In the 3PL vs in-house logistics decision, which option makes more financial sense depends mainly on your shipping volume, its fluctuations and your fixed costs. In-house logistics offers full control but ties up capital, staff and space. A 3PL makes logistics costs variable and grows with your business, but in return you give up part of the direct control.
What is a 3PL, and what is in-house logistics?
3PL stands for third-party logistics. An external provider takes over logistics tasks for you: goods receipt, storage, picking, packing, shipping and often returns as well. In online retail, these are usually called fulfillment providers.
With in-house logistics, you run these processes yourself. You rent or own the warehouse, employ the staff, buy shelving and packaging material and negotiate your shipping rates yourself.
There are also hybrid models. Some sellers outsource only part of their logistics, such as bulky goods, Amazon stock or the seasonal peak. Others keep the warehouse and only outsource transport.
Comparing the cost blocks: 3PL vs in-house logistics
In-house logistics
Many sellers underestimate the costs of their own warehouse because they are spread across many accounts in the bookkeeping. Include all cost blocks:
- Space: rent or depreciation, service charges, heating, electricity, cleaning.
- Staff: wages including employer social security contributions, cover for vacation and sick leave, seasonal temporary staff, training.
- Equipment: shelving, packing tables, pallet trucks or forklifts, scales, label printers, scanners.
- Software: warehouse management, shipping software, interfaces to store and marketplaces.
- Packaging material: cartons, filling material, tape, labels.
- Shipping: parcel and freight rates that depend on your own volume.
- Insurance and security: insurance of the stock, fire protection, alarm system.
- Management: your own time for planning, staff management and problem solving.
A large part of this consists of fixed costs. They arise even if in a weak month only half as many orders come in as during the season.
3PL
A fulfillment provider usually charges based on services rendered:
- Goods receipt: per pallet, carton or hour.
- Storage: per pallet space, shelf compartment or cubic meter and month.
- Pick & Pack: per order and per additional item.
- Packaging material: per carton or mailer bag, sometimes included in Pick & Pack.
- Shipping: per parcel by weight, size and destination country.
- Returns: per return, often with inspection and restocking.
- Setup and base fees: with some providers, one-time or monthly flat fees or a minimum revenue.
How to convert these items to the individual order is shown in our article Calculating fulfillment costs.
Comparing costs: a worked example
The following figures are freely chosen and only illustrate the calculation. They are neither market prices nor FulFra prices. Use your own values and real offers.
Example: An online seller ships an average of 2,000 orders per month.
In-house logistics (example)
- Warehouse rent and service charges: €3,000 per month
- Staff, two full-time employees including employer costs: €7,000 per month
- Equipment and software, allocated per month: €800
- Packaging material: €0.60 per order, i.e. €1,200
- Shipping: €5.00 per parcel, i.e. €10,000
Total: €22,000 per month, i.e. €11.00 per order.
3PL (example)
- Storage: 80 pallet spaces at €15 each, i.e. €1,200 per month
- Pick & Pack including packaging: €2.50 per order, i.e. €5,000
- Shipping: €4.50 per parcel, i.e. €9,000 (assumption: the provider bundles volume and therefore obtains cheaper rates)
- Goods receipt and returns, allocated per month: €800
Total: €16,000 per month, i.e. €8.00 per order.
What the example shows
The comparison becomes revealing when volume fluctuates. If orders in the example fall to 1,000 per month, rent, staff and equipment in in-house logistics remain the same at a combined €10,800. With packaging and shipping, this adds up to €16,400, i.e. €16.40 per order. With the 3PL, Pick & Pack and shipping decrease with volume. With the same stock, the result is €9,000, i.e. €9.00 per order.
Conversely, in-house logistics can become cheaper with high, steady volume, because the fixed costs are spread over more orders. Therefore, calculate at least three scenarios: your average, your weakest month and your seasonal peak. For the peak, keep in mind that you often need additional staff in your own warehouse.
Pros and cons at a glance
In-house logistics
Advantages:
- full control over processes, quality and packaging
- direct access to the goods, for example for photos, samples or pickup
- special requests without coordination with third parties
Disadvantages:
- high fixed costs and tied-up capital
- seasonal peaks require additional staff and space
- risk of disruption if key staff fall ill or resign
- shipping rates depend solely on your own volume
3PL
Advantages:
- variable costs that rise and fall with revenue
- growth and seasonal peaks without your own investment
- access to warehouse technology, established processes and the provider's shipping network
- more time for purchasing, marketing and product development
Disadvantages:
- less direct control over individual work steps
- dependence on the quality of the provider
- effort for relocation, interfaces and coordination
- contract terms such as minimum terms or minimum volumes can be binding
When switching to a 3PL pays off
Typical signs that your in-house logistics is reaching its limits:
- Orders pile up at peak times and delivery times get longer.
- The warehouse is full, and a larger space would mean a long lease.
- You or your management are packing parcels instead of developing the business.
- You want to open up new channels or countries, such as Amazon FBA or customers abroad.
- Incorrect deliveries and the returns they cause are increasing.
In-house logistics can still make sense, however, if your products require a lot of explanation, are assembled individually or your volume is high and very steady. Further questions about outsourcing are covered in our article Outsourcing warehousing.
How to make the move to a 3PL a success
The switch itself is the moment when the most can go wrong. An orderly process keeps the risk low:
- Hand over master data: article numbers, barcodes, dimensions, weights and packaging specifications for each item.
- Connect systems: Connect your store, marketplaces and ERP system to the provider's system so that orders arrive automatically and stock levels are reported back.
- Test: Run test orders for typical cases, including returns, partial deliveries and international shipments.
- Move stock: Deliver goods in an orderly manner, ideally single-SKU and clearly labeled, so that goods receipt is quick.
- Plan the transition: For a few days, ship from only one warehouse so that no item is sold twice.
- Fine-tune: In the first weeks, closely track delivery times, error rate and costs and adjust processes.
Checklist for your decision
- Determine your complete logistics costs per month, including staff, space and your own working time.
- Calculate the costs per order for the average, a weak month and the seasonal peak.
- Obtain at least two offers with your real data: number of items, storage volume, orders, items per order, parcel sizes and return rate.
- Check the contract terms: setup fees, minimum contract term, notice period and minimum volumes.
- Clarify the connection to your store, marketplaces and ERP system.
- Ask about the processes for returns, special packaging and inserts.
- Check the location: How quickly do parcels reach your most important customers?
- Plan the move for a quiet period, not shortly before the seasonal peak.
One item that is often missing from the comparison is returns. How to organize them efficiently is described in our article on returns management.
Fulfillment with FulFra
FulFra handles E-Commerce Fulfillment with goods receipt, storage, Pick & Pack, shipping and returns. Our own warehouse is located in Lehrte near Hannover. There are no setup fees, no minimum contract term and no minimum volumes, and the contract can be canceled monthly. This means you can also test the switch with part of your product range first.
Frequently asked questions
From how many orders does a 3PL pay off?
There is no fixed threshold. What matters are your fixed costs, the fluctuation of your volume and the offers you receive. Calculate your costs per order with real figures and compare.
Will I lose control over my goods with a 3PL?
You hand over the execution, not the overview. You should be able to see stock levels, orders and shipment status at any time via the connection to your systems. Agree on clear processes and dedicated contact persons.
Can I outsource only part of it?
Yes. Many sellers first outsource individual channels, product groups or seasonal goods and keep the rest in their own warehouse.
How long does the switch to a 3PL take?
That depends on the product range, interfaces and quantity of goods. Plan time for data handover, connection, test orders and moving the stock.
Would you like to know what fulfillment with FulFra looks like for your product range? Send us your key data via the fulfillment request.