Understanding Fulfillment Storage Pricing: Occupancy Rate vs Per Unit Rate
By Harsh Vaidya
May 24, 2023
If you’re an e-commerce seller in India, it’s crucial to evaluate and understand the significance of two pricing models that can greatly impact your fulfillment costs and operations: occupancy-based rates vs. per unit-based rates.
Let’s dive into the details and explore why choosing the right pricing model is essential for your business success.
📌 Occupancy-based rates:
– Charges based on the physical space your inventory occupies in the warehouse.
– Ideal for sellers with bulkier or larger items that require more space but have lower unit quantities.
– Offers a cost-effective option for products that occupy significant warehouse space.
Example: If you have 10 large furniture items occupying 100 square feet of warehouse space, you would be charged based on the occupied space, regardless of the number of items.
📌 Per unit-based rates:
– Charges based on the actual number of units stored or processed.
– Suitable for sellers with high-volume inventory and smaller-sized products.
– Provides flexibility and cost efficiency by paying for the specific quantity of units.
Example: Suppose you store 500 small electronic gadgets in the warehouse. With per-unit-based rates, you would be charged based on the actual number of units stored, offering flexibility and cost efficiency.
Selecting the most suitable pricing model depends on various factors unique to your business.
✅ Consider your product characteristics, such as size and weight.
✅ Evaluate your sales volume and storage needs.
✅ Opt for occupancy-based rates if you have larger or unique items that require more warehouse space.
✅ Choose per unit-based rates if your product range consists of smaller-sized items or experiences fluctuating demand.
In conclusion, the best pricing model for e-commerce fulfillment in India depends on your product characteristics, sales volume, and storage needs. Occupancy-based rates are ideal for sellers with bulkier or larger items, while per-unit-based rates are suitable for sellers with high-volume inventory and smaller-sized products. By evaluating your specific needs and requirements, you can ensure that you are getting the best possible value for your money.
Supercharge your fulfilment with WareIQ now, contact our team.
Harsh Vaidya is the Founder & CEO of WareIQ - a Y-Combinator-backed full-stack fulfillment solution catering to the fulfillment & shipping needs of 400+ eCommerce brands across categories. He was previously the Chief of Staff at Pitney Bowes managing Corp Dev & Strategy for $2.4 B SMB BU. He has 10+ experience in Strategy Consulting & SMB tech.
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A Paradigm Shift? From Free Returns to a Fee for Returns
In recent years, there has been a noticeable shift among eCommerce brands towards charging a fee for returns. While many companies still offer free returns, an increasing number of brands are implementing policies that require customers to pay a fee when returning items. This change has been driven by a variety of factors, including rising costs associated with processing returns, the need to deter fraudulent or excessive returns, and the desire to offset the cost of offering free shipping to customers. This shift has been observed across a range of eCommerce sectors, including fashion, electronics, and home goods, and is likely to continue as brands seek to optimize their profitability and balance the needs of their customers. “In India, about 25%–40% of clothes sold online are returned where a seller pays for forward & reverse logistics with no revenue capture.”-Harsh Vaidya, CEO, WareIQlink Why do Brands Want to Charge for Returns? E-commerce brands may charge for returns for a variety of reasons, including: To cover the cost of processing and handling returns: Returns require additional labor and resources to process, such as restocking, repackaging, and shipping the item back to the warehouse. E-commerce brands may charge a fee to cover these costs. To deter excessive returns: Some customers may abuse the returns process by ordering items with no intention of keeping them, and then returning them after use or damage. Charging for returns can deter this behavior by making customers think twice before making a return. To offset the cost of free shipping: Many e-commerce brands offer free shipping to customers, but this can be costly for the company. By charging for returns, the brand can offset some of the cost of providing free shipping. To incentivize customers to keep their purchases: By charging for returns, e-commerce brands can incentivize customers to carefully consider their purchases before buying. This can lead to fewer returns and a more profitable business. Paradigm Shift Ripples From West to East Many eCommerce fashion and lifestyle brands have varying policies when it comes to returns and fees. Some of these brands may charge for returns, while others offer free returns. Here are some examples of eCommerce brands that may charge for returns. In the United States and Canada, brands such as ASOS, Zara, H&M, Boohoo, TopShop etc. are charging a small fee for returns. The fee varies depending on the location and the type of item being returned. Some Indian eCommerce marketplaces, particularly those that sell high-value items like electronics and appliances, such as Flipkart, Croma etc. have been charging a fee for returns for quite a while now. These fees typically cover the cost of processing and restocking returned items, as well as any associated shipping costs. However, in recent years, many Indian fashion and lifestyle eCommerce brands have moved towards offering free returns as a way to attract and retain customers. This trend has been driven by intense competition in the eCommerce market, as well as rising customer expectations for convenience and flexibility. Recently a news article from The Rest of the World publication revealed how Myntra, the leading fashion and lifestyle marketplace in India, has devised a system to identify and assign scores to customers basis the frequency of their returns. If the score of a customer crosses a specific threshold, a fee will be applied to items they then wish to return. That said, some Indian eCommerce brands may still charge a fee for returns in certain circumstances, such as for items that are heavily discounted or for international orders. Ultimately, the decision to charge for returns will depend on a range of factors, including the company's business model, industry dynamics, and customer preferences. As eCommerce continues to grow and evolve in India, it is likely that the policies around returns and fees will continue to evolve as well. Bracketing: The Main Cause Behind the Rise of Return Fee For years now, customers have been known to employ the tactic of bracketing their online purchases. Bracketing in online purchase refers to a practice where a customer purchases multiple variations or options of a product with the intention of returning some or all of them. For example, a customer might buy a shirt in three different sizes, with the intention of returning the two that do not fit properly. The practice of bracketing is often used by customers as a way to mitigate the uncertainty associated with online shopping, particularly when it comes to sizing and fit. By ordering multiple options, customers can try on the items in the comfort of their own homes and return those that do not fit or meet their expectations. While bracketing can be a useful strategy for customers, it can also pose challenges for eCommerce brands. When customers order multiple variations of a product with the intention of returning some or all of them, it can create additional costs and complexity for the brand in terms of processing returns and managing inventory. As a result, some eCommerce brands have implemented policies to discourage bracketing, such as charging a fee for returns or limiting the number of items that can be purchased in a single order. “Major international corporations such as Zara, H&M, and Uniqlo have begun to implement fees for returns in specific nations to combat the practice of "bracketing," where customers order multiple variations of size, color, or design without intending to keep all the items.”-Harsh Vaidya, CEO, WareIQlink Is Charging a Return Fee Fair? The question of whether charging a return fee for online orders is fair is a complex one and depends on various factors, including the reason for the return, the cost of processing the return, and the overall value proposition offered by the eCommerce brand. On one hand, it can be argued that charging a return fee is fair because it allows eCommerce brands to recover some of the costs associated with processing returns, such as shipping, restocking, and quality control. If a customer is returning an item simply because they changed their mind or made an incorrect purchase, it could be argued that it is reasonable for them to cover some of these costs. On the other hand, it can also be argued that charging a return fee can discourage customers from making purchases in the first place or returning items that they are genuinely dissatisfied with. This can ultimately hurt the customer experience and damage the reputation of the eCommerce brand. “Any time you take away something from consumers or make them pay for something that used to be free, you’re gonna get some outcry over it.”Sky Canaves, senior analyst of retail and e-commerce at Insider Intelligencelink The Future of Paid Returns On one hand, there are indications that eCommerce brands may continue to move away from charging fees for returns in order to remain competitive and meet customer expectations. As online shopping continues to grow in popularity, customers are becoming more accustomed to the convenience and flexibility of free returns and may be less willing to shop with brands that charge fees. At the same time, there are also factors that could lead eCommerce brands to continue or even increase their use of return fees. For example, rising costs associated with processing returns, particularly for large or heavy items, could make it more difficult for eCommerce brands to offer free returns on all products. In addition, the increasing prevalence of bracketing, where customers order multiple variations of a product with the intention of returning some or all of them, could create additional costs for eCommerce brands and incentivize them to implement fees to discourage the practice. Ultimately, the future of charging fees for returns in eCommerce is likely to be shaped by a complex interplay of factors and will depend on the strategies and priorities of individual brands and retailers. “From my perspective, the flat fee for returns is unjust to those customers who experience actual problems, such as incorrect size, subpar fabric quality, etc. Charging a returns fee to this base could have a negative impact on their eCommerce behavior.”-Harsh Vaidya, CEO, WareIQlink
March 05, 2023
Packaging Customization and Personalization: A Lesser-known Tactic to Boost Customer Delight in eCommerce
Packaging customization personalization in eCommerce logistics can help delight customers and create a positive brand experience. An example of a popular real Indian D2C apparel eCommerce brand that has used packaging personalization and customization to their advantage is Chumbak. Chumbak is an Indian D2C brand that specializes in creating trendy and colorful apparel and accessories. Chumbak uses packaging personalization and customization to their advantage by: Using visually appealing and high-quality packaging that enhances the unboxing experienceIncorporating their brand's unique and colorful design elements into the packaging, making it instantly recognizable and memorable for customers.Offering a customization service where customers can have their own name or message printed on the packagingIncorporating eco-friendly materials for packaging and ensuring their packaging is sustainable and responsible This approach has helped Chumbak to create a unique and memorable customer experience, which has helped to increase customer satisfaction and loyalty. What Kind of Personalization and Customization Options are Available Usually? Here are a few ways to personalize and customize packaging for ecommerce logistics: Custom branding: Add your company's logo or branding elements to the packaging to make it easily recognizable. This can include custom printed boxes, bags or mailing envelopes. Personalized messaging: Include a personalized message or thank you note inside the package to make the customer feel valued. This can be done via a printed card or a handwritten note. Custom packaging inserts: Use custom packaging inserts to create a unique unboxing experience. This can include tissue paper, confetti, or other items that add a touch of elegance to the packaging. Product-specific packaging: Create packaging that is specific to the product being shipped. For example, if the product is a fragile item, use packaging that is specifically designed to protect it during transit. Eco-friendly packaging: Use eco-friendly packaging materials such as biodegradable or recycled materials to appeal to customers who are environmentally conscious. Gift wrapping: Offer gift wrapping as an option for customers who are buying the products as a gift. This can include custom gift wrapping paper or a gift box. By personalizing and customizing packaging, you can create a memorable brand experience for customers and increase the chances of repeat business. It's also important to consider the cost and feasibility of the customization before implementation. Impact of Customization and Packaging Personalizing and customizing packaging in eCommerce logistics can have several positive impacts on your business, including: Brand awareness: Personalizing and customizing packaging with your company's branding can increase brand awareness and make your company more easily recognizable. Customer loyalty: Personalized messaging and unique packaging can make customers feel valued and appreciated, which can increase customer loyalty and repeat business. Unboxing experience: Customizing packaging can create a unique and memorable unboxing experience for customers, which can increase customer satisfaction and positive word-of-mouth marketing. Increased perceived value: Personalized and custom packaging can make the customer feel like they are receiving a premium product, which can increase the perceived value of the product. Environmental consciousness: Eco-friendly packaging options can appeal to customers who are environmentally conscious, which can have a positive impact on the company's reputation and social responsibility. Gift giving: Personalized and custom packaging can make it easy for customers to send the package as a gift which is a great way to reach new customers and increase sales. Overall, personalizing and customizing packaging in eCommerce logistics can help create a positive brand experience for customers, increase customer satisfaction, and ultimately drive sales and revenue for the business. Customization and personalization also impact key business metrics positively. An example of how delighting customers with custom and personalized packaging can help improve eCommerce business growth is as follows: Increased customer loyalty: By providing personalized and custom packaging, eCommerce companies can create a positive and memorable experience for customers, which can lead to increased customer loyalty and repeat business. Positive word-of-mouth: Customers who have a positive experience with a company's packaging are more likely to share their experience with friends and family, which can lead to increased brand awareness and new customers. Enhanced brand reputation: By providing high-quality and personalized packaging, eCommerce companies can enhance their brand reputation, which can lead to increased customer trust and loyalty. Increased revenue: By creating a positive and memorable customer experience through personalized and custom packaging, eCommerce companies can increase customer satisfaction, which can lead to increased revenue through repeat business and new customers. Cost savings: By reducing packaging costs and providing eco-friendly packaging solutions, eCommerce companies can save money and appeal to environmentally conscious customers. Overall, delighting customers with custom and personalized packaging can help eCommerce businesses to improve customer loyalty, increase brand awareness and reputation, and grow revenue. Importance of Order Personalization and Customization in 2023 Order personalization and customization is important in 2023 for eCommerce brands because it helps to create a unique and memorable customer experience. With the rise of eCommerce competition, customers are increasingly looking for more personalized and tailored shopping experiences. By offering personalization and customization options, eCommerce brands can differentiate themselves from their competitors and build stronger relationships with their customers. Additionally, order personalization and customization can help to increase customer satisfaction and loyalty. When customers receive a product that is customized to their preferences, they are more likely to feel satisfied with their purchase and may be more likely to return to the brand in the future. Order personalization and customization can also help to drive sales and revenue growth. By offering personalized and customized products, eCommerce brands can increase the perceived value of their products, which can lead to higher prices and increased sales. How can WareIQ Help? WareIQ's full-stack fulfillment solution has enabled multiple leading brands across categories such as Blissclub, Setu Nutrition etc. create a delightful experience for their customers by utilizing custom packaging material, thank you notes, combo creation etc. This helps brands deliver a premium customer experience and makes the moment of truth - the unboxing experience- unforgettable for clients. In case a brand has a particular requirement for packaging material, we can be flexible about it and help brands fulfill the orders in the way they feel is the best for their customers. With our capable fulfillment operations team, brands can rest assured that their orders are being picked, packed, and shipped in an accurate fashion, without any delays or damages, leading to on-time deliveries which facilitate positive customer sentiment about the brand experience. To know more about our personalization and customization services, visit: WareIQ Order Customization and Personalization
February 25, 2023
eCommerce Packaging: What is its Significance and How to Optimize Costs?
Packaging is going to be very important in eCommerce logistics in 2023 for several reasons: Increased e-commerce sales: With the continued growth of e-commerce and online shopping, the demand for packaging materials and services will also increase. This is particularly true as more people are shopping online due to the pandemic, and this trend is likely to continue. Personalization: Customers expect a personalized and unique shopping experience, and packaging is an important part of that experience. Personalizing and customizing packaging can create a memorable brand experience and increase customer loyalty and repeat business. Brand differentiation: With more e-commerce companies vying for customers, packaging can be used as a way to differentiate a brand and make it stand out from the competition. Safety and security: As e-commerce logistics become more complex, the safety and security of packages during transit will become increasingly important to ensure that products arrive in good condition. Cost and efficiency: Packaging costs and efficiency are becoming increasingly important as e-commerce companies seek to control expenses and streamline logistics processes. Automation and new technologies are being developed to help companies reduce costs and improve efficiency. What are the Factors that Govern Packaging? When deciding on packaging options for logistics, several factors should be considered: The type of product being shippedThe distance and mode of transportationThe handling and storage conditions during transitThe cost and durability of the packagingThe packaging regulations and requirements of the destination country It is recommended to consult with a packaging expert or conduct testing to determine the most suitable packaging option for your specific product and logistics needs. Factors That Affect Packaging Product type, mode of transportation, storage conditions, packaging durability, and packaging regulations all play a role in determining the most suitable packaging option for eCommerce logistics. Product type: The type of product being shipped can determine the necessary level of protection needed during transit. Different types of products may require different types of packaging for eCommerce logistics.Perishable items, like food or plants, may need temperature-controlled packaging and insulated liners to maintain freshness.Fragile items, such as glassware or electronics, may require extra cushioning and reinforcement to prevent damage during transit.Items with irregular shapes, such as furniture or artwork, may require custom-fit packaging or additional wrapping to protect them during transit.Clothing or other soft goods can be packaged in folded or rolled format and shipped in boxes or poly mailers.Hazardous materials, such as chemicals or batteries, may require special packaging and labeling to comply with regulations for safe transportation.It's important to consider the specific product requirements and regulations for packaging and shipping before making a final decision. Mode of transportation: The mode of transportation can affect the amount of shock and vibration that a product may be exposed to during transit. Packaging materials and designs may need to be adjusted accordingly to provide sufficient protection. Storage conditions: The storage conditions during transit can also affect the type of packaging required. For example, if a product is going to be stored in a cold or hot environment, packaging materials and designs may need to be adjusted accordingly to maintain the product freshness. Packaging durability: The durability of the packaging is another important factor to consider. When shipping a product repeatedly or for a long distance, durable and reusable packaging may be more cost-effective than disposable packaging. Packaging regulations: There are certain regulations and requirements for packaging that must be followed, depending on the destination country. These regulations can vary depending on the type of product being shipped, and it is important to ensure that the packaging used complies with these regulations to avoid any delays or fines. By considering all these factors, you can determine the most appropriate packaging option for your specific product and logistics needs. And it's always good to consult with a packaging expert to make sure that the packaging you choose is suitable for your product and the shipping conditions Example: An example of how product type, mode of transportation, storage conditions, packaging durability, and packaging regulations can affect eCommerce logistics packaging is the shipment of fragile and expensive glassware from the United States to Germany. Product type: The glassware is fragile and requires extra protection to prevent damage during transit. Mode of transportation: The mode of transportation will be by air freight, which can expose the glassware to more shock and vibration than if it were shipped by ground. Storage conditions: The glassware will be stored in a warehouse before being shipped, and the warehouse has a controlled temperature and humidity. Packaging durability: The glassware is expensive, and the packaging needs to be durable enough to be reused for multiple shipments, this will decrease the packaging costs in the long run. Packaging regulations: The packaging must comply with the regulations set by authorities such as FSSAI To meet these requirements, the glassware will be wrapped in bubble wrap and placed in a durable and reusable wooden crate. The wooden crate will be able to withstand the shock and vibration of air transportation and provide extra protection for the glassware during storage. How to Calculate Packaging Cost? Calculating the price of packaging in logistics can be a complex process that depends on various factors such as the type of product, the volume of the shipment, the type of packaging, and the cost of materials and labor. One way to calculate the price of packaging is to use the following formula: Packaging cost = (Cost of materials + Cost of labor) x Quantity The cost of materials includes things like boxes, tape, labels, cushioning materials, and any other materials used to package the product. The cost of labor includes the time and wages for the employees who are responsible for packaging the product. Another way to approach the calculation is to use a packaging cost per unit of product. This method is useful when you have a large number of items that are similar in size and weight. You can calculate the cost per unit by dividing the total packaging cost by the number of items. Packaging cost per unit = Total packaging cost / Number of items It's also important to consider the cost of packaging for transportation, for example, if you're using a pallet, you need to consider the cost of stretch wrapping, shrink wrapping or strapping. When considering the cost of packaging, it's also important to take into account the cost of any potential damage or returns that may occur due to inadequate packaging. By investing in appropriate packaging, you can decrease the risk of damage and returns, which can ultimately save you money in the long run. It's always good to consult with a packaging expert or conduct testing to determine the most cost-effective packaging option for your specific product and logistics needs. Example: An example of how to calculate packaging cost in Indian Rupee (INR) in eCommerce logistics is for a small e-commerce company that ships 200 units of a single product per month. The product is a small electronic device that requires special packaging to prevent damage during transit. The company uses the following materials for packaging: Corrugated boxes: ₹5 per boxBubble wrap: ₹2 per footTapes: ₹1 per yardLabels: ₹0.50 per label The company pays its packaging employees ₹1000 per hour, and it takes them 30 minutes to package each unit. The cost of materials for packaging one unit is: Corrugated box: ₹5bubble wrap: ₹4 (2 feet are used per unit)Tapes: ₹1 (1 yard is used per unit)Labels: ₹0.50 The cost of labor for packaging one unit is: (₹1000/60) * 30 minutes = ₹500 The total cost of packaging one unit is: ₹5 + ₹4 + ₹1 + ₹0.50 + ₹500 = ₹510.50 The total cost of packaging 200 units is: ₹510.50 x 200 = ₹102,100 So the packaging cost per unit is: ₹102,100 / 200 = ₹510.50 This is just an example, in reality, the cost of packaging can vary greatly depending on the product, the volume of the shipment, and the cost of materials and labor. It's always good to consult with a packaging expert or conduct testing to determine the most cost-effective packaging option for your specific product and logistics needs. How to Optimize Packaging Cost? Optimizing packaging costs in eCommerce is important for several reasons: Cost savings: By reducing the cost of packaging, eCommerce companies can increase their profit margins and become more competitive in the market. Environmental sustainability: By using eco-friendly packaging materials and reducing waste, eCommerce companies can improve their environmental footprint and appeal to customers who are environmentally conscious. Brand reputation: eCommerce companies can create a positive brand reputation by providing high-quality packaging that is both protective and visually appealing. Additionally, by using eco-friendly packaging, companies can appeal to consumers who are environmentally conscious. Shipping cost reduction: By optimizing the packaging design and materials, eCommerce companies can reduce the size of the packages and the weight of the products which will result in reduced shipping costs. Customer satisfaction: By providing adequate protection for the products and creating a positive customer experience through personalized packaging, eCommerce companies can increase customer satisfaction and loyalty. Compliance: By staying up to date with packaging regulations and industry standards, eCommerce companies can avoid costly fines and penalties. Overall, optimizing packaging costs in eCommerce allows companies to increase their profits, improve their environmental footprint, and enhance the customer experience while staying compliant with industry standards. eCommerce companies can optimize packaging costs by implementing the following strategies: Conduct packaging assessmentsUtilize cost-effective packaging materialsOptimize packaging designUse automation and technologyOutsource packagingReuse and recycle packaging materialsNegotiate with suppliers Here is an example: Let’s take the example of an e-commerce company that sells clothing. They currently use branded boxes that cost ₹150 each, custom tissue paper at ₹2 per sheet, and custom labels at ₹1 each. They ship 500 units per month. Using the above tactics, here is what they do: Conduct packaging assessments: The company conducts regular assessments and evaluations of its packaging materials and methods. They find that the custom-branded boxes are costly and the tissue paper is not necessary for the product. Utilize cost-effective packaging materials: The company switches to using plain, unprinted corrugated boxes at ₹100 each. They also switch to using biodegradable bubble wrap at ₹2 per foot instead of traditional plastic bubble wrap at ₹5 per foot. Optimize packaging design: The company implements void-fill materials such as biodegradable loose-fill peanuts at ₹1 per 100g to take up less space in the box. This reduces the size of the boxes needed, resulting in cost savings. Use automation and technology: The company invests in an automated box-sealing machine to improve efficiency and reduce labor costs. Outsource packaging: The company outsources packaging to a third-party logistics provider that specializes in sustainable packaging solutions, which helps them to take advantage of economies of scale and specialized equipment. Reuse and recycle packaging materials: The company implements a recycling program for its packaging materials. They also use returnable packaging, such as crates, for multiple shipments. Negotiate with suppliers: The company negotiates with suppliers to get better prices for packaging materials and buys in bulk to take advantage of volume discounts. It's important to note that this is just an example, and the actual costs and savings will vary depending on the specific materials, methods, and logistics involved for each company. How can WareIQ help? WareIQ is a rapidly growing eCommerce fulfillment company that provides a vast amount of services to meet every requirement that online sellers can have. We support eCommerce brands by providing them with the exact packaging requirements needed to fulfill their orders safely and securely. At the same time, we ensure we adhere to the guidelines shared with us by brands and create a delightful unboxing experience for their end customers. We use a variety of packaging materials - air wraps, bubble wraps, foam sheets, heavy-weight kraft paper, etc. and can customize packaging as per the online seller's specifications in order to balance cost, safety, and experience. For brands across categories, we have curated kits and created combos by themes and specific use cases, which included thank you notes, cards, branded packaging etc. all aimed to excite and delight the customers.
February 18, 2023