‘Minimums’ in the 3rd party fulfilment industry, and what they can mean to you

April 24, 2014

The order fulfilment and e-commerce sector caters to new market participants more than almost any other, so we get a lot of questions about how fulfilment and e-fulfilment actually works. We have gotten a lot of questions lately about minimum order volumes, fees, and storage levels and how they work in the third party fulfilment market, and I will try to answer some of those today.

What is ‘minimum order volume’ in third party fulfilment?

Online retailers who are looking into potential third party fulfilment partners will have to understand how minimum order volume can affect them. Not all fulfilment houses have a minimum order volume, of course, but you’ll need to understand what it is before you can really compare the prices and services offered by different 3PLs.

If you contract with a 3PL for a minimum of 500 orders per month, there will be consequences if they process fewer than 500 orders from you in a month. Many will charge a default fee for not meeting that minimum. Others will charge you as if you had used the minimum number of orders regardless of actual use. Read the minimum order requirements carefully when comparing pricing schemes.

What about ‘minimum monthly fees’?

This is a very similar concept. Some fulfilment or logistics providers have an absolute minimum amount you will pay every month, regardless of actual activity, usage or order volume. If you have a monthly minimum fee of £500, and your usage would only result in a £300 bill, you’ll be charged £500 anyway. On the other hand, if sales meet your expectations, you may never run into a minimum. Just be aware of what it means, and consider it when choosing a provider.

And minimum storage levels?

Again, the same concept but a different application. Some fulfilment partners charge for a minimum amount of storage space used, even if you don’t use quite that much. It may be calculated by square foot, by pallet, or even by SKU, but if your contract calls for a minimum storage level of 5 pallets and you pay £20 per pallet used, you’ll never pay less than £100 no matter how few pallets you actually use. Of course, it can (and really should, unless something is wrong) rise above the minimum amount.

So what do I do if I’m paying for these minimums every month?

If you find you are constantly running against these minimum payments, it is likely hurting your profitability. Try to renegotiate your contract, of course, but also look at the prices other fulfilment partners offer such as Fairway Fulfilment & Logistics. Still, you might not have to move. One company’s minimum charge might even be lower than your actual use at another provider. Just make sure you do the math.

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