How to Select a Fulfillment House

by Dr. Ralph F. Wilson, E-Commerce
Consultant

http://www.wilsonweb.com/wmt6/fulfill-house.htm

As an alternate to warehousing and shipping your
own products, you can outsource the warehousing and product fulfillment function
to a fulfillment house. You'll find many listed in the Yahoo! Directory "Fulfillment
Services" category. Most, however, won't look twice at the small
merchant just starting out. The vast majority are targeting for merchants with
2,000 orders or more each month. Fortunately, however, there are some companies
that serve the needs of beginning Internet merchants.

Fees and Policies to Ask About

When you begin to research fulfillment services,
you rapidly find that they price in enough different ways that they can be hard
to compare to each other -- and it can be difficult to figure out what kind of
bill you'll be paying at the end of the month. Here are some fees and policies
to watch for as you research:

Set-Up Fees. Fulfillment houses charge
set-up fees to help cover their costs of acquiring your business and preparing
their system to take your products. Make sure these are reasonable and within
your budget.

Order Processing Fees. This may include a
flat amount for each order, plus a charge for each additional item in the
package. Rates vary with the number of orders processed per month. Ask if boxes
and packing materials included in the order processing fees or if they are in
addition.

Order Processing Minimums. If you're a
small merchant, you may have trouble making the minimums. Minimums are good for
the fulfillment house but not for you when you're getting started. Make sure
your average number of orders is likely to easily exceed their order processing
minimums or else you'll be paying fulfillment fees even if you aren't getting
orders.

Return Processing Fees. Find out what you
are charged when a customer returns the merchandise and how this process will be
handled.

Storage Fee. This is a monthly fee that
reflects the amount of storage space your products take in the fulfillment house
warehouse. You may be charged per pallet, or per cubic foot, or in some other
manner. Your goal is to keep on hand no more than a two- to three-month's supply
of your product -- no more, or you'll be paying excessive storage charges.

Credit Card Transaction Fees. A few
fulfillment houses will handle credit card transactions for merchants who don't
have merchant accounts. They typically charge a percentage of the total
transaction amount. How does this compare to the typical 2.5% discount rate that
credit cards charge?

Fees to receive merchandise. Look for
charges to check in shipments, verify the box count, and look for visible
damage.

Shopping Cart Services. You can run your
own shopping cart and transmit orders to the fulfillment house via their
preferred methods: FTP, secure download, e-mail, EDI, XML, etc. But it may be
cost-effective to use the fulfillment house's own shopping cart program order
buttons in conjunction with your own website. That way they get your orders
directly and painlessly. Some fulfillment houses also offer accounting and
banking for foreign clients. Ask what services they offer. You'd be surprised
what they can do for you.

Order Transmission Method. Make sure that
the method by which you are required to transmit orders is technically within
your company's grasp. Is it simple or sophisticated enough to meet your needs?

Product Assembly. A fulfillment house can
often assemble your product or kit for you, charging you on an hourly basis or a
time-costed per-piece basis. They can also order products or components for you
so that you're never out of stock. Ask the hourly rate on which these services
are based.

Growth Capacity. Can the fulfillment house
that serves your 100 to 500 orders per month ramp up to 100,000 orders per month
if you get a tremendous response? Inquire about their growth capacity.

Minimum Contract Period. Be careful of
companies that lock you into a six-month or one-year contract. What will you do
if they don't meet your needs, or you don't meet their minimums? You need an
escape hatch if your product line doesn't take off.

Profile of Two Small Business Fulfillment Houses

We're seeing a small but growing number of
fulfillment houses that are seeking to serve merchants with 0 to 2,000 orders
per month. I spoke with two of them.

iFulfill.com
(www.ifulfill.com) of Maumee, Ohio, has been around for several years. Owner
Paul Purdue sees his company's role as enabling the beginning merchant. "We
reduce the entry barriers for the typical small merchant," he says.
"If they can sell it, so be it. If not, they're not losing a lot."
iFulfill's pricing is a bit higher in order processing fees, but it charges no
set-up fees. Purdue's company outgrew his barn, and is now housed in a
warehouse. iFulfill offers a wide range of services to merchants in the US and
abroad.

eFulfillment
Service, Inc. (www.efulfillmentservice.com) of Grawn, Michigan, not too far
from the Canadian border, is relatively new. I was impressed by President Amy
Caughell's enthusiasm to help her clients by being flexible enough to meet their
special needs. Prices and minimums tend to be quite competitive.

Though these two companies' pricing has some
complexities, I've simplified it here so you can see similarities and
differences.

	iFulfill.com	eFulfillment Service
Set-Up Fee	None	$99
Order Processing Fees	$4 each for the first 10 orders, $3 for orders 11 to 20. Drops to $2 for higher amounts. 30¢ for each additional product.	$1.60 per order plus 30¢ per product (i.e. a minimum of $1.90 per order for a single product). Includes average size box and packing materials.
Monthly minimums	None	None
Shipping Costs	Paid by merchant	Paid by merchant
Product Costs	Paid by merchant	Paid by merchant
Monthly storage fees	$4 per product or SKU	$10/pallet/month or 60¢/cubic foot/month if on shelves.
Return processing fee	None currently	Same as order processing fee
Hourly rate for extra services	$20/hour	$25/hour

Each has other fees for extra services, but this
covers the basics. I see both companies' pricing as quite favorable to small
merchants.