One main reason retailers and B2B brands use a 3PL provider once they reach higher inventory levels is the storage space. When your garage is no longer an option and the cost of dedicated or self-fulfillment is out of reach, a 3PL becomes an attractive option. 3PLs handle several operational services, from sourcing and fulfillment to warehouse and returns management. Depending on the services you use, and the amount of inventory you carry, costs can vary greatly.
Most 3PLs charge similar fees, such as carrier receiving, forwarder receiving, pick and pack, shipping, account management and storage (or warehousing) fees. However, inventory storage fees are determined using several methods, including square or cubic footage, pallet space or bin space.
Before you can find ways to make your operations more cost-effective, it helps to understand 3PL pricing by service, the pros and cons of each and then maximize the value on your fee structure. Let’s start by delving into storage pricing.
What are inventory storage fees?
Storage fees refer to the costs associated with a brand's storing and maintaining inventory at a 3PL warehouse. These fees cover rent or lease payments, utilities, security, labor, insurance and equipment involved in keeping the inventory in prime condition. The methods for calculating these fees vary by 3PL. Some fulfillment providers offer flat fees or storage fees per SKU, but many are likely to charge per pallet, shelf, bin or by cubic volume.
Methods for calculating storage fees
3PLs will likely have a preferred method for calculating storage fees. You should select a fulfillment based on the cost-effectiveness of the inventory storage fee and whether the provider is flexible and adaptable to your evolving needs. Here are some common storage fee structures you’ll encounter:
Per pallet
Pallet storage is when goods or materials are stored on pallets within a warehouse or storage facility. Pallets are typically wooden or plastic platforms that provide a stable base for stacking and transporting goods. They are commonly used in logistics and warehousing to streamline the handling and storage of products.
Per pallet storage fees are charges for storing each pallet of goods for a certain period, usually monthly. These fees can vary depending on factors such as the size of the pallet, the type of goods being stored, the location of the facility and any additional services provided.
Here's how per pallet storage fees typically work:
- Warehouse operators will set a rate for storing each pallet per month. This rate may vary depending on factors such as the size and weight of the pallet, the type of goods being stored and any additional services required (e.g., temperature-controlled storage).
- The storage fee for each pallet is calculated by multiplying the number of pallets being stored by the storage rate per pallet per month. For example, if the storage rate is $15 per pallet per month and you are storing 50 pallets, the total storage fee for the month would be $15 x 50 = $750.
- Warehouse operators typically bill their clients monthly for the storage services provided. Clients are invoiced based on the total number of pallets stored and the applicable storage rate per pallet.
- Some warehouse operators may offer flexibility in their storage fees, allowing clients to adjust the number of pallets stored or the duration of storage as needed. This can be beneficial for businesses with fluctuating inventory levels or seasonal variations in demand.
Pros
- Cost transparency: Pallet storage fees offer a transparent pricing structure, making it easy for businesses to understand and budget for their storage costs. Since fees are typically based on the number of pallets stored, clients can accurately calculate their expenses.
- Scalability: Per pallet storage fees allow businesses to scale their storage space according to their needs. They can easily adjust the number of pallets stored to accommodate fluctuations in inventory levels or seasonal variations in demand without incurring additional overhead costs.
- Flexibility: Businesses have the flexibility to choose the duration of storage and adjust the number of pallets stored as needed. This enables them to optimize their storage space and minimize unnecessary expenses.
- Customization: Warehouse operators may offer additional services, such as inventory management, order fulfillment or specialized storage conditions, which can be tailored to meet the specific requirements of each client.
Cons
- Potential for high costs: Depending on the storage rates and the volume of pallets stored, pallet storage fees can become a significant expense for businesses, particularly if they have large or bulky inventory.
- Minimum requirements: Some warehouse operators may have minimum storage requirements or charge additional fees for smaller storage volumes, which may not be cost-effective for businesses with limited storage needs.
- Hidden costs: While pallet storage fees provide transparency, there may be additional costs associated with storage services, such as handling fees, access fees or administrative charges, which could add up and impact the overall cost-effectiveness.
- Dependency on external providers: Businesses relying on third-party warehouse operators for pallet storage may face challenges related to dependency, such as limited control over storage conditions, accessibility or potential service disruptions.
Per shelf
Per shelf storage is an arrangement in which goods or materials are stored on shelves within a warehouse or storage facility. Unlike pallet storage, where goods are stored on pallets, per-shelf storage involves placing items directly onto shelves, which are typically made of metal or wood and can vary in size and configuration.
Per shelf storage fees are calculated based on the number of shelves utilized and can vary depending on factors such as the size and type of shelf, the nature of the goods being stored and any additional services provided.
Here's how per shelf storage fees typically work:
- Warehouse operators will set a rate for storing goods on each shelf per month. This rate may vary depending on factors such as the size and capacity of the shelf, the type of goods being stored, and any additional services required (e.g., climate control).
- The storage fee for each shelf is calculated by multiplying the number of shelves utilized by the storage rate per shelf per month. For example, if the storage rate is $20 per shelf per month and you are utilizing 10 shelves, the total storage fee for the month would be $20 x 10 = $200.
- Warehouse operators typically bill their clients every month for the storage services provided. Clients are invoiced based on the total number of shelves utilized and the applicable storage rate per shelf.
- Similar to per pallet storage, per shelf storage fees offer flexibility for businesses to adjust the number of shelves utilized or the duration of storage as needed. This allows businesses to optimize their storage space and control their storage costs based on their specific requirements.
Pros
- Optimized space utilization: Per shelf storage allows for efficient use of vertical space within a warehouse or storage facility. By utilizing shelves, businesses can maximize storage capacity and store a larger volume of goods in a smaller footprint.
- Flexibility in configuration: Shelves can be configured and adjusted to accommodate different types and sizes of goods, providing flexibility in storage options. Brands can customize shelf layouts to organize inventory based on factors such as size, weight and accessibility.
- Easy accessibility: Goods stored on shelves are typically easier to access compared to palletized storage. This facilitates faster picking and retrieval processes, reducing downtime and improving operational efficiency.
- Transparent pricing: Per shelf storage fees offer a transparent pricing structure, making it easier for businesses to understand and budget for their storage costs. Since fees are based on the number of shelves utilized, clients can accurately calculate their expenses.
Cons
- Limited weight capacity: Shelves have a finite weight capacity, which may limit the types of goods that can be stored on them. Heavy or bulky items may require specialized shelving or alternative storage solutions, which could incur additional costs.
- Higher initial investment: Setting up shelves and racking systems can require a significant initial investment in infrastructure and equipment. Businesses may need to invest in shelving units, installation and maintenance, which can impact upfront costs.
- Space constraints: While per shelf storage optimizes vertical space, it may not be suitable for all types of goods or storage requirements. Businesses with oversized or irregularly shaped items may encounter challenges in finding suitable shelf configurations, limiting storage options.
- Dependency on shelving systems: Brands relying on per shelf storage are dependent on the stability and durability of the shelving systems. Any damage or malfunction to the shelves could disrupt operations and potentially damage inventory, leading to downtime and additional expenses.
Per bin
Bin shares many of the same features, pros and cons as shelf storage. However, it sets itself apart because bins can vary in size, and while bins may protect products better, they lack the same accessibility and may require additional handling equipment. A bin can accommodate a single item or a group of similar items, and goods are typically organized horizontally, with multiple bins arranged in rows or columns. Per shelf storage focuses on vertical organization and shelf utilization, while per bin storage focuses on horizontal organization and individual bin occupancy. An example of per bin fees are:
A warehouse that charges a storage fee based on the number of bins utilized. The fee is $5 per bin per month.
- Number of bins utilized: 50
- Storage fee per bin per month: $5
To calculate the total storage fee for the month, you would multiply the number of bins by the storage fee per bin:
- Total storage fee = Number of bins * Storage fee per bin per month
- Total storage fee = 50 bins * $5/bin
- Total storage fee = $250
Per cubic foot
Cubic foot storage is a warehousing method where goods are stored based on the volume they occupy, measured in cubic feet. Instead of renting space based on square footage, which considers only the floor area, cubic foot storage accounts for the vertical space utilized as well, allowing for a more precise measurement of storage capacity.
In cubic foot storage, clients are charged a fee based on the total volume of space occupied by their goods, calculated as a rate per cubic foot. This fee is often monthly and varies depending on factors such as the location of the facility, the type of goods being stored and any additional services provided.
Pros
- Cost-effectiveness: Cubic foot storage offers cost-effectiveness as clients only pay for the actual volume of space utilized, rather than a fixed square footage. This allows businesses to optimize their storage costs and avoid paying for unused space.
- Space utilization: By considering both floor area and vertical space, cubic foot storage encourages efficient use of warehouse space. Businesses can maximize storage capacity by stacking goods vertically, thereby making the most of available space.
- Scalability: Cubic foot storage is highly scalable, making it suitable for businesses with fluctuating inventory levels. Clients can adjust their storage space as needed, scaling up or down to accommodate changes in demand without incurring unnecessary costs.
- Flexibility: Cubic foot storage's flexibility allows businesses to store a wide range of goods, from small items to large, bulky items. This versatility makes it suitable for various industries and storage requirements.
Cons
- Complexity in cost calculation: Calculating storage costs based on cubic feet can be more complex compared to square footage, especially for businesses with diverse inventory types and sizes. This complexity may require sophisticated inventory management systems or manual calculations.
- Difficult estimation: Estimating the volume of space required for storage can be challenging, especially for businesses with irregularly shaped or oversized items. Inaccurate estimations may lead to overestimation or underestimation of storage needs, impacting costs and efficiency.
- Organizational challenges: Organizing goods within the allocated space in a cubic foot storage arrangement can be challenging. Businesses need to carefully plan and optimize storage layouts to ensure efficient access to inventory and minimize handling times.
- Potential for heightened costs: While cubic foot storage offers cost-effectiveness, there is a potential for heightened costs if space is not utilized efficiently. Businesses need to actively manage their inventory and storage configurations to avoid paying for unused space.
Dedicated square feet
Dedicated square feet storage involves renting a specific area of warehouse space for exclusive use by a single client. The client pays a fixed rate based on the square footage of the allocated space. This arrangement provides the client with full control over the designated area, allowing for customized storage solutions and easy access to inventory. Pros include tailored storage solutions, flexibility in space utilization and enhanced security and control over stored goods. However, cons may include higher costs compared to shared storage options, potential underutilization of space and limited scalability for fluctuating storage needs.
Per SKU
Per SKU storage costs is a pricing model where warehouse storage fees are based on the number of unique stock keeping units (SKUs) stored, rather than on factors like square footage or volume. Each distinct product type or variation is counted as a separate SKU, and the storage fee is calculated accordingly. While this model offers transparency and can be useful for businesses with diverse product lines, it can also lead to challenges such as complex pricing calculations, difficulty in estimating storage needs accurately and potentially higher costs for businesses with a large number of SKUs or varying inventory levels. It can also be challenging for brands to budget effectively when fluctuations in SKU counts or changes in product assortments impact storage costs unpredictably.
Cart.com to optimize your storage costs
Work with the expert team at Cart.com for pricing transparency and to optimize your storage costs. Our omnichannel fulfillment services deliver seamless operations while providing fast onboarding and flexible pricing. Contact our team today to find out more about our storage methods, pricing and optimization.