3PL Pricing: Variable vs. Flat Rate Models
Choosing a 3PL partner can be difficult. Each provider may offer different services and different pricing models, making it tough to tell which one is the best deal for your business. Before you sign your contract, be sure to consider two of the major models for 3PL pricing: variable and flat rate. Understanding the pros and cons of each model will help you compare apples to apples and make the best decision for your company.
The Financial Advantages of 3PL Fulfillment
Many people think that outsourcing with a 3PL provider will be more expensive than handling their fulfillment internally. But, if you find the right fit, outsourcing can save your company not only money, but valuable time and human resources.
Partnering with a 3PL provider will allow you to spend your time on your product, your brand, and your message. Once you outsource, you will no longer need to spend time:
- Hiring and scheduling warehouse workers
- Inventorying your warehouse
- Coordinating receiving shipments
- Packing and sending shipments
- Handling customer service
- Dealing with reverse logistics
The right pricing model can save you time, effort, and money — which can be invested back into your company each month.
3PL Pricing Models
The most common pricing model by far is the variable model. But in recent years, the flat rate or fixed model has been giving variable cost 3PLs a run for their money. Check out the pros and cons of each model before deciding which is right for you.
Variable 3PL Pricing
Variable models base their prices on the exact services rendered, and often have a dozen or more different fees depending on what they provide. Here are some of the 3PL fees and rates you might see on your bill if you opt for a variable cost provider:
- Set-Up Fee — If you’ve just signed a new contract with a 3PL provider, you’ll likely see a one-time set-up fee on your first bill. This fee accounts for setting up the overall infrastructure for your account, setting up software for your account, and training you and your team. Sometimes this fee is waived, but be sure to ask if you’ll be charged, and if so, how much.
- Warehousing / Storage Fee — This is the cost for storing your products in a 3PL warehouse. It is based on the square footage your products take up, and may have additional fees for climate control or refrigeration.
- Fulfillment / Pick & Pack Fee — This is the main charge you’ll see on your bill. It is calculated either by the exact number of orders you receive that month, or a capped amount of orders you and the provider predetermine. These caps help 3PL providers plan their workload better, so you may only have to pay a flat fee under a certain number of orders.
- Miscellaneous Fees — These fees can cover everything from kitting to special packaging and are typically charged per order. You will likely negotiate these fees before signing your contract based on what special needs your fulfillment process has. If you have complicated subscription boxes or packaging needs, expect to see this number go up.
- Customer Service Fee — This fee reflects calls, messages, and any other communications between your customers and your 3PL provider. Depending on your 3PL provider, customer service may be a flat fee or charged by claim.
- Reverse Logistics Fee — In addition to customer service, you may be charged a reverse logistics fee for handling returns, refunds, and restocking. If you sell a recyclable or refillable product, fees associated with those processes may also be included here.
- Seasonality Fees & Adjustments — Finally, some 3PL providers charge for overtime or holiday work. You should discuss these fees before you sign a contract to ensure you fully understand what you’ll be charged.
Pros of the Variable Rate Model
With the variable rate model, you’ll pay for only the services you need, and you’ll know exactly what you’re paying for. This can be helpful for companies looking for a service provider, rather than a partner.
Cons of the Variable Rate Model
The downside of the variable rate model is that it adds a level of unknown to your expenses. This can be especially difficult to manage for smaller businesses where every dollar counts. You may also find that 3PL providers with variable models treat you like business, not a partner. Since you are paying for exactly what you get, they likely won’t go the extra mile unless they are paid for their efforts.
Flat Rate 3PL Pricing
Flat rate models are exactly what they sound like. Unlike a variable plan with dozens of 3PL fees and rates, businesses pay one flat rate charge per order or month. This fee incorporates all negotiated services, which may include warehousing, fulfillment, kitting, packaging, shipping, customer service, and reverse logistics.
Pros of the Flat Rate Model
One of the biggest benefits of the flat rate model is that you can easily calculate what your bill will be at any point in the month, as long as you know your sales. This predictability can be a life-saver for small businesses or new businesses with thin profit margins.
This 3PL pricing model also encourages a partnership between the two companies. Partners don’t just provide a service for a charge. They encourage the growth of their partner. They want to see their partner succeed. And most importantly, they are willing to go above and beyond for their partner. This means you’re likely to get more bang for your buck from a flat rate 3PL partner.
Cons of the Flat Rate Model
While flat rate models are a great fit for many businesses, they can require additional time and negotiation up front. Be clear with your potential 3PL partner about your needs and your budget to ensure that you set up your partnership for success.
3PL Pricing: The Bottom Line
If you’re looking for a service provider who you can negotiate with heavily to get the price you want, a variable rate model may be right for you.
But, if you’re looking for a steady and reliable bill from a partner who will go above and beyond to help your business grow, the flat rate model may be a better fit.
Want to know more about Brandfox’s philosophy for 3PL partnership? Learn more about our mission and values.