how do fulfillment options affect profit

Whether it’s an order marked as delivered without ever arriving or higher shipping fees than expected, we’ve all had issues with shipping arise from various fulfillment practices. These issues are part and parcel of shopping online both as a consumer and a merchant.  

But they shouldn’t be – not if you’re serious about creating a profitable and sustainable eCommerce business. Because shipping is such a fundamental part of the customer experience, falling short in your fulfillment practices will impact your profit. 

And that will, in turn, have a negative effect on your Shopify store’s value.

For instance, a 2018 study found that poor fulfillment practices were responsible for the majority of abandoned carts in the US.

  • 63% of shoppers abandoned their carts because shipping costs were too high.
  • 36% of shoppers abandoned their carts because shipping took too long.
  • 25% of shoppers abandoned their carts because they had to re-enter their shipping information.

Every single one of those issues goes back to your fulfillment practices.

Your goal, then, is to make the final stages of the purchase process as streamlined and painless as possible. In that regard, your first step should be to examine your supply chain. 

Supply Chain 

Because there are a few different ways that you can set up your supply chain, we’re going to look into several options

1. In-House

If you’re able to build a robust enough supply chain, handling order fulfillment in-house can be well worth it. You’ll be able to retain complete control over your inventory and every stage of order fulfillment. You’ll also form partnerships with multiple mail carriers and delivery organizations. 

On the other hand, particularly as your business grows, this will require a large investment of both time and capital. You will need to not only secure warehouse space and staff, but also ensure you have the necessary equipment, management tools, and insurance. Particularly for small and mid-sized businesses, this can be a considerable drain on resources that might be better spent elsewhere. 

2. 3PL

As an alternative to in-house fulfillment, you may choose to work with a third-party fulfillment partner (3PL). You’ll sacrifice some control over your inventory in exchange for not having to worry about the logistics of building out infrastructure or seeking partnerships with carriers. Instead, you can simply leverage the fulfillment partner’s distribution infrastructure.

The drawback here is that choosing the wrong fulfillment partner can end up damaging your relationship with your customers, as well as your business’s growth prospects and long-term value through it. It’s important that you do your homework before choosing a fulfillment partner. Ask yourself the following questions: 

  • Is the fulfillment partner capable of scaling with your business? 
  • How trusted or well-known is this fulfillment partner? What do people say about them online? 
  • Can the fulfillment partner’s software integrate easily with your current tech stack? 
  • Does the fulfillment partner’s infrastructure support fast shipping to your primary customer base? 

3. Dropshipping

Your third option, known as dropshipping, is to work directly with manufacturers. It’s probably the easiest of the three options, with an incredibly low barrier to entry and low overhead. Your focus here is to create a relationship with a network of manufacturers rather than carriers; each manufacturer handles its own shipping and handling.

As you might expect, the trade-off is that you’re largely removed from the shipping process and, in many cases, product development as well. You’re staking your reputation entirely on your manufacturers’ actions. In fact, if you end up working with multiple dropshippers as your business scales, you may end up suffering from both inconsistent quality and a lack of distinctive brand identity. 

Shipping Options

Once you’ve determined how you’ll handle the logistics of order fulfillment, your next step is to determine what shipping will look like on the customer’s end. Consider this data: 

Nearly 40% of customers say they’ll never shop with a retailer twice if their delivery experience is negative and 60% of customers only choose a competitor if their delivery options are more convenient.

Worse yet, 45% of customers will abandon an online shopping cart if the delivery options are unsatisfactory.

Bad delivery choices obviously will cost you money. For this reason, you may want to provide multiple shipping options or ‘tiers.’  You can look at how Amazon’s fulfillment process works for an example of this in practice.

For customers who aren’t subscribed to Amazon Prime, free shipping usually takes a bit longer, but they can choose one of several different, increasingly-expensive delivery options for faster service. Customers who are subscribed to Prime enjoy fast delivery. They also have the option to pay out for better options in certain scenarios.

Alternatively, you may choose to offer free shipping only on specific orders, for example:

  • When purchasing several bundled items as part of a cross-sell.
  • For orders over a specific value. 
  • During special sales periods. 

Return Policies

There’s one final point that needs to be discussed – your return policy. This is as much a part of your fulfillment practices as the initial shipping and handling and plays an enormously important role in customer satisfaction. 

Without an effective returns policy, it’s likely customers won’t return, which directly affects your bottom line. According to Penske, returns cost the industry billions of dollars each year due to the costs associated with handling, shipping, insuring, and processing. Companies that invest in streamlining their returns process are most likely to see a four-fold decrease in cost per return and a 12% increase in happy customers.  

Speaking of making customers happy, as noted by 3PL agency ShipBob, 92% of customers say they’ll buy from a store again if the return process was easy, and more than 60% of purchasers review a product’s return policy before check out.

Keep your policy straightforward, generous, and transparent. Rather than damaging your long-term profit, this can actually lead to an increase in sales. People remember when a brand treats them well and are far more likely to return again.


Regardless of what you choose to do, it’s important that your eCommerce business ensure a seamless, reliable order fulfillment process. It’s key not just to the operation of your organization, but to its long-term success.

Recommended Posts