You’ve got a great product and you’re experiencing exciting growth, which might make a distribution partner the next step for your business. The right distribution partner can help you increase sales, reduce costs and navigate challenges in expanding into new markets, as well as free up your time to focus on other business growth opportunities. Read on for essential advice from Len Ellis, the co-founder and CEO of Everlasting Love Fulfillment, and Cora Miller, co-founder and CEO of Young King Hair Care and Target Takeoff Beauty 2020 alumnus, on navigating this phase in your journey.
What is a 3PL and when do you need one?
Here’s another business acronym for your notes: 3PL, which stands for third-party logistics partner. They make sure your products get from the manufacturer (if you have one), to their facilities and onwards to your partner — whether that’s retail, an online marketplace, wholesaler, supermarket, or other channel where you sell your products.
Most founders secure a partnership like this for one of three reasons:
- They know fulfillment isn’t an aspect of the business they want to focus on. Founders who need to prioritize learning or working in another area of their business can build fulfillment costs into product pricing from the beginning.
- The company is scaling beyond what they can manage on their own, leading them to consider either hiring employees or looking for a 3PL. They consider the combined costs of employees, warehouse space, and insurance, plus the time to make it all work operationally. Then, they compare that with the cost of a logistics partner and often determine a 3PL is their way forward.
- They have secured a retail partnership that will require larger distribution. They know that step comes with a lot of added complexity and don’t know where to begin.
Breaking down 3PL costs
In general, you can expect to pay 11-12% of your total monthly gross revenue on fulfillment and shipping. But if you’re selling direct-to-consumer, you’ll only spend about 6% on fulfillment, since your buyers should be covering shipping costs.
Logistics partners should be able to share their costs broken down in a few key ways, so you can compare different companies. It’s also a good idea to ask for general service rates, technology fees, and their fees for shipping costs in addition to retailer standard packaging or shipping preparations. You can also find fulfillment calculators online. It’s good practice to ask a logistics partner you’re interviewing with if they have one so you can get an objective sense of their costs.
How to pick the right logistics partner
Like most things in the business world, good communication is key. Ask potential partners about how they communicate when things are going well, and how they function when things go awry (because at some point, they could). Ask about their order accuracy percentage and if they handle returns. You need responsive partners who care about your business, who can offer guidance and feedback, and help you think through inefficiencies and cost savings, all while being accountable.
It’s also important to consider capacity and culture. Can this partner grow with you as you grow? Do you trust your products are going to be taken care of? And don’t forget to ask about inventory management — let them talk you through their process, insurance, and how they handle any prospective damage.
Top tips from folks who have been there
- Define goals for your business. If you think about where you’re going (e-commerce, boutiques, mass retailer), it will help you determine your logistics and fulfillment needs.
- Know your numbers. Break down your average order value and find a price per unit that you can afford for fulfillment.
- Be mindful from a capital perspective. Are you prepared to take on the costs associated with different partners? Is it going to put your business in a bind?
- If you’re confused about how to go about the next step, find people you can ask. Don’t be afraid to raise your hand and ask for help to figure out what kind of product distribution makes sense for your business.
- Reach out before you’re overwhelmed or before you feel pressed to make a quick decision. A thoughtful approach and well-thought out decision will take you far.
- It’s OK if you don’t find the right fit immediately. Interview several companies until you find one that feels like it’s going to be a home. Changing fulfillment centers isn’t a fun process.
No matter how your business is growing, securing the right partnerships along the way is important. Delegating key parts of the business to experts in those fields allows you to stay focused on the areas of the business you’re most passionate about.
Len Ellis has over 10 years of experience in logistics, and as one of the only Black female owners of a 3PL in the United States, is a trailblazer for Black women in the field. Through Everlasting Love Fulfillment, she is committed to employing and encouraging Black women to pursue logistics, and supporting and fostering partnerships with Black and minority-owned businesses.
Cora Miller and her husband launched Young King Hair Care, inspired by their son, in December 2019 with the mission to redefine male grooming for the next generation of Black and brown men. Cora has nearly 10 years of experience as a leader in corporate social responsibility, program development, operations, and communications.
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