment, found companies with good locations, and done your due diligence on services, pricing, and reviews. This is the point where you really just need to do a “gut check.”
Does this feel like the right decision? The answer should be yes before you send inventory.
Final Thoughts
It takes a lot of work to properly choose a 3PL. But taking the time to do so carefully and deliberately will be well worth it. With the right partner on your side, you can eliminate so much unnecessary work. With your newfound time, you can shatter the obstacles that keep you from scaling your eCommerce operation!
Need help finding the right 3PL? Overflow Agency can help you connect with the right partner.
Brandon Rollins manages content marketing at Overflow Agency. His main areas of expertise are online marketing and supply chain management. He also writes for Weird Marketing Tales.
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