Fulfillment centers, also called distribution centers, are a type of warehouse that has internal operations intended to receive and distribute orders. If you own an eCommerce business that currently operates out of your home or garage, you’re probably starting to look into how a fulfillment center could improve your business.
You have two options when it comes to utilizing a fulfillment center: build your own or outsource to a different company. Let’s take a closer look at fulfillment center pricing for both instances so that you can make an informed decision.
Average Cost to Build a New Fulfillment Warehouse
The biggest differentiating factor between a warehouse and a fulfillment center is the internal operations. While the physical buildings are quite similar, a warehouse is intended to store goods long-term, and fulfillment centers are used to ship products on a short-term basis.
But since the structures themselves are quite similar, we can compare the price of building a fulfillment center with the price of building a warehouse.
When it comes to building a new distribution center, you’ll need to consider the following details:
- How much warehouse space you need
- Permit costs
- Location and cost
- Material costs
- Labor and construction fees
- Legal considerations and taxes
- Technology integration
- Possibly hiring third-party logistics providers
- And more
On average, the cost of strictly building the shell building ranges between $7 and $40 per square foot, with most projects falling in the $10-$20 per sq. ft. range. The price per sq. ft. will vary depending on your material choice, location, and building size. If you build a larger warehouse, the price per sq. ft. will actually be lower than building a small warehouse.
Average Price to Outsource to a Fulfillment Service
Now, if your business isn’t at the point of building your own distribution center, you may opt to outsource your needs to third-party fulfillment services. What this means is that someone else owns and operates a fulfillment center, and you pay them to handle packaging, shipping, and distribution for you.
You can also open your own fulfillment company and provide services to other eCommerce businesses— this is also a worthwhile business venture.
If you choose to outsource your distribution, you’ll pay another service provider fulfillment fees, such as:
- Set up fees: The cost to set up your account ($330-600 on average)
- Inbound shipping: The cost to send your product from the supplier to the fulfillment center (Negotiated rates)
- Receiving: The cost of receiving your product into inventory (Average $40 per hour)
- Storage: Price of storing your product in the warehouse (Average $17 per pallet or 50 cents per cubic foot)
- Order fulfillment: Cost of picking, packaging, and preparing each order for shipment (Average $3 per order plus 40 cents)
- Box fees: The price of any additional packaging or boxes used in shipment (Average 50 cents to $1.60)
- Order inserts & custom labeling: Cost of adding promotional inserts or using special labels (Average 25 centers per insert and 5 cents per label)
- Outbound shipping: Price to ship your product from the center to the customer (50 cents to $1 per order, but many carriers offer discounts)
- Return fees: Cost of receiving, inspecting, and handling a returned product (Average $3.50 per order plus 50 cents per additional item)
- Kitting fees: Cost of any special assembly projects needed to prepare your product for shipment (Average $40 per hour)
- Account management fees: Price of customer service work and overall company management used on your account (Average $100-$500 per month)
- Call center services: The price of providing call center support to your customers and handling customer service calls (Average $1.50 per minute)
It can be difficult to provide an overall number for fulfillment services pricing because so much is on a per-case basis. As you can tell from the numbers above, each company will pay different prices based on its specific product and shipping requirements.
If you opt for third-party fulfillment, be sure to consider the length of your contract before committing. The total fulfillment costs in a long-term contract could put you at risk of losing money over the years. You don’t want to be stuck in a contract if the distribution center ultimately isn’t providing the quality of service your business needs.
Is Building a Fulfillment Center Right for You?
So how do you know whether you should go with a third-party fulfillment provider or build your own distribution center? Most businesses that are only a few years old or are just starting to gain more business are usually recommended to outsource their fulfillment needs to an established fulfillment service.
However, if your business has been around for many years and has remained successful, you might start to outgrow your current fulfillment service. In this case, it may be advantageous to build your own center so that you can control your own logistics.
Once you begin to outgrow your current setup and decide to build and operate your own fulfillment center, the best thing you can do is partner with a skilled commercial construction firm.
Bring Your Fulfillment Center to Life With Help From APX
Whether you want to build a distribution center or a storage warehouse, you’ll want a high-quality result that doesn’t break the bank. That’s why you should work with the commercial construction experts at APX Construction Group. With reliable organizational skills and impressive industry experience, we’ll build you a warehouse that stays within your budget.Contact APX today for a free consultation!