How to Select a Fulfillment House

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.

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