Pick and pack fees in your product margin
A fulfilment fee is charged on every order you ship, so it reduces the margin on every sale. It is a selling cost and not a cost of the goods, which is a reason to track it beside the product cost and not inside it.
Updated
How 3PLs charge
Most price fulfilment as a fee for the first item in an order plus a smaller fee for each additional item, sometimes with a separate charge for packaging materials.
Making it per unit
A warehouse charges $3.20 for the first item and $0.60 for each additional one. Your orders average 1.4 units.
- Cost of an average order: $3.20 + 0.4 × $0.60 = $3.44
- Per unit: $3.44 ÷ 1.4 = $2.46
If you fulfil in-house, use labour instead: a packer costing $22 an hour who ships 12 orders an hour costs $1.83 an order.
Why it matters for margin
On a $68.00 throw, $2.85 of pick and pack is four points of margin. On a $14.00 accessory the same fee is twenty points. A flat fee is the reason low-priced items that look profitable on their supplier cost often are not.
Does it belong in cost per item
Usually no. Shopify’s cost per item feeds gross profit and inventory value, and a fulfilment fee is neither. Keeping it out of the Shopify number and in your own margin gives you both views: gross margin in Shopify, contribution margin beside it.
Recording it in Cogsy
Add a “Pick and pack” cost kind, per unit, with a shop default. Override it on products that are oversized or need special handling. Leave “Include in the cost written to Shopify” off.
Questions
- Is pick and pack part of cost of goods sold?
- Normally not. It is a fulfilment expense that arises when you sell, not a cost of acquiring the stock.
- Fees are per order, so how do I make them per unit?
- Divide the order fee by your average units per order and add the per-item fee. Review it when your order profile changes.
- How are bundles handled?
- In Cogsy a per-unit cost set for the whole shop is charged once per bundle sold, not once for each component inside it.
Related
Glossary
Contribution marginContribution margin is the price minus every cost that varies with a sale, including fulfilment and payment fees. The formula and a worked ecommerce example.
Feature
Costs on top of the unit costPackaging, fulfilment or duties per unit, or fees as a percentage of the price, for a variant, a product or the whole shop.
Feature
Bundle costingA bundle costs the sum of its components. Shopify's fixed bundles are read on every sync, and you can define your own.
Cost type
Outbound shippingWhen you offer free or subsidised shipping, the postage is a cost of the sale. How to estimate it per unit and keep it out of the cost of goods.