Co Author: Wendy Hinman

Fulfillment houses and drop shippers are two popular fulfillment solution providers. Find out what services each one provides, how they differ from other shipping services, and how much you should expect to pay for the services of each.

A fulfillment house stores your merchandise for you and is in charge of getting orders to your customers' door. With fulfillment houses, you own the merchandise; the fulfillment company stores it, picks it off the shelves, and ships it for you. The business is yours, but the fulfillment house provides the picking and shipping service.

A drop shipper is basically a wholesaler that owns the goods and ships them directly to your customers, and that typically services several retailers. You own the customer database, but the drop shipper owns the product and pays you a sales commission.

What Order Fulfillment Houses Do

Fulfillment houses store your merchandise for you and are in charge of getting orders to your customers' door. Fulfillment houses are also referred to as 3PL (third-party logistics providers), but this term usually refers to companies that provide the whole distribution operation, typically for large manufacturing companies. With fulfillment houses, you own the merchandise, but by law, the return label must have the fulfillment house's return address. You might be able to persuade the fulfillment house to include your company's name and logo, as well.

Two companies that cater to smaller-volume companies are iFulfill.com and 2000Logistics. They each offer a broad range of services. For example, iFulfill.com offers a complete service that covers everything from the "buy" button to delivery. This can include product warehousing, secure online shopping carts, credit card processing, packaging and distribution (including free mailings), inventory, and order tracking, or selected aspects of these services. 2000Logistics handles warehousing, distribution, and packaging (including import and export shipments), inventory, credit card processing, and customer service.

Connextions.net and Fulfillment America Inc. are geared toward larger-volume companies. Sameday.com , formerly Shipper.com, is a larger fulfillment house designed to handle bigger volumes that has begun to woo the small-business audience. It also offers products directly to consumers through its SamedayMall. You may want to check to see if you are offering products that compete with what Sameday.com offers; this might affect any business you do with this 3PL. Operations & Fulfillment Magazine is an informative publication that lists vendors and service providers in its supplier directory.

As with other turnkey solutions offered over the Web, various companies offer a range of solutions. You can expect to find an order fulfillment company that will provide any or all of the following: Web design and hosting, order capturing, shopping cart tools, credit card processing, merchant accounts, picking and packing of the product, shipping, invoice generation, inventory management, return and exchange logistics, and customer service.

You'll find that some shipping companies will, for an additional fee, provide extra services such as wrapping gifts and packing catalogs, or other promotional items. You'll need to carefully evaluate any prospective provider to ensure that it offers the specific options, and also the high-quality service, you require.

What Drop Shippers Do

A drop shipper is essentially a wholesaler that owns the goods and ships them directly to your customers, and that typically services several retailers. Your company takes orders and payments for merchandise and then forwards those orders to the drop shipper. The drop shipper then ships the item directly to your customer. Technically, you own the customer database, while the drop shipper owns the product. The drop shipper pays you a sales commission, which could be much less than what you'd make on goods shipped by your company, or through an order fulfillment house.

The drawbacks of this arrangement are that you have little or no control over how the products are packed and shipped. Products are likely to be shipped without your branding and with the drop shipper's name on the packaging materials. If you use a drop shipper, you might also find it more difficult to retain a loyal customer base.

Using a drop shipper's services is generally best if you want to offer a wide range or a generalized base of products, or if you do not want to worry about managing the order fulfillment process. You might consider using multiple drop shippers if you offer a very broad array of products. Using multiple drop shippers can also protect against losing customers to the drop shipper service.

The drop shipper is likely to have many other customers as well. Drop Shipping News provides handbooks on drop shipping and directories of drop-shipping sources, for a fee. About.com briefly describes and lists a few drop-shipping sources as well. However, if you have a smaller, more personalized, or unique product base, it might be better to handle the shipping in-house or to hire a fulfillment house.

How Fulfillment Houses and Drop Shippers Differ From Other Shipping Services

Some Web design and Web hosting companies claim to offer both Web sites and back-end fulfillment (packing, shipping, and so on), but keep in mind that the skills required for these two areas of expertise are quite different. In fact, the Web design or hosting company may provide a package of their services combined with those of an outside vendor. If the package is well integrated, it may offer an excellent solution for your business. As with any outsourcing, however, you'll need to carefully evaluate whether this solution is as effective as advertised.

UPS, FedEx, and the United States Postal Service offer e-commerce shipping solutions — primarily, downloadable software that simplifies rate estimates, package pickup, and tracking. In this case, you would still house the inventory at your location, and you would therefore need to set up your own online fulfillment process.

How Much Order Fulfillment Houses and Drop Shippers Charge

Exactly what these services cost depends upon which services you require and the volume of business you transact. Many fees are set on a sliding scale based on volume.

On the average, most fulfillment houses will charge you approximately 3 cents (U.S.) per small item, or $15 for each pallet of products per month, just to store your goods. Inventory will most likely be taken once a month, and the storage fees will be assessed according to what is on the floor or shelves at that time.

Your fulfillment provider might also charge a handling fee for each package. Of course, fulfillment companies pass on the costs for the mailing label, the box, the packing material, and the shipping to your business. This could add up to around $6 per package, depending on the weight and size of the product and the box. It shouldn't cost more than 10% of the sales, in addition to the actual freight cost.

Drop shippers will handle all the related shipping and warehousing costs and pay you a commission to sell the product. These commissions will vary.

About the Author:
Laura Learmonth

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