If you’re interested in outsourcing your e-commerce fulfillment, then I’m sure you have researched the typical price points – order fee, item fee, shipping costs, and storage fees.
Of course, it’s best that you have an apples-to-apples comparison when you evaluate pricing from various vendors. But what about when one pricing model charges storage by product volume and the other model charges storage by the number of pallets? I’m going to explain why pallet storage pricing does not work well for e-commerce fulfillment needs.
Pallet Storage Pricing
Fulfillment centers that charge storage by pallet typically charge a fixed rate ($8.00 - $15.00 per month), but what size pallet? There doesn’t seem to be a standard defined, which makes it impossible to compare price models. I work in the industry and have some understanding of how warehouses have pallet storage racks configured, so I will assume a standard pallet has dimensions of 48” L x 40” W x 48” H.
Now that we have a standard pallet size and a rate, we can attempt to calculate our storage cost. Or can we? The answer is no. What if we have 50 different items stored on pallets, and not one pallet is a full pallet of a unique item? Will the fulfillment provider allow multiple items on the same pallet? If so, how many items are allowed per pallet? The answer to these questions are difficult to find. If you do find them, the policy may be different from one fulfillment provider to the next.
So that we can move on with our pallet storage pricing option, let’s assume the fulfillment center will store two products per pallet. Now we can make the following calculation:
50 products / 2 per location = 25 pallets
25 pallets x $12.00 per pallet per month = $300.00
As you can see, the number of pallets you will be billed really depends on your product mix and what the fulfillment provider allows from a storage perspective.
Another consideration is inventory turnover. If you are efficient at managing your inventory such that inventory cycles quickly (in less than a month), do you get charged a full month of storage?
Some price models have you pay for an entire monthly rate of storage for a pallet regardless of actual time stored. Others charge an average – beginning pallet count plus ending pallet count divided by two. This is yet another complication of determining your cost for pallet storage.
One more consideration with pallet storage pricing is trust of data. Your inventory volumes may be dynamic due to peak seasons or a large size of the product. This means you may have some products where you may need just ½ of a pallet of product and others where you may need multiple pallets or dozens of pallets. It will be very difficult to reconcile and confirm that you are being fairly billed for your storage. This of course takes time, and your time is better served managing your core business – marketing and selling your products.
Volume Storage Pricing
Fulfillment centers that charge storage by volume typically charge between $0.25 and $0.60 per cubic foot per month. Some fulfillment centers charge a premium for storage during peak seasons such as November through December due to holiday volume.
The charges are usually based on exact daily volume on hand. This pricing model is much easier to understand and calculate. Let’s analyze a sample calculation of the first three days of a billing cycle of one product. I have converted the product size to cubic feet and calculated the effective daily rate by dividing the monthly rate of $0.45 per cubic foot by 30 days ($0.45/30 = $0.015):
As you can see, each day of the billing cycle reflects the total cubic volume of the product stored. This type calculation is done on each item in inventory. You will be charged for the total daily cost of every item’s respective inventory balance.
This is a much easier pricing method to understand and provides 100% transparency and no reason to distrust your fulfillment vendor. It also doesn’t take lots of time to make sure you were not over charged for storage.
In the end, if you need fulfillment service for your ecommerce business, then it’s best to compare pricing with vendors that charge storage by volume rather than by pallet. It will be much easier to compare price proposals.
Also, once you choose a fulfillment provider, you’ll have the peace of mind knowing that you can easily reconcile your storage billing charges.