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In-House vs Outsourced Fulfillment: Which Wins?

Struggling to decide between in-house fulfillment and outsourcing? Here’s the quick answer:

In-house fulfillment gives you full control over your process, customization options, and direct management of your team. But it comes with fixed costs (e.g., warehouse rent, equipment, staff salaries) and scalability challenges during peak seasons.
Outsourced fulfillment (via 3PL) offers flexibility, expert handling, and pay-as-you-go pricing. It’s ideal for fast growth, seasonal spikes, and reducing operational headaches, but you lose some control and face upfront setup fees.

Quick Comparison:

Control
- In-House Fulfillment: Full control over operations
- Outsourced Fulfillment (3PL): Limited control, handled by 3PL
Costs
- In-House Fulfillment: Mostly fixed (e.g., rent, salaries)
- Outsourced Fulfillment (3PL): Variable, based on usage
Scalability
- In-House Fulfillment: Challenging during growth or peak seasons
- Outsourced Fulfillment (3PL): Easily scalable with demand
Customization
- In-House Fulfillment: Highly customizable
- Outsourced Fulfillment (3PL): Limited, often standardized
Tech Investment
- In-House Fulfillment: High upfront costs (e.g., software, tools)
- Outsourced Fulfillment (3PL): Included in 3PL services
Risk Management
- In-House Fulfillment: All risks are on you
- Outsourced Fulfillment (3PL): Risks shared with provider
Order Volume
- In-House Fulfillment: Cost-effective for small volumes
- Outsourced Fulfillment (3PL): Better for higher order volumes

Key takeaway: Small businesses with fewer than 50 orders/month may benefit from in-house fulfillment. For growing businesses or those with high seasonal demand, outsourcing to a 3PL can save time, reduce costs, and improve delivery speed.

Let’s dive deeper into the pros, cons, and costs of each option to help you make the best choice for your ecommerce business.

In House Fulfillment vs 3PL Which Is Best for Your Business

Key Differences Between Keeping Fulfillment In and Out

Picking to keep fulfillment in your own place or to work with a third party is a big choice. It touches how your online shop works every day, how much you control it, and how you use your resources.

Own Control vs. Expert Handle

Keeping fulfillment in lets you hold full control of your warehouse, items, and how you send them out. This hands-on way lets you make fast fixes and solve problems right off. It also lets you shape things to fit what you need.

But, when you give fulfillment to someone else, you trust the know-how of pros who focus on these services. These teams use tried methods and know a lot to manage storage, picking orders, and shipping well. While you get the perks of their skills, you lose the chance to watch your items and how they are handled closely.

Made Just for You vs. Same for All

When you handle fulfillment in, you can make an experience that fits your brand just right. This might be special boxes, notes just for the buyer, or box opening that are set to make some buyers really happy.

On the flip side, giving fulfillment to someone else often means using set, simple methods made for fast work. Though some may let you change things, it often costs more and may not let you do things your way like you can when it's in-house.

Handling Workers

Having an in-house fulfillment work means you need to hire, teach, and change your team size for jobs like getting items, picking, packing, and sending them. This can be hard when you get a lot of orders all at once, or when things are slow and keeping a big team isn’t worth the cost.

Reports show that over 60% of online buyers are more likely to buy if they see when they'll get their stuff at check out, and 40% say they'll stop buying from a shop if their order is late. These numbers show how key it is to have a fast and well-trained team to keep buyers happy.

Having someone else run the fulfillment takes away the weight of having workers by giving those jobs to your partner. These providers take care of hiring, teaching, and handling workers and can quickly change how many people they use to match the number of orders. This way of doing things makes sure things run smooth without the extra work of handling workers yourself.

"Usually businesses follow a maturity curve, during the ecommerce boom that we saw during COVID lockdowns, many businesses jumped maturity levels because of the sheer increase in volumes. Suddenly they had problems associated with larger scale operations without the gradual increments normally seen when a business grows. This meant they struggled to manage the scale. To fix this, they went with a 3PL." - Kate Mortenson, Product Analyst at Linnworks

Using an outside team to manage orders lets you deal with fast growth or big changes in demand without the hard work of running your own group. These ways of working have different money effects too, which we'll look into now.

Cost Check: How Money Changes

It's key to know the costs of fulfillment when you pick a plan to handle it. Choosing to manage fulfillment by yourself or hiring a third-party logistic (3PL) service means dealing with very different money setups, with both ways having their own good and bad points.

Set vs. Changing Cost Styles

If you run your own fulfillment, you face a lot of set costs. For example, having a place to store things may cost between $0.65 and $0.87 per square foot each month, and you also need to put money down for tools. Most of the time, about 70% of your in-house costs are set, so they stay the same no matter if you send out a few orders or a lot.

On the flip side, using a 3PL moves most costs - about 80% - to changing expenses. In this plan, you only pay for what you need when you use it. For instance, the cost to pick and pack an order may be between $1.50 and $2.50, and you might pay extra, between $0.50 and $1.00, for each item in the order.

"You need to understand the full pricing structure - storage, pick-and-pack fees, shipping rates, and any potential surcharges. A clear view of your total costs can help avoid surprises and make sure the 3PL aligns with your budget." - Joe Spisak, CEO and Founder, Fulfill.com

This cost plan fits with sales, giving firms room to change, which helps a lot when order amounts shift.

More Costs and Keeping Things Running

On top of clear costs, sneaky ones are part of getting things sent. These cover things like shipping, keeping lights on, insuring stuff, keeping places safe, paying for software, and teaching staff. For example, shipping and keeping track of items may take up to 88% of all costs to send things out. Also, if you add a system to handle your storage place and mix in APIs, your costs each month will grow. This includes money to pay for new hires and to teach them.

Here, see what you might pay if you do things in your place or if you get someone else to do it:

Building
- Do it Yourself: Rent, power, cover plans
- Paid Firm (3PL): Part of fee you pay
Work Pay
- Do it Yourself: Pay, perks, skill up
- Paid Firm (3PL): You pay per thing
Gear
- Do it Yourself: Shelves, scan tools, apps
- Paid Firm (3PL): None
Tech
- Do it Yourself: App costs, setup links
- Paid Firm (3PL): $0–$50 a month app charge
Send Costs
- Do it Yourself: Usual or small store prices
- Paid Firm (3PL): Cut price for lots
Breaks/Losses
- Do it Yourself: Your problem
- Paid Firm (3PL): 3PL will handle it

3PL firms often mix these costs in their service fees, making things easy. But, one must think about setup fees (from $150 to $1,000), monthly fees ($75 to $500), and storage fees (near $0.45 to $0.75 per cubic foot). It's good to know, choosing pricing per cubic foot over flat pallet rates can cut storage costs by up to 40%, mainly for shops with many different items.

Costs Based on How Much You Use

The amount of orders is key in seeing how well your cost setup works. For stores with few orders, giving the job out tends to cost less due to its pay-per-use setup. But, for places with many orders, the set costs of doing it yourself can turn out cheaper per order.

Giving the job out also means you can match needs that grow or shrink better than if you did it in-house. For instance, 3PL firms can deal with busy times without the need for more hires or big spends - something tough for in-house teams to handle well.

"The only way you can really get to an apples-to-apples 3PL price comparison is to calculate the total cost of fulfillment." - Tony Runyan, Chief Client Officer, Red Stag Fulfillment

Help for Growth and Ways to Get Bigger

As your company gets bigger, you need to make sure your delivery plan can keep up - dealing with more orders and big changes in sales without any problems. You can either handle delivery by yourself or get help from a third-party delivery (3PL) group. The choice you make will shape your online selling plan and play a big part in how well you can grow.

Dealing with Changes in Seasonal Sales

Let’s look at one of the big problems in online selling: big jumps in sales at certain times. The numbers tell the story - last year, sales on Black Friday hit $9.8 billion, and on Cyber Monday, they reached $12.4 billion. Jump to 2024, and sales on Cyber Monday went up 7.3% from before to $13.3 billion, with sales in the whole week bringing in $41.1 billion, an 8.2% rise from the last year.

Handling delivery by yourself can get hard during these busy times. Set limits on warehouse space, not enough tools, and not enough staff can slow things down and lower the quality of orders. Getting temporary staff might seem like a fix, but it often leads to gaps in training and issues with making sure everything is good.

On the other hand, 3PL groups are ready for change. They bring in expert help for busy times, keep strong ties with shipping groups, and pick smart warehouse spots to spread out goods well. With flexible prices, shared labor costs, and top-notch tech, 3PLs are set up to manage the rush of seasonal sales.

"Holidays are critical for businesses, and scaling up to meet demand can be daunting. By leveraging the expertise, infrastructure, and technology of a 3PL like Barrett, you can confidently navigate the complexities of holiday logistics while delivering exceptional service to your customers." – Katherine Wroth, Marketing Manager @ Barrett Distribution

Speed is key - 69% of buyers say they won't come back to a brand if their stuff shows up late. The speed at which a 3PL can grow may help keep customers happy.

Moving to New Places

Going into new areas shows big differences between self-run and outsourced shipping. With a self-run setup, one big warehouse often means long wait times and high shipping costs for far-off customers. Setting up a new place takes lots of time and needs a lot of money for land, gear, and new people.

3PLs make this easier. They use their ready networks to quickly start sending goods to new places. No shock that 90% of top 500 firms use 3PLs for managing their supply chains. These services work with flexible costs, so you only pay for what you need. This means you can use less when things are slow if you have to.

"With your own warehouse, you pay for the entire space regardless of how much you use. A 3PL lets you pay only for what you use and scale as needed." – Tony Runyan, Chief Client Officer, Red Stag Fulfillment

Plus, 3PLs know a lot about local markets. They get how area carriers work, what customers expect, and the best times to ship. This helps you serve new customers well.

Tech and Tools at Hand

Tech changes the game in growing order filling. A big gap between doing it yourself and hiring out is in the tech used. With 57% of online shops using outside help for some or all order tasks, many see that new tech is a key plus of hiring a 3PL.

For those who do this job in-house, starting to use machines means a lot of money up front - think of systems to run the warehouse, code readers, moving belts, and even robots. These costs can reach hundreds of thousands or more dollars.

But, 3PLs give you quick use of top systems without the big spend. From strong warehouse systems to ways to manage moving goods, they use tech to make supply chains smooth and more right. With the world 3PL market set to reach $1.29 trillion in 2024, these helpers have the means to keep up with new machines and software changes. Their tools for keeping stock right - like plans based on past and now needs, looking at old data, and tracking in real time - make sure orders are done well and stock is where it should be.

It's no shock that 81% of firms using 3PL help say these helpers greatly boost their skill to meet what customers want. When your partner uses the best tech, your customers get a faster, more sure buy time.

Making the Right Choice for Ecommerce Businesses

Picking between doing it yourself or having someone else handle your fulfillment is not easy. You need a clear plan that fits your business's own needs. Even though cost and the ability to grow are big, other things like how big your operations are, what your customers expect, and how much risk you can take also matter a lot. By looking at these things and your money and growth aims, you can pick a way that fits with your big plan.

How Big Your Business Is and How Many Orders You Get

How many orders you get and the size of your business are big in figuring out the best way to get things to your customers. For small businesses with less than 50 orders a month, doing it yourself is often the best way. The costs of having another company do it at this level usually don’t make sense.

But as your business gets bigger, handling it yourself can be too much. Growing means you need more room, more people, better software, and backup plans. Julia Doak from Bedpost shares, "The way you handle orders can change with the size of your business. A big store may have a big place with many workers who put items in boxes for delivery using software. On the other hand, small online businesses might handle their orders by hand."

When businesses have thousands of orders each month, there often comes a time when doing it yourself is too hard and costly. Having another company do it becomes better for growing in a smart way.

Jeffrey Zhou from Fig Loans points out how key fulfillment is for making money: "How you handle orders has a huge impact on how much money you make…" With 57% of ecommerce businesses already letting others handle some or all of their fulfillment, knowing when to change is key.

Less than 50/month
- Good Way: Do it yourself
- Main Points to Think On: Costs less, you run it, small tasks are fine
50–500/month
- Good Way: Look at both
- Main Points to Think On: Think on costs, keep in mind growth later
Over 500/month
- Good Way: Better to hire out
- Main Points to Think On: Big costs for setup, need more people, hard to get bigger

Right here, we need to think about how your way of packing and sending goods affects how happy your customers feel.

What Customers Want

Customers have big demands when it comes to getting their orders. They want quick delivery, to know where their stuff is at all times, and sometimes, they want it the same day.

When you handle shipping yourself, you can make the package special, like adding a note by hand or using branded stuff that shows off your brand. But even though it’s nice to make things personal, fast delivery is often more important. Companies that you can hire to send out your goods, known as 3PLs, are really good at this. They have many warehouses spread out to send things from the best spot, making delivery faster and cheaper. Brooke Webber from Ninja Patches says, "3PLs also usually have many places to store goods across the country, so they can begin sending out an order from the nearest spot to the customer, saving money, getting there quicker, and making customers happier."

Rick Nelson from The Fulfillment Lab states, "Sending out orders is a chance to connect with customers and help your business grow. It's not just about shipping; it's a way to show customers you care and want to meet and go beyond their wants."

For some shops, mixing both ways - doing special or high-value orders themselves and letting someone else handle the usual stuff might work best to keep up with the need for speed.

Lastly, think about how each way of sending goods deals with risks and stays flexible.

Dealing With Risks and Staying Flexible

Handling risks well is key to a good shipping plan. Surprisingly, only 21% of businesses feel sure they can handle risks in their supply chain well.

When you keep all shipping in-house, all risks like not having enough staff, delays, or system problems are yours to face. But, using a 3PL can share some of these risks. Still, hiring out comes with its own issues, like dealing with contracts and making sure the service is good.

To keep flexible, try to find 3PLs that let you make month-to-month deals or change things up depending on the season rather than making you stick with them for a long time. While hiring out makes things easier and can grow with you, it also means giving up some control. Bill D'Alessandro from Natural Dog Company explains it well: "If you need control, you might be okay with a bit more trouble to handle your own shipping. If you can make your process regular, using a 3PL will usually save you cash."

Conclusion: Making the Right Fulfillment Choice

Choosing the right fulfillment model isn’t about finding a universal solution - it’s about tailoring your approach to fit your business's unique needs and goals. While outsourcing can be a game-changer for some, it’s not the answer for every business. The key is to evaluate your current situation, where you want to be in the next year or two, and what your customers expect from your service.

If managing order fulfillment is pulling your focus away from growth, it might be time to explore working with a fulfillment provider. Understanding your current operations is crucial for assessing costs and scalability. For smaller order volumes, handling fulfillment in-house often makes the most financial sense. But as your order volumes grow into the hundreds or thousands, the complexities and costs of managing everything internally can quickly outweigh the benefits.

It’s also important to factor in more than just monthly fees. In-house fulfillment requires significant investments in people, storage space, and systems to operate efficiently.

To guide your decision, consider these questions:

Do you have the expertise to manage warehouse operations effectively?
How much control do you need over the fulfillment process?
Can your current setup handle seasonal demand spikes?
What changes could improve your customers’ delivery experience?

For many businesses, a hybrid model strikes the right balance. By keeping high-value or specialized orders in-house while outsourcing routine tasks, you can maintain control where it matters most and leverage outside expertise for efficiency. This approach allows you to align your operations with your broader business strategy.

Finally, don’t overlook the details in contracts with fulfillment providers. Pay attention to minimum order requirements, termination clauses, and fee structures to avoid unexpected surprises. The best fulfillment model will not only scale with your business ambitions but also keep costs in check while delivering the experience your customers expect.

FAQs

What should I consider when choosing between in-house and outsourced fulfillment for my ecommerce business?

When choosing between in-house and outsourced fulfillment for your ecommerce business, it's important to weigh a few critical factors: cost, scalability, control, and technology requirements. With in-house fulfillment, you'll need to invest upfront in staff, storage space, and equipment. While this option demands more resources, it gives you greater control over your day-to-day operations. On the flip side, outsourcing typically comes with lower overhead costs and offers more flexibility to adapt as your business grows - but it may reduce your ability to directly oversee processes.

Think about where your business is headed and how either option aligns with your goals. For businesses anticipating rapid growth or seasonal surges in demand, outsourcing can provide the agility to scale quickly. However, if keeping a tight grip on inventory management and the customer experience is a top priority, managing fulfillment in-house might be the better route. Also, consider how each option integrates with your current systems to ensure seamless operations and efficient order processing.

What are the cost differences between in-house fulfillment and outsourced fulfillment (3PL), and which option is more cost-effective based on order volume?

In-house fulfillment often comes with hefty upfront expenses. Think about the costs for warehouse space, employee wages, packaging materials, and shipping. For smaller businesses, the initial setup can easily surpass $100,000, which can be a significant burden for those with limited budgets or lower order volumes.

On the other hand, outsourcing fulfillment to a third-party logistics provider (3PL) can be a more budget-friendly option, especially for businesses dealing with fluctuating or high order volumes. 3PL providers take advantage of economies of scale, offering lower per-order costs through bulk shipping and shared resources. This approach is ideal for companies looking to grow quickly or handle seasonal spikes, as it helps cut down fulfillment expenses while boosting efficiency.

What are the benefits of a hybrid fulfillment model, and when is it a good fit for my business?

A hybrid fulfillment model combines the best of two worlds: managing some fulfillment in-house while outsourcing to third-party logistics (3PL) providers. This setup gives businesses more flexibility to adjust as needed and the ability to scale operations efficiently. By using both methods, you can lower costs, speed up shipping, and meet customer expectations more effectively. It’s particularly useful for ecommerce businesses dealing with fluctuating order volumes or selling through multiple channels.

This model is worth considering if your business is growing quickly, faces seasonal demand spikes, or is entering new markets. It lets you stay responsive to changing needs while keeping control over essential operations. To make it work smoothly, consider investing in technology that offers real-time inventory tracking and order management. This can simplify your workflows and set you up for long-term success.