Understanding Fulfillment Expenses: What DTC Brands Need to Know

Fulfillment expenses impact every direct-to-consumer (DTC) brand’s bottom line—from receiving inventory and storage through picking, packing, shipping, and returns. This comprehensive guide explains what fulfillment expenses cover, how they influence profitability, and what to evaluate when comparing a 3PL’s pricing.  Ideal for founders, retail marketers, and procurement teams seeking clear, actionable insights before requesting a quote.  

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What Are Fulfillment Expenses and When to Use This Info?

Fulfillment expenses include all costs involved in processing, handling, and delivering customer orders. These costs cover several core steps and services:

• Inbound receiving and dock-to-stock labor
  Fees related to unloading, inspecting, and putting away inventory at the warehouse.    
• Storage fees
  Charges based on the type of storage (pallet, bin, shelving) and environmental controls (ambient or climate-controlled).    
• Picking and packing labor
  Wages associated with selecting items from inventory and preparing shipments. This can vary by order picking method such as piece pick versus carton pick.    
• Packaging materials and inserts
  Costs of boxes, filler materials, branded cards, coupons, and marketing inserts that enhance the unboxing experience.    
• Shipping charges
  Carrier fees based on negotiated rates, zones, and dimensional weight pricing.    
• Returns processing
  Inspection, repackaging, restocking, and refurbishment work performed on returned goods.    
• Technology, reporting, and management
  Systems and labor to track orders, inventory, SLAs, billing, and continuous improvement efforts.     

Understanding these components is crucial when comparing 3PL pricing models to ensure accurate budgeting for new fulfillment partnerships or optimizing existing operations. For DTC brands in particular, a clear grasp of expense drivers helps maintain healthy gross margins by pricing SKUs correctly, controlling shipping expenditure, protecting service levels, and forecasting during promotions or seasonal volume spikes.  

Step-by-Step Fulfillment Expenses Workflow

A typical e-commerce fulfillment workflow includes the following stages, each with its own associated expenses:

Inbound Receiving and Dock-to-Stock

   Receiving fees are generally charged per pallet or carton, covering the unloading, counting, inspection, and system putaway.    Efficient dock-to-stock turnaround times—usually within 24 to 48 hours—support inventory accuracy and make stock available faster for sale,    impacting overall working capital and order fulfillment speed.  

Inventory Storage

Storage fees vary by storage type—pallet, bin, shelving—and the environment (ambient or climate-controlled). Effective slotting strategies, especially placing high-velocity SKUs near packing stations, reduce labor and handling costs. Optimizing storage footprint also lowers rent and utility expenses.  

Picking Orders

Picking labor differs with the picking strategy:

• Piece pick involves selecting individual units, labor-intensive and typical for multi-line orders.
• Carton or case pick is faster but applies to full-case orders.

 Batch and zone picking techniques improve efficiency and reduce cost-per-order by minimizing travel and handling time.  

Packout: Custom Kitting, Packaging Materials, and Assembly Labor

Packaging choices, inserts, and assembly such as custom kits or bundles increase materials and labor expenses but improve customer satisfaction.    All Points offers comprehensive custom kitting and product assembly services     to simplify these operations, reduce handling time, and improve packaging efficiency.  

Printing and Marketing Material Insertion

Branded cards, coupons, or instructions are often inserted in orders on demand. Integrating printing services with kitting reduces duplication,    shipping touches, and costs, while maintaining brand quality.  

Shipping and Last-Mile Delivery

Freight costs depend on carrier selection, shipping zones, negotiated rates, and dimensional weight pricing. Dimensional weight fees can drastically    increase costs if packages are oversized relative to their weight. Atlanta’s geographic advantage enables broader, low-cost ground coverage,    reducing the need for costly expedited air shipments.  

Leverage the dimensional weight pricing calculator to estimate carrier fees and manage shipping costs effectively.  

Returns Handling Workflow and Associated Costs

Returns processing includes inspection, sorting, repackaging, and restocking or refurbishing items. Handling complexity varies by product and condition,    affecting turnaround time and cost per return. Well-defined SOPs reduce surprises and improve recovery rates.  

Reporting, SLA Tracking, and Continuous Cost Optimization

Regular performance monitoring through SLAs and KPIs enables identification of inefficiencies and cost-saving opportunities such as carton rightsizing,    slotting optimizations, or carrier mix adjustments. Weekly or monthly reviews ensure continuous improvement and alignment with financial goals.  

Key Fulfillment KPIs & SLAs to Track Costs and Performance

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Tracking these KPIs directly correlates with controlling fulfillment expenses. High accuracy and fast cycle times reduce costly returns and expedite shipping.    Contracts with clear SLA terms featuring credits or penalties increase 3PL accountability and provide leverage in negotiations and quarterly reviews.  

Pricing Drivers of Fulfillment Expenses

Labor Intensity

Manual pick and pack, extensive kitting, fragile or bulky items increase labor time per order. Automation, standard SOPs, and ergonomic workspace design     can significantly reduce labor costs.  

Storage Type

Using pallet, bin, or shelving storage, combined with ambient or climate-controlled environments, affects cost structure. Evaluating SKU velocity and temperature requirements     enables cost-efficient storage planning.  

Custom Kitting and Assembly Complexity

Subscription boxes, bundles, and extensive assembly require additional labor and workstation resources. Pre-kitting high-demand bundles can lower touches and expenses at order fulfillment.  

Packaging Materials

Custom-branded boxes and inserts enhance brand perception but add material and labor expenses. Standardization, carton rightsizing, and sustainable material use     reduce packaging costs and dimensional weight penalties.  

Shipping Zones and Dimensional Weight Charges

Shipping to high-zone areas or frequent use of expedited or third-party carriers heightens freight costs. Dimensional weight pricing can increase charges for low-density parcels;     accurate cartonization and packaging audits help control this.  

Volume Fluctuations and Minimums

Consistent, high volumes typically deliver favorable pick rates and freight discounts. In contrast, peak season surcharges and minimum volume requirements can add expense.  

Technology Stack and EDI Integrations

Supporting EDI transactions such as 940/945 for ASN and Advanced Ship Notices requires system setup and ongoing maintenance. Marketplace and cart integrations reduce manual errors     and improve speed but carry initial and operational costs.  

Returns Volume and Reverse Logistics Complexity

Higher return rates or demanding refurbishment processes increase overall expenses. Efficient inspection protocols and refurbishment SOPs impact recovery speed.  

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Risks in fulfillment Cost Management and How to Mitigate

Hidden Fees

Common hidden charges include storage overages, long-term storage fees, non-compliant inbound shipment handling, and unquoted special projects.    Ensure all fees are clearly disclosed in rate cards and contracts, with inbound routing guides and pre-approved work authorization.  

SLA Adherence and Rework Costs

Failures to meet SLAs cause reshipping, refunds, and expedited shipping expenses. Clearly defined contract terms with penalty clauses,    coupled with frequent KPI reviews and root cause analyses, promote accountability and continuous improvement.  

Inefficient Packing Leading to Dimensional Weight Charges

Oversized cartons inflate shipping costs unnecessarily. Mitigation includes cartonization logic, a maintained carton library, and regular packaging efficiency audits.  

Inventory Inaccuracies

Stockouts, overselling, and scramble replenishments increase cost and risk. Cycle counting by ABC analysis, adherence to dock-to-stock SLAs, and automated reorder workflows reduce these risks.  

Systems Integration Failures

Poor integration between warehouse management, order management, and carrier platforms lead to manual errors, delays, and mislabeling. Benefits come from thorough testing, sandbox environments, and continuous monitoring.  

Lack of Invoice Transparency

Unexpected charges at billing can inflate costs. Require auditable invoices, monthly reconciliation, and assign billing contacts for variance resolution.  

The Atlanta Advantage for Cost-Effective Fulfillment

• Approximately 80% of the U.S. population is reachable via 2-day ground service from Atlanta, significantly reducing reliance on expedited air shipments often required from more remote regions.
• Lower ground zone costs generally translate to better average freight spend per order.
• Inbound freight costs for East Coast brands benefit from shorter linehaul distances to the Atlanta hub compared to West Coast origins.
• Integrated services such as kitting, printing, and assembly all under one roof reduce handling touches, minimize material waste, and cut landed costs.
• As a family-owned 3PL with nearly 30 years of experience, All Points emphasizes operational discipline, predictable SLAs, and collaborative partnership to help brands control costs without sacrificing service quality.

What You Get with All Points

• End-to-End fulfillment: Our e-commerce order fulfillment solutions cover every step—from inventory receiving through picking, packing, shipping, to returns—to help you control expenses and maintain accuracy.
• Integrated Custom Kitting & Print: Simplify packout with on-site production and assembly. Explore our custom kitting and product assembly services to streamline complex builds and subscription kits.
• Operator-Grade SOPs and KPIs: Defined SLAs for dock-to-stock, order accuracy, on-time shipping, and returns cycle times, with regular reporting and actionable improvement plans.
• Transparent Pricing: Clear rate cards, well-documented assumptions, and detailed invoicing empower you to model costs and margin per SKU confidently.
• Atlanta-Based Network: Leverage Atlanta’s two-day ground reach to reduce expedite spending while meeting delivery promises.

How to Evaluate a 3PL Proposal (Quick Checklist)

• Scope Clarity: SKU counts, avg. lines per order, BOMs for packaging, returns policies, and promotions/bundles.
• Service Levels: Dock-to-stock timing, order cutoff times, accuracy rates, on-time shipping percentages, and returns turnaround.
• Pricing Detail: Charges for receiving, storage types, pick/pack tiers, kitting/assembly, packaging materials, special projects, and contractual minimums.
• Systems and Data: Supported platforms, EDI transactions (940/945/856), testing phases, and reporting schedules.
• Risk Controls: Procedures for charge disputes, invoicing audits, and QBR-driven continuous improvements.

Sample Ways to Lower Fulfillment Expenses Without Sacrificing Customer Experience

• Rightsize cartons and dunnage to reduce dimensional weight charges and product damage.
• Pre-kit common bundles to reduce order-time touches.
• Slot high-velocity SKUs closer to pack stations.
• Consolidate carriers where discounts outweigh service risks.
• Set clear order cutoff times enabling same-day ground shipping instead of expensive air.
• Tune returns inspection rigor based on product value and resale potential to optimize reverse logistics costs.

FAQs

What are typical components of fulfillment expenses?    

Receiving labor and fees, storage, picking and packing labor, packaging materials, inserts and printing, shipping (including dimensional weight and surcharges), returns handling, plus technology, reporting, and management costs.    

How do pick & pack costs affect overall fulfillment pricing?

Pick and pack labor usually represents a major direct expense. The complexity of SKUs, number of lines per order, and packaging type directly influence labor time and cost.      Effective slotting, batching, and smart packaging can significantly lower these costs.        

What SLAs should I expect when outsourcing fulfillment?          

Common SLAs include dock-to-stock within 24 to 48 hours, order accuracy at or above 99.5%, on-time shipping rate of at least 95%, and same-day or next-day order processing before cutoffs.        

How does Atlanta’s location impact shipping costs and delivery times?          

Atlanta provides two-day ground delivery to roughly 80% of U.S. households, reducing the need for air freight that drives up costs. This geographic advantage improves delivery predictability and lowers average shipping spend.        

Can All Points handle custom kitting and inserts alongside fulfillment?          

Yes. We integrate print, kitting, and packout services within our facilities to maintain quality, reduce handling touches, and control costs. Learn more on our custom kitting and product assembly services page.

Ready to Take Control of Your Fulfillment Expenses?

Get a kitting quote or talk to an Atlanta 3PL expert today to uncover your true fulfillment  costs and boost margin control.  

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