There’s a lot of upsides to being a direct-to-consumer (DTC) brand. Cheaper entry into the marketplace, no distributors to reduce your profit margins, and direct control over the customer experience.
With this in mind, it’s not surprising that the direct-to-consumer marketplace has ballooned over the past few years. According to Statista, direct-to-consumer ecommerce sales in the U.S. are set to hit nearly $130 billion in 2021 – an increase of 50% in just two years.
But direct sales also means being responsible for the end-to-end fulfillment process. While it may seem easy enough to manage direct-to-consumer fulfillment, there’s a lot of misconceptions over what’s involved with handling order fulfillment yourself.
In this post, we’re going to cover the 5 biggest myths surrounding direct-to-consumer fulfillment – and how a 3PL can help.
When you’re storing your inventory in a garage or a small storage unit, it’s easy to locate the items you need to fulfill orders – especially when you’re packing them yourself. But manual order fulfillment processes in warehousing and inventory management are only going to get you so far.
As your direct-to-consumer fulfillment operation scales, your inventory levels are going to expand in tandem. This means more units, SKU proliferation, and more warehouse space.
Without automation, it’s difficult to achieve warehouse and inventory optimization as your business grows. You’re looking at longer travel times, more pick errors, and a higher likelihood of obsolete stock.
When merchants have so much capital tied up in inventory, this can be a massive dent in your profitability.
Investing in a proper WMS is the key to giving you real-time visibility over your inventory when it’s no longer possible just to eyeball your stockroom. However, this is an expensive investment for smaller merchants and can require considerable onboarding time. Alternatively, you can partner with an ecommerce fulfillment services provider who can put a WMS at your disposal.
Keeping fulfillment activities in one place can feel like a sensible decision. A single fulfillment center means lower running costs and a higher level of oversight over your operation, allowing you to identify issues more quickly.
However, centralized fulfillment for direct-to-consumer brands comes with significant disadvantages. If your facility goes offline to due a power outage or an evacuation there’s no one else to take over order processing, meaning lengthy delays to order fulfillment. Moreover, if your customer base is spread nationally your shipping costs can end up fluctuating wildly.
For example, if your warehouse is in the Southeast and is required to ship orders to the West Coast, parcels will need to cross several shipping zones. This means a costly shipping method and a long lead time on orders, which could be off-putting to potential customers.
Using a multi-node fulfillment strategy enables merchants to put their products much closer to their end customers, meaning cheaper shipping and fewer last mile delivery inefficiencies. And when customers get their orders faster, customer loyalty and satisfaction will be on the rise.
A fulfillment company with a nationwide footprint can split your inventory effectively between multiple locations and make strategic decisions about where to allocate SKUs, resulting in a streamlined direct sales strategy that maximizes revenue.
If you’re that’s only handling an average of 100-200 orders per month, self-fulfillment is more cost-effective than outsourcing to a third-party logistics (3PL) provider. A lot of 3PLs use monthly order minimums to gauge whether a brand is worth taking as a client, meaning small operations may not qualify.
However, in-house fulfillment can quickly become insufficient for a business’s order volumes, resulting in a large number of hidden costs that make self-fulfillment more expensive over the long term.
As their fulfillment operation grows, direct-to-consumer ecommerce companies will need to shoulder a variety of one-off and ongoing costs to stay ahead of order volumes.
You need more people to pick and pack orders, additional warehouse space, and better visibility over your inventory. The cost of these investments very quickly stack up.
And then there are the opportunity costs. If merchants are spending all of their time troubleshooting logistics problems, that’s a lot of time lost that could have been spent on marketing or branding initiatives.
Merchants need to keep a close eye on their order volumes to assess whether their growth is on track to outpace their in-house fulfillment capabilities. Ultimately, there will be a point where self-fulfillment is no longer cost-effective. When this happens, it’s time to start thinking about outsourcing to an ecommerce fulfillment provider.
Being able to scale quickly to meet a rapid increase in order volumes is essential for the direct-to-consumer business model. This is commonplace during the holiday season when retail activity typically reaches its year-round high.
You also never know when your brand might get its big break. Whether it comes from an influencer talking about a new product or supply chain disruption caused by the pandemic, you never want to miss out on an unexpected growth opportunity that could take your brand to new heights.
However, true scalable fulfillment isn’t just about scaling up – it’s also about scaling down again once a peak has passed.
With demand for different products fluctuating throughout the year, merchants need to plan accordingly for the amount of labor and storage space they will need at different times. Otherwise, your business will be saddled with fixed costs that may go underutilized for most of the year.
This can be a very tricky balance for merchants who are fulfilling in-house and having to balance other priorities. By partnering with a direct-to-consumer fulfillment provider, you can manage peaks and troughs in the calendar much more effectively:
“Rad Power Bikes has seen massive growth every year since the company was founded, and as demand and interest for e-bikes has surged, we needed the ability to scale quickly. Whiplash was a clear choice for a fulfillment partner that allows us to deliver an unrivaled customer experience.”
Mike McBreen, Chief Operating Officer at Rad Power Bikes.
The fear of their brand identity being diluted or lost altogether leads many DTC brands to shy away from outsourcing fulfillment.
When direct selling is built from cutting out the middlemen like distributors and wholesalers, this is understandable. When self-fulfilling, merchants have direct oversight on the fulfillment process from end to end. They have the creative freedom to experiment with different packing styles and collateral that enhance the customer experience – and make customers feel like they’re not shopping with an Amazon lookalike.
Yet unboxing experiences and bespoke packaging add a huge amount of time to the fulfillment of each order. As order volumes increase, this often becomes unsustainable for businesses to manage in-house.
But while merchants want to free up time to focus on other areas of their business, they don’t what to sacrifice what makes their brand unique.
However, outsourcing fulfillment doesn’t have to mean compromising on your brand having a clear hand in the fulfillment process. While many 3PLs don’t offer advanced customization capabilities, full-service fulfillment providers do offer custom fulfillment services such as branded packaging and subassembly, while also enabling you to scale much more effectively.
Urban myths aside, direct-to-consumer fulfillment is still one of the trickiest parts of the direct sales model. But there’s no shortage of rewards when you get it right. A data-driven fulfillment strategy that optimizes for cost and speed is the key to boosting customer loyalty and generating increased revenue for your business.
When order volumes start to outpace the capabilities of your in-house fulfillment model, it’s a clear sign that the time has come to outsource fulfillment to a direct-to-consumer ecommerce provider who can help you to scale effectively.
Want to know more about outsourcing ecommerce fulfillment? Check our full guide on the blog.
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