Fine-tune Your Fulfillment

Dec 24, 2008 1:35 AM  By

Multichannel marketers must delicately balance producing cash flow and generating profit–two activities that are often at odds with one another. When times are tough, you have to look over your profit-and-loss statement to see where you can improve.

There are five primary components to the P&L: sales/merchandise, fulfillment, advertising, overhead and operating profit – and each provides some opportunity to improve. Here’s a few tips on giving the fulfillment part of the business what we call the P&L Scrub.

Scrubbing the fulfillment component is a function of three key factors. The first is your shipping table. As a rule of thumb, fulfillment expenses less fulfillment income (i.e. shipping and handling collected from customers) should range from 8% to 12% of sales (less for higher average order value consumer and business-to-business marketers).

If your shipping income fails to offset enough costs to get you in the lower realm of that range, you should probably be considering adjustments to your shipping chart.

The second area of inspection is what you’re paying your carriers to deliver packages. Here your emphasis should be on working out the most aggressive deal possible with your package carrier.

Remember, when your business is down, their business is down and the competitive landscape for carriers is as aggressive as it’s ever been. Take advantage of that competition to get your own best price.

Finally, take a look at your processes. Multipart shipments are among the multichannel marketer’s worst fulfillment nightmares.

Want proof? They almost put Amazon.com out of business before the online giant ever really got into business. Now Amazon estimates shipping time on all parts of the order and charges for them accordingly. It gives the customer the choice to pay more for multipart shipments or to pay less and wait for all of the items to ship together.

Amazon realized that marketers can’t charge a single shipping rate and ship multipart packages and stay in business long.

Steve Trollinger (stevet@jschmid.com) is executive vice president of J. Schmid & Associates, a Mission, KS-based consultancy. For more on the P&L scrub, look for Steve’s article in the January issue of Multichannel Merchant.