Inflation headwinds remain brisk. For ecommerce brands determined to scale in 2025, the going could be rough. But there are ways to uncover operational waste and inefficiencies to grow leaner, leaving more money on the table for other investments. One area creating a lot of industry buzz is order fulfillment—and for the foreseeable future, streamlining that spend could be the key to better profit margins.
Today’s Ecommerce Fulfillment Is Progressive
Although supply chain disruptions may pale in frequency in recent years, there’s less financial give between suppliers, manufacturers and distributors, leaving ecommerce brands and their customers carrying the weight of heavier costs. In this new state of supply chain normalcy, consumer perspectives seldom yield to diminished expectations—they double down on them, and logistics companies need to perform optimally within every function.
So where can online retailers go for operational relief? The numbers.
Runaway Order Fulfillment Is Costly
Who would have thought that the very process responsible for delivering products and completing a sale is also where cost overruns happen—order fulfillment—and why budgeting accuracy is critical to profitability. Without it, fulfillment costs multiply and eat into a business’s bottom-line. And because order fulfillment is a cycle, each step can be a root cause of disruptions.
The true cost of order fulfillment may not be apparent until it’s too late; however, there are specific points to pay careful attention to and create associated budget line items to account for them.
Order Fulfillment Spend Categories
Research findings from a study published in 2024 show how warehouse pricing, staffing challenges, and fulfillment costs have escalated year over year since 2022, simultaneously reducing profits.
Knowing what to look for in the organization can help lessen financial strain and optimize operational workflows.
Warehousing and storage fees.
Every product on the shelf costs a brand. It’s imperative to examine your 3PL’s storage cost structures and discern opportunities for improvements. Recalibrate SKU management and find more efficient ways to store new products and adjust capacity to meet seasonal demand shifts. Your fulfillment partner should be able to help identify dead stock or products at risk of becoming dead stock!
Pick and pack fees.
Product design, size, weight, and unit-per-order volumes can add complexities and costs to fulfillment. During picking and packing, they can increase time and workforce headcount needed to move products from pallets and shelves, and pack for shipping. While automated systems track SKU locations and can safely and accurately place product onto the picking and packing floor, there are costs for the technologies too.
Shipping costs.
New tariffs, regulations, and customs requirements are changing the way retailers buy goods, emphasizing the importance of solid demand planning. Impacts to logistics companies continue to evolve affecting carrier rate trends and surcharges, domestically and abroad.
Returns processing.
Product returns reengage order fulfillment, in reverse, at a cost to ecommerce brands that can quickly undercut seasonal sales success. Without anticipating the depth of return volumes, transportation, warehousing and storage fees, as well as the labor needed to facilitate the processes, can drive up expenses. Returns also pose environmental costs—10% of those products will find home in a landfill.
Technology and integration fees.
Autonomous, integrated systems create interoperability between technologies, physical sites, shopping carts, online brands and their customers. WMS (Warehouse Management System) helps optimize storage needs and generate more effective use of space. IMS (Inventory Management System) adds visibility throughout order fulfillment and logistics alleviating the guesswork of product availability and location, by tracking goods wherever they are. OMS (Order Management System) is a data, reporting and processing hub supporting ecommerce sales from the moment an order comes in through delivery and returns. As business scales, WMS, IMS, and OMS are instrumental to operational transparency—at a price.
The best cost-saving strategies are available in a network of vetted 3PL providers that leverage their longstanding strategic relationships every day. Through these partnerships, they can negotiate better shipping rates, suggest alternative transportation modes, and rework staff schedules to temper the impact of other costs, and absorb the above-mentioned order fulfillment spend categories, which is often built into their services.
What Should Brands Budget for in 2025 Fulfillment?
There is no hard and fast rule on order fulfillment spend because there are variables affecting workability including ecommerce business size, market reach, and customer expectations. Boutique online brands may have a single order fulfillment playbook, while mid-market and big box retailers could defer to specific programs and processes tailor-made for differing product lines and brands.
A leading indicator of runaway spend is evident on the warehouse floor. Idle workers and idle inventories stall productivity and the motivation to scale. By shoring up inventory management, order processing timelines, and risk mitigation techniques, the strategies collectively bridge gaps between fulfillment spend and efficiency.
Honing ecommerce order fulfillment spend is a core competency of 3PL providers specializing in retail and omnichannel customers. But for business owners who prefer to handle logistics via DIY, their operational roadmap just grew bigger.
Creating order fulfillment and logistics from the ground up involves more details and subsequent costs: warehouse acquisition or leasing of space and TIs (tenant improvements), equipment rentals or purchases, and technology investments.
Calculating Fulfillment Costs
Capturing the cost of order fulfillment comes down to three formulas:
- CPO (cost per order) – define a to and from timeline and divide order expense total by the amount of orders received.
- CPB (cost per box) – define a to and from timeline and divide order expense total by the number of boxes sent.
- Cost as a % of sales – divide fulfillment cost total by net sales, and then multiply by 100, revealing the amount of revenue spent on fulfillment costs.
After configuring where current actual costs of ecommerce order fulfillment stand, assessing the right amount of spend helps paint a larger picture.
How much order fulfillment spend is too much?
Establishing the right amount of spend without optimizing order fulfillment operations first is like cutting your nose off to spite your face. It hurts and puts online brands at a disadvantage from the get-go. Instead, target unnecessary shipping costs and make changes.
Keep marketing close and inventories closer.
- Promote merchandise regularly
- Bundle products creatively
- Warehouse efficiently and remove “space waste”
Deciding on a fixed rate of order fulfillment spend is difficult because ecommerce retail demand can fluctuate from foreseeable and surprise events. To stay on top of costs and make that dedicated spend work, review AOVs (average order values) without fail to keep margins healthy.
No more than 20% of revenue works.
Ecommerce brands typically spend no more than 20% of their revenue on order fulfillment and logistics, and product pricing can also be the difference in a successful sales strategy or one gone bust.
Investing In 3PL Provider Services Is Part of the Strategy
With all the costs in retail operations and out-of-the-blue issues that can thwart getting ahead, there could come a tipping point when handling order fulfillment and logistics solo doesn’t make dollars or sense.
Calculating fulfillment costs, reviewing revenue history, and comparing them to near-term trends and long-term goals (think scale) can deliver a powerful and hard-to-ignore reality. It isn’t just about the cost of doing business today, but the escalation of those costs going forward and the investments needed to keep up with demand, remain competitive, and carve a bigger market niche in the future.
Are the time, energy, and costs too prohibitive to get from here to there?
Partnering with a reliable 3PL could be the path of least resistance and the most financially sound too.
How to Optimize Fulfillment Costs Without Sacrificing Quality
Brand integrity is everything. Choosing the right fulfillment partner gives online retailers more time to devote to their brands, while a third-party logistics company can provide their expertise. The result is a streamlined operation, supporting product quality and enhancing the customer experience.
But just because a 3PL says they are the right fit for the job doesn’t mean they are. Make sure to get details on what they offer, what’s included in the service contract, and whether they have the capabilities and interest in scaling together.
Key fulfillment considerations are:
- AI and automation in the warehouse
- Integrated software befriending retail-logistics-customer experiences
- A network of strategically located fulfillment centers
Discovering the right ecommerce order fulfillment strategy and determining spend requires a compilation of verified data and its assessment, and carrying out measurable actions balancing cost, speed and customer experiences.
Curious about order fulfillment spend and exploring other options? Ask an ecommerce 3PL expert how to reduce costs and improve performance today.
Melanie Stern
Melanie enjoys a longstanding career in communications crafting content for varied industries. Her experience includes writing blogs, news editorial, feature articles, social and broadcast segments. She also hosts Institute for Supply Management’s bi-weekly podcast “Supply Chain – Unfiltered”.