What a Startup Company Needs to Know About Outsourcing 3rd Party Fulfillment Services

Online consumer spending is exploding with growth. E-commerce purchasing was already on the rise over the last decade, but the pandemic has served to stoke the fire.

In fact, digital e-commerce sales grew a whopping 31.8% in 2020 and 14.2% in 2021, with e-commerce sales garnering a staggering 19.2% of total retail spending. E-commerce merchants are opening new businesses at a similar rate, attempting to capitalize on the tremendous opportunity.

But with such a great demand also comes a high level of expectation. Consumers expect flawless delivery of their packages, and thanks to the likes of Amazon, they also expect orders to be delivered at warp speed – even as fast a few hours!

Logistics and delivery can make or break a business and requires enormous attention to every detail – which most startups neither have the expertise to implement nor the time in the day to devote to the monumental effort. As a result, many startups and growing online merchants are turning to 3PL warehouses to execute their third-party logistics strategy – from receiving to storage to fulfillment and shipping.

But outsourcing with the best 3PL companies is complicated, especially for startups. Knowing the benefits of outsourced 3PL fulfillment, how to best position a startup to be accepted by a 3PL, and how to search and find 3PL warehouses that will help startups is imperative for success.

How Outsourced Fulfillment Providers Can Help Startups

Fulfillment centers are experts in logistics and can help startups in several ways. Most notably, fulfillment companies:

• Alleviate the time it takes to do the mundane (picking and packing orders) – thereby helping startups grow their company
• Provide better overall storage, pick, and pack, and shipping rates (after factoring for the true cost of labor)
• Circumvent logistics issues by executing storage and shipping functions better than a startup could itself (assuming the startup founders are not fulfillment experts themselves)

In terms of cost savings, 3PL warehouses save startups by not having to spend a monthly fixed cost on warehouse rent, allowing them to only pay for what they use. Furthermore, fulfillment centers negotiate better rates on freight services and can save startups on pick and pack fees using more professional and streamlined fulfillment operations and systems. By using Modula HC, owners can technologically upgrade their warehouses further cutting on costs and saving time.

The Caveat to Using Outsourced Logistics Services

All of this sounds great, leaving many startups to think, “so what’s the catch”? And there is a catch – most 3PL fulfillment companies do not work with startups.

A high percentage of fulfillment companies target clients who ship a high volume of orders per month rather than startups with little or no track record of sales. These are the reasons that most 3PL’s do not focus on startups:

• A huge amount of attention is required and “hand-holding” to get an account off the ground
• Low potential for profit and return, especially if the startup never grows significantly
• High risk of potential failure of the business, leaving the 3PL without orders to fulfill

And now, post-COVID, there are other complicating factors that have pushed more 3PL centers away from startup clients. Because of the huge increase in growth in the fulfillment industry, space is not only scarcer, but providers are also more particular about who they are bringing on as new clients.

3PL owners will often pass on ‘warehousing only’ deals, have high monthly order volume requirements, or demand a monthly minimum payment to do business with startups.

The Silver Lining for Startups Looking to Outsource Fulfillment and How to Present Their Case

Unfortunately, startups aren’t in the driver’s seat in negotiating 3PL contracts and relationships. But there are not only great fulfillment houses that specialize in startup and small business fulfillment.

There are also specific things that can be done for startups to put their best foot forward in the negotiation process.

What do startups need to have in place to best present their case? Startups must:

• Pitch fulfillment centers in a similar fashion to pitching a VC for investment funds (being prepared to show them detailed marketing and growth plans)
• Have the business fully set up, with a legitimate company name and website
• Have a solid idea of the amount of product that will be ordered initially for inventory and when it will be arriving
• Be within a few months of launch (engaging 3PLs too early in the process will scare them away)
• Know where the warehouse needs to be located physically (some outsourced warehousing locations are better than others in order to best manage inbound and outbound logistics)

The good news is that there are great fulfillment centers that focus on startups and smaller businesses. While they may be more difficult to find (they won’t necessarily show up on the first few pages of the search results), they do exist!

Here’s what they look like – startup fulfillment companies:

• They are usually smaller and mid-sized companies with one physical location
• Have a small management team that directly interact with each startup client
• Have a high degree of flexibility in their overall offering, allowing startups to

Searching for the right company online is a little more complex because smaller fulfillment centers don’t typically have the advertising budget to be found on the first pages of the search engines. But in many cases, they will list startup and small business terminology on their website – so searching with these variables will help unearth startup-friendly listings.

Furthermore, there are a wealth of online 3PL directories and even a few warehousing matchmaking services that can steer startups in the right direction.