Ahhh, good question. And as an eCommerce fulfillment company, this is a common one that we hear. Merchants want to know exactly how they’ll be charged to store their inventory in our fulfillment center. There is often confusion around this topic because the way that inventory storage fees work do vary from one company to the next.
The most commonly-used methods for pricing inventory storage is to charge by cubic foot, by pallet, by SKU, or a combination of the three. So let’s go over these different methods and discuss their differences.
Per Cubic Foot
Some fulfillment houses base their storage fees on the number of cubic feet that their items, or SKUs, occupy. To calculate cubic feet, you multiply the length, width and height of an item.
Let’s say you sell books. One of your books measures 6 x 9 x 1 inches. In this case, the book is 54 cubic inches. There are 1,728 cubic inches in a cubic foot, which means that, if a fulfillment house charges by the cubic foot for storage, you would divide 54 by 1,728 to determine the cubic feet of your book, then multiply by the rate charged per cubic foot.
Here’s an example. Let’s say a fulfillment house charges $0.30 per cubic foot for storage, per month. For one book, your fee would be 54/1728 x $0.30 = $0.009 per month. To store 1,000 copies of this book, your fee would be 54/1728 x $0.30 x 1000 = $9.38 per month.
An important consideration with this model is if and how the fulfillment house rounds their measurements. For example, many companies will round up to the next full inch when calculating the LxWxH dimensions of an item. That can make a significant difference with your storage bill.
It is also common to charge by the pallet for storage, rather than by each individual SKU. For example, a fulfillment house may have a monthly charge of $17 per pallet. The average pallet size is 48” x 48” x 48”, which is 110,592 cubic inches, or 64 cubic feet. So to store one book, your fee would be 54/110592 x $17 = $0.008 per month. To store 1,000 copies, your fee would be 54/110592 x $17 x 1000 = $8.30 per month.
You can see that in this scenario, it’s a little cheaper by the pallet, but that’s not always the case. There are a few important considerations:
1. Pallet Size
The average pallet size is 64 cubic feet; however, some fulfillment warehouses will use industrial-sized pallets, which measure 42” x 48” x 48”, or 56 cubic feet.
2. Items Per Pallet
Not all items fit neatly on a pallet. So even though, when calculated, it seems your 2,000 items will fit on one pallet, that may not be the case, and you may actually wind up paying for two pallets.
Some fulfillment companies have low storage rates per pallet, but only allow one unique item or SKU per pallet. So if you have 10 SKUs, even though your total inventory may fit on 5 pallets, in this case you’ll actually be paying for 10 pallets worth of storage.
A third common method used is to charge for storage by the SKU. For instance, you may have a monthly charge of $2.00 for each individual SKU you have in stock. This method may be used in combination with a per pallet storage fee. For example, a monthly charge of $2.00 for each SKU, on top of a per pallet storage fee of $17.
It’s important to consider is when storage fees are calculated. At eFulfillment Service, we charge storage based on end-of-month item counts. This method rewards our clients for items we receive and ship in the same month, essentially resulting in free storage for those items. This is not the case with all fulfillment companies, so make sure you have a good grasp on both how and when storage is calculated and charged, as well as how you can verify that the charges are accurate.
Lastly, when researching fulfillment houses, it may appear in some cases that you have very little to no storage fees. It is not uncommon for some companies to bake storage fees into their “fulfillment” or “order processing” fees, so make sure to look at the total cost of fulfillment on a per item basis.
Curious about our storage and fulfillment fees for your company? Tell us a little about your business and we’ll send you a free quote.