Which Fulfillment Option is Better, In-house or Outsource?
Last modified on August 1st, 2019
We’ve been expecting you. Here is where all of your questions and wonders about fulfillment options get resolved. Should you keep the fulfillment in-house or outsource it? Which option is better in the long run and why?
In order to answer all these questions, we must first cover and uncover the basics.
What is fulfillment?
Simply put, fulfillment is an operational process, essential for every existing subscription business. Besides the companies who are selling products directly to customers, eCommerce and subscription businesses also need to deal with fulfillment.
This process has a couple of stages:
- receiving the products from suppliers
- packing them into monthly boxes/packages and
- Actual shipping of products
There are also many smaller, but equally important processes in between as well – organizing the team of packers, assembling of the boxes, labeling, etc. Each one of them can present a challenge.
Which doesn’t frighten you, because you’re a warrior, not a worrier, right!? Right.
Only the boxes properly fulfilled can meet all your customer’s wishes and expectations. (Small hint: your customer always, always expect nothing less than perfect.)
Despite the clarity of steps, there are many challenges connected to this process, with the main one being – where and how should you do it?
These are the two main options you could use for fulfillment:
- In-house – meaning literally going through the operations in your office or the particular space you rent for fulfillment purposes (your own house also counts here)
- Outsource – meaning someone else, somewhere else covers all the fulfillment services
As you might see, fulfillment requires a high level of planning, effort, coordination and in a way, creativity. Knowing this, one has to be sure that outsourcing is the smart move needed to keep the business going and growing.
Matter of responsibility
The enormous responsibility would lie on the shoulders of your fulfillment partner if you choose to outsource. Ensuring an outstanding customer experience is the pillar of every subscription business (and any service, really).
What will eventually distinguish you from your sea of competitors is how well your business is serving people. A proper fulfillment process will surely influence this, so it matters greatly who will do that job.
Keep this in mind when the time comes to choose your fulfillment partner.
Outsource service and its operations
In order to make a choice, we must first understand what is being offered, right?
It’s important to know that different companies offer different service packages and conditions. For now, let’s say that your choice is a full-service fulfillment company, so you could enjoy yourself, sip margaritas and brainstorm all day (every business owner’s dream).
Kidding aside, this is what you can expect from a full-service firm:
- An end-to-end solution – covering all tasks and processes related to fulfillment
- Receiving the products
- Storing them safely
- Packing of boxes/packages
- Handing the boxes to shippers/carriers
- Emailing your customers that their order is in transit
- Additionally: handling the credit-card processing, updating inventory, reordering, sending of notices, dealing with returns or damages.
Just a mere glance at all these services makes it clear how much responsibility the outsource fulfillment option holds. But don’t worry, this guide will provide detailed pros and cons of both options – in-house and outsource, so you can make the decision easily.
First Option: In-house Fulfillment
Especially at the beginning of your business, it does feel good to keep an eye on all operations all the time. It gives you control of the products; primarily with how they’re handled.
By all means, if your subscription empire is still in diapers, with a 2-digit number of monthly boxes, than sticking to in-house fulfillment is probably a wise decision.
As you’ve already learned, there are a lot of operations involved in fulfillment and it’s good to keep an eye on them, even if that means doing most of them yourself.
The biggest downside of in-house fulfillment
As your business grows to a couple of hundred customers, preparations for shipping become distracting and time-consuming. Imagine a stack of boxes, hundreds of them, waiting to be assembled, packed and sent out.
Taking care of this amount of packages takes your focus away from other essential elements needed for the growth of your subscription business.
Those growth elements you should be focused on are primarily nurturing and growing your customer base (attracting new customers). And if you’re doing it right and your subscriber list grows…
… so does the number of monthly boxes!
When your base of subscribers crosses a three-digit mark and exceeds it, then outsourcing becomes not only as a practical option, but also a necessary solution. Turning to another professional can both be an affordable and scalable decision.
Does having a good team helps?
If you stay in-house, you’ll need employees who will undertake the process from the moment of package receiving up to shipping. Choosing the right people can lead to high-quality fulfillment.
But, you’ll be the only one to figure out how much you’re willing to pay your employees and if the outsourcing in this stage of your business will pay off.
In-house operations require interviewing and hiring employees, which includes the procedure (training) around their employment, various paperwork, etc. Later on, these workers need to be coordinated so that everything runs smoothly.
It’s also possible that you’ll need to include a new team member, a manager of some sort, who will observe, plan, organise, and coordinate all the packers. Again, this is only if you do not wish to do it all by yourself. If you do, we can’t stop you.
On one hand, this seems like a lot of work, and it is – searching, interviewing, organizing, and doing paperwork. But, if you choose to do it this way, you’ll have a trusted team of people YOU picked under your roof. Can you put a price on that?
Mind the overall expenses
Yes actually, you can put a price on that! If your fulfillment option of choice is in-house, we already mentioned that you’ll need to think of employees salaries.
But beyond labor costs, monthly fulfillment carries additional expenses. These might not be evident right away.
Firstly, the space. As your business grows, the number of boxes increases too. This calls for a bigger space, not only for storing, but for the packaging processes as well.
(If you choose outsource, think of the thousands of dollars you may save, because you do not need to rent huge commercial spaces. Actually, you might not need to think about space at all, and can focus on those margaritas and brainstorming ideas.)
Additional costs of in-house fulfillment may include:
- Buying tables and other utilities such as tapes, etc.
- Paying for extra liability insurance
- Doing occasional or regular pest control, especially important if you’re dealing with food
- Cleaning the space, keeping it functional in every way
- Buying floor mats
- Air conditioning (packing spaces can get pretty dusty and unhealthy)
- Anything else that pops up, something always does
Second Option: Outsource Fulfillment
Imagine that you never have to think about where and how to store the received products. Can we hear a sigh of relief?
We know what you may be thinking: I just started this subscription business, I don’t really have that many boxes.
But listen, you may only a few boxes a month now, but that (hopefully) won’t last forever! Your business will soon grow, especially if you stick with Subbly. In no time, you’ll turn your business around and rather than have a couple of packages, there’ll be hundreds.
That increasing number of boxes will require more and more time, staff, and resources. Luckily, outsourcing your fulfillment solves more than one problem.
Less employee costs
At a single expense, you’ll cover all your fulfillment needs. When the fulfillment is outsourced, you’re paying for an entire service and do not have to think much about it afterwards.
When you’re negotiating with vendors, the cost is calculated per box and then multiplied by the number of your increasing goodies. Simple as that – the costs of their employees, additional resources, and service is included.
So, the big questions always revolve around – money. But the main question remains – who do you want in charge of fulfillment operations?
It comes down to these two factors that every business owner should ask themselves:
- Can I afford and will it pay off to hire a new team and do the fulfillment in-house, concerning the stage of my business? Or…
- Can I afford and will it pay off to outsource the fulfillment to a trusting service, concerning the stage of my business?
Always keep those two dimensions in mind – can you afford something without risks, and will it pay off? The second one is rather difficult to project…unless you’re a clairvoyance.
Choosing the right outsource company
When choosing the outsource company, choose -a top-quality one. Do not make this decision too quickly, as it may immensely influence your business.
Take your time to go through all the offers, options, recommendations, and reviews. Remember, the people working there will have direct access and power to your boxes.
Questions to ask on the topic of outsourcing options:
- Do I have recommendations for this service and some additional advice?
- What is their history of work and is it transparent enough?
- How would they deal with broken or otherwise unsatisfactory products?
- What is the procedure in the case of returns (here: cover all the insurance related factors too)?
- Is the communication flowing nicely, is everything clear (difficult one to define, but you can determine this from the first couple of talks)?
- Are they too expensive and if they are, can this be negotiated?
- Where are they located and if it’s not a local service, how can I monitor their work?
- Does the price change if we exceed the 100 or 1000 number of boxes per month?
- Will I be consulted on the appearance of boxes and changes in the process of packing?
- Is their space clean and neat?
- Overall: does this option seem fast, pleasant to work with and reliable?
The biggest benefit of outsourcing
You have a business to grow, we get that. Think of it this way – do you really have enough time to cover all the ongoing operations, put out all the fires, and use up precious time on fulfillment?
The biggest benefit of outsourcing might be that it gives you the space and time to focus on things that maintain and grow your business.
As a subscription business owner, you have a lot on your mind and even more on your schedule. Finding ways to make everything better and keep everyone happy is not easy. When we say everyone, that includes you, don’t forget about your own happiness.
Above it all, the most important point of your business is your customers and their satisfaction with the products and service you’ll provide. Make sure you have enough time to engage with them.
Unexpected benefits of outsourcing
It’s clear that outsourcing can save you time, money, and nerves.. These are all precious things that’ll keep your business going.
But, having the outsource company around brings certain unexpected advantages. One secret is this – fulfillment professionals might know where and how to find better shipping rates.
Earlier, we mentioned broken products, returns, and similar unfortunate scenarios that might occur. If something like that happens, then your fulfillment center could handle them all with no additional cost for you. Subbly approves!
Not all fulfillment firms offer this though, so make sure it’s well discussed before signing any agreement. Again, do your research. And if you have any good recommendations, stick to them.
Here’s another quick money-saving secret
The location of your chosen fulfillment company is the location from where your boxes will be shipped. In order to save money on shipping, choose the fulfillment headquarters that are nearest to the majority of your subscribers, rather than your own physical self.
Yes, it’s nice to have a fulfillment company near you, because of the feeling of having more control and smoother communication. But having them near to your subscribers pays off greatly.
We’ll quote ourselves here, because we’re so awesome (and humble):
“A subscription box professional should choose the carrier that is nearby (or somewhere in the middle) to the zones(s) where the most of customers are. Determine where the people addicted to your sweet boxes live and, especially if you’re sending through USPS, get as close to them as you can.”
Understandably, we can’t tell you which option is better for you particularly.
Consider the costs involved in both options: the stage of your business, the resources you have and the answer will emerge by itself. It probably already did while you were reading through.
Let’s wrap it all up now:
- In-house option gives you the control, to monitor and organize all fulfillment operations. On the other hand, it can cost much more than outsourcing and it can distract you from other tasks that’ll grow your business.
- Outsource option frees your mind and schedule of many tasks, leaving enough space for growth strategies. On the other hand, it’s not easy to find a reliable company, so make sure you take the time to do the research, taking into account any and all recommendations and reviews.