I recently added a tool to the website entitled "What is your real fulfillment cost?", linked here. This is something that we at Ships-a-Lot had wished existed back in the early JerkyXP days. We were not particularly good at accounting and were prey to a very common belief in the online merchandising world: fulfillment is cheap!
After all, why wouldn't we believe this? We had to pay lots of huge bills for jerky, various software, facilities, etc. We never got a bill for our fulfillment because we did it ourselves and that's free, right? Obviously not.
The above may sound like childish logic (and it is), but it's not like we had meetings in those early days and declared "wow, fulfillment is free!" in our minutes and to our early shareholders. It's more of a mindset, a subconscious belief. We were all told in business school that professionals who charge high rates are worth that money! Two accountants and 10k later, we have found this isn't necessarily so.
In our case, without even realizing it, we were all in possession of a very dangerous belief: the complex and important task of fulfillment is dirt cheap to execute. I argue that most business owners who process their own fulfillment have this belief.
What's the evidence?I'm glad you asked, imaginary expositional friend!
It's the way fulfillment is priced.
1. A PRIMER ON CONFIRMATION BIAS.
This is a cognitive bias that is exploited up and down by almost everyone involved in marketing. We use it all the time at JerkyXP. This is a kind of cognitive bias that Mr. Trump is an expert at using, look at the popularity of his recent RNC speech. It bears little resemblance to anything factual, but it confirmed the fears and anxiety of a nation; earning its popularity.
- Here's the Wikipedia rundown:
Confirmation bias, also called confirmatory bias or myside bias, is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.
- Here's an article suggesting how marketers might exploit confirmation bias
- Here's a really excellent mathematical proof showing that individuals who have a pre-conceived belief about a valuation will almost always purchase assets at that value. Regardless of their market or "actual" value.
- This is an excellent video discussing the topic by Big Think.
Conclusion. If I perceive a good to be fairly priced at $1.00, I will be happy to make a purchasing decision on an advertisement that tells me their same good is $1.00.
2. THIS IS THE BIAS EXPLOITED BY FULFILLMENT CENTERS.
So, from the above we have found that we are motivated to purchase something the moment we hear a price we agree with; often ignoring many other qualities of the service, even whether or not the price is correct!
Below I have paraphrased parts of an email we received while we were pricing out fulfillment options for JerkyXP:
US: Hey ShipJoe team, we're interested in your fulfillment center! Could we get a full quote on shipping our jerky?
THEM: Absolutely, we charge a $1.00 pick-and-pack fee. We charge no storage fees, and you just pay for your shipping labels. We get great discounts on those!
US: Wow, that price is fantastic, when can we get started?
I could definitely post some screencaps of some of the invoices we ended up with, but the bottom line was that they buried their true price in the shipping labels. I'm positive they did receive great discounts, they just didn't pass them on to us. We were paying upwards of $10.00 for a shipping label we could have purchased at the USPS retail counter for $2.60!
So what's the point?
If you believe that fulfillment is easy to execute well and has little intrinsic value or cost, you're going to have a bad time. This belief will open you up to the typical exploitation of the fulfillment industry: our prices are hilariously low!
Their prices are never hilariously low. You always get what you pay for. If they're doing fulfillment, they have a healthy amount of fixed and variable operational costs. They add in a margin and they have a target for how much they want to charge per-order. This target revenue is then assessed onto your monthly invoice.
Once you receive an invoice, it's a little late for price negotiation. You have an obligation to pay.
So. When do you want to find out about the REAL COST of fulfillment? Now or when their accounts receivable department starts calling?