Every business is unique in nature. Therefore, there’s no cookie-cutter pricing model available as a general solution for 3pl warehousing. It’s vital that you look for a customized contract with a third-party company and form a business relationship with your warehouse provider.
Here are four basic 3pl warehouse pricing models for you to review. Each 3pl warehouse pricing model has their pros and cons. Ensure that you select the model that’s a good fit for your business.
Tips for Selecting the Best 3PL Warehouse Pricing Model
The Outcome-Based Model
This 3PL warehouse pricing model is best for gain share or vested partnerships and rewards both parties involved, namely the 3pl and the shipper. Both the shipper and the 3pl are responsible for reviewing logistics processes and doing all they can to reduce supply chain costs. Any cost reduction sustained with this model is shared equally between both parties.
The most significant benefit of this model is that the reciprocation between the 3pl and shipper allows you to build a healthy relationship based on mutual interest. Th major drawback of this model comes in the form of establishing a baseline for costs over a given time period, and this process can take up to a year to complete.
The Open Book or Cost Plus Model
This model offers the 3PL the least amount of financial risk while establishing a collaboration of efforts between both parties. This model creates excellent communication between the shipper and 3pl as both parties have the chance to reduce costs. If you choose this model, you can expect you budget process to improve as all expenses are “open-book.” However, due to the narrow margins in this model, you’ll need to tighten your budget and some contractual differences like payment cycles, and payment terms may arise which will require new negotiations between the 3pl and shipper.
The Fixed Variable Model
With this 3pl warehouse pricing model, you can expect less risk and healthier margins by holding profitability and fixing expenses during low-volume seasons. Other advantages include;
Pro: This model offers excellent margins with less risk, unlike transactional/unit rates; it helps to hold profitability and fixed expenses in low volume periods. The fixed variable allows you to set a threshold of labor FTE’s as volume grows, as well as improve your billing systems.
The Transaction or Unit Rates Model
This model offers the best margins for the 3pl with the ability to charge rates by the hour for projects that are out of scope. The 3pl also has the right to benefit financially from cost savings and process improvements until renegotiation of the contract between the shipper and 3pl. Your margins have protection from forecasting errors via volume brackets. However, profitability risk is high and requires careful management of SOPs, as well as the contract terms.
Nebraska Warehouse One-Stop Shop
Nebraska Warehouse doesn’t just help to facilitate your shipments, we are truly a one-stop shop solutions provider. Our services include:
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