In the previous two posts I looked at creating your website or store and the back office you need in order to actually sell something. Assuming that you have done them, the next question you need to answer is how will your customers get what they have purchased?
You have three possible choices for fulfillment: electronic, outsourced or self fulfillment. Not all will apply in all cases. Regardless of your fulfillment method(s) you must be sure that they can handle almost any volume. We go into a business with the expectation that it will be successful. In internet terms, that can happen literally overnight or faster. Assume you get a customer who buys from you and is really happy with your product, the online experience, timely delivery, etc. and that customer is very socially networked. A very good review of your new business can end up in front of millions of eyeballs in hours! While that isn’t likely to happen, what will you do if your original sales estimates are off by a factor of 10 or 100?
The best option is to have orders filled automatically and electronically. If you have purchased music from iTunes or software from Microsoft you have used this model. There is a major entry criteria to using this model…you must be selling something digital! If you are selling something digital you have two choices as to how you will deliver: use your own infrastructure or use someone else’s. There are a number of reasons to “outsource” this component. As with hosting a website, the vendors who provide this service have the experience and business motivation to do it well. If you are a small business, do you have the time to go through all the security concerns to assure that your “warehouse” is secure. Do you have the time to do the maintenance that this infrastructure requires? Do you understand how the automatic fulfillment process works to a level where you can implement and manage it?
The bottom line is that if you are outsourcing your hosting, your hosting company can likely provide fulfillment services or direct you to a partner of theirs who can. Not only will such partners have what you need to deliver you products safely and efficiently, they will also have the ability to scale up or down to meet your needs very quickly and provide you with good data about your completed orders. Will there be a cost? Yes. Figure that into your pricing and get back to what actually makes money for you.
So much for digital fulfillment. What if you need to actually deliver a physical product to your customer? Here again you get the two options: do it yourself or let someone else do it. This time the answer is not as cut and dry. For my photo site, I have some sales that are fulfilled automatically through PhotoShelter.com. These are the downloads of an actual image. I also offer my images imprinted on a number of different surfaces and media. PhotoShelter.com has arrangements with a number of photo labs who are ready and able to do the fulfillment that I need. All I need to do is decide which of the lab’s I want to offer. From there PhotoShelter.com lets me set the retail price for each offering. When a customer orders a physical product the order is automatically sent to the lab for fulfillment. The lab will complete the order and send it to my customer. All labeling, return addresses, etc. will show John Feist Photography and not the lab. For me that set up is ideal.
Not all fulfillment works that easily. If your business manufactures or resells a product, you will need to decide if you want to work with a fulfillment house. If you do, you will need to get your product to the fulfillment house, determine that your hosting company can route your orders to the fulfillment house and make sure that your fulfillment house has sufficient inventory.
The alternative to working with a fulfillment house is doing your own fulfillment. A number of photographers who host on PhotoShelter.com self fulfill some or all of their offerings. In some cases this is because they offer signed prints. In other cases they want to have absolute control over the quality of what goes to the customer. There is nothing wrong with doing that. Doing your own fulfillment does place additional burdens on you:
- First, what shipping options you will offer. Can you turn orders around to do next day or two day shipping?
- You need to establish a relationship with a shipping company (usually UPS or FedEx) and understand their pricing so that you can add that to the total cost to your customer. Typically online vendors do NOT include shipping in the product price. Recognize that you will probably not be able to get the same cost structure for shipping as the “big guys” get. Big customers get big discounts.
- Put a cost on what it takes to actually receive the order and convert that into a package ready to be shipped. That is the handling component of Shipping and Handling. You may consider that to be part of your markup when doing it all yourself. Bad idea! What is your time worth? What if you have to pay someone else to do that work? The only way you will know what it takes to do the handling is to dry run it until you are satisfied that the process works reliably and reasonably efficiently. Be realistic! Use a stopwatch to determine the time it takes to do the individual tasks, understand how you transition from task to task (e.g. print out orders, pick inventory, pack, etc.) You’ll be amazed at the time and effort involved in those “connectors”. Be realistic about doing these tasks for numerous orders and not just one. Once you understand the time, effort and materials involved talk to your accountant about figuring out those costs.
- Where will you keep your inventory, do your processing and how will you get your packages to the shipping company? Remember, your inventory must now include all the supplies you need for shipping.
New age stuff aside, self fulfillment can be the right option for you. Just make sure that you understand all that is involved before taking it on.
Another consideration when you are planning fulfillment, regardless of who is doing it, is real time inventory management. Consider this scenario. You go online to order something. You place the order and pay the premium for next day shipping. Six hours later you get an email from the vendor stating that they are very sorry, but your item is out of stock and they will let you know when they have more. Odds are you will not be writing anything nice about the vendor or buying from them again. You need to be sure that when the customer is looking at your offerings, you tell them if something is not available and if possible when you expect to have it in stock.
One final reminder that is not exactly part of fulfillment. Don’t forget about sales tax! I am not going to try and explain how it works, when it needs to be collected, etc. Sales tax laws and requirements differ from jurisdiction to jurisdiction. Check with your accountant as to when you have to collect sales tax and at what rate. Remember, when it comes to sales tax you are collecting it for one or more governmental agencies. In the current economic climate, most state and local governments need every penny they can get, so don’t get yourself in trouble when it can be so easily avoided.
I do hope that you are finding these posts useful. I appreciate feedback, questions, comments and constructive criticism.