Aug 18, 2020
On this episode of the Quiet Light podcast, we have the opportunity
to speak with Jesse Kaufman, the CEO and founder of Shipping Tree.
Though Amazon sellers often use that company’s fulfillment
services, some people engage a third party. 3PL’s can do everything
from start to finish or they can merely be used as a prep center.
Regardless of how you use a 3PL, there are ways to optimize your
expenses. Tune in to hear our discussion about how to negotiate
with a 3PL. Topics:
- The typical Shipping Tree client.
- Deciphering quotes from 3PLs.
- The best integration models for 3PLs.
- How using a 3PL can save money.
- Commerce zones.
- Different types of Amazon seller accounts.
Resources: Shipping Tree Jesse@shippingtree.co Quiet Light Podcast@quietlightbrokerage.com
Transcription: Mark: So within
the world of Amazon FBA, a lot of sellers rely on Amazon's
fulfillment services and simply ship all the product over there but
there are other sellers who utilize a 3PL either to fulfill the
product and do everything from beginning to end and there are also
those that use it just as a prep center before sending it off to
Amazon in a way to try and save on some of the fees. And I think we
can all agree Amazon's fees for fulfillment are pretty high
compared with a lot of other solutions out there. Joe, I know you
had somebody on who owns a 3PL and you guys talked a lot about how
to negotiate the rates with that 3PL and how you can optimize some
of your expenses by using a 3PL as opposed to just sending
everything carte blanche over to Amazon.
Joe:
Yeah, these are my favorite kind of podcast guests when they go on
and they talk about everything that they do and give it all away
for free on podcasts like this. He's not pitching their services.
He's just like, if you're negotiating with a 3PL look for this,
don't do this, throw that contract away, if you have recurring
revenue shipments, this is how you save on your shipping cost. If
you have a 3PL located in Southern California, here's the benefit;
monetary benefit by way of example of shipping from Ohio and things
of that nature. It was fascinating. We've had a lot of people over
the years say hey can you recommend any 3PLs and that was the point
of having this person on knowing that he would give it all away for
free. I think it's going to be very helpful for those that
currently have 3PL, very helpful for those that ship exclusively
through FBA because it's convenient, and some of the benefits of
having a 3PL for kitting, for doing so fulfill Prime to avoid what
happened during the pandemic where there were delays from Amazon
shipping because of shipping medical supplies first; all sorts of
different things that I think will really help the current
e-commerce business owners and those that want to buy improve their
bottom line and improve their customer experience as well.
Mark: Yeah, I think this is all about control,
right? I think the pandemic is a great example. Those that were
100% reliant on Amazon often saw; many of those guys saw delays and
disruptions in their supply chains and also their ability to
fulfill orders. Those that were using 3PLs didn't because they had
that outlet for everything. So this is an interesting topic and
this is where a lot of ROI is made in acquisitions, is learning how
to optimize the expense profile and especially on that Amazon side
so I'm excited for this one.
Joe: Me too and just
as a teaser it gives away one example where I, based upon the
numbers you gave me, probably added a million dollars in value to
the company. Obviously a very large company but if it adds $10,000
or $100,000 in value just by doing little things that make a
difference, it really adds up to the overall value so let’s go
listen.
Joe: Hey folks Joe Valley here from Quiet
Light Brokerage and Quiet Light Podcast. Thanks for joining us
again. Today we're going to talk about 3PLs, how to save money on
shipping, all sorts of different things in that regard. And today,
we've got Jesse Kaufman from Shipping Tree. Jesse, welcome to the
Quiet Light Podcast.
Jesse: Thanks for having me.
Joe: Good to have you here. As I said earlier, we
don't do fancy introductions, so I don't have a big bio on you. No
one knows you better than you so why don't you tell everybody
listening who you are and what you do?
Jesse: Yes,
my name is Jesse and I'm the CEO and founder of Shipping Tree. A
3PL based in Los Angeles with facilities across the country. I'm
Canadian and got my start in the fashion distribution business and
quickly realized that the 3PL world wasn't where it should be, at
least in North America, and that's why started Shipping Tree.
Joe: And is your typical client an e-commerce
client with lots of different SKUs like from your fashion
background?
Jesse: Yes, our typical client now are
e-commerce direct to consumer-focused companies in the CPG
supplement cosmetics space, actually.
Joe: Wow.
Okay, so lots of people picking, packing, and shipping. That's
great.
Jesse: Yeah.
Joe: Okay, so
let's jump into it. A lot of people; I've worked with 3PLs myself,
I had a nutritional supplement company that I sold a decade ago if
you can believe that; almost a decade ago, before I joined the
Quiet Light team and I don't know if I negotiated the greatest deal
with my 3PL because he was a friend of mine.
Jesse: Impossible, yeah.
Joe: We
did recurring revenue shipments and the owner was a friend of mine
and because of that probably either I got an amazing deal or I got
a terrible deal; probably nothing in between.
Jesse: You'll never know.
Joe:
I'll never know. No. And I was just going to go on the craziest
side there but people do not need to hear that history. Let's talk
about, first and foremost, what's the best approach to reaching out
to a 3PL and not just simply accepting the boilerplate prices that
you give or should they or is there a way that you can
professionally negotiate so it's a really healthy deal for both
parties?
Jesse: Yeah, totally. So, I think most
important in your 3PL search is kind of put as many feelers out
there as you can, get your internal data together, and organize
before you put out those feelers so you could give those
prospective 3PLs the data they need to give you pricing quickly.
Joe: What kind of data are we talking about?
Jesse: It's really like shipment data. So like a
pretty basic Shopify export of your orders that includes the
dimensions and the units in the order. That should give any 3PL the
ability to quote you really accurately. Then once you start getting
those quotes back right away, it'll be pretty evident. Some 3PLs
their quotes will have 30 line items. Others like mine and some of
our closer competitors will have more in the neighborhood of three
to five line items. So right away, all those 3PLs with 30 line
items of potential charges throw those proposals in the garbage.
There's no use even negotiating with those guys. The other ones
with simple line items, three to five, maybe up to 10, those are
the ones you want to focus on because, in my opinion, those are the
ones that have the most merchant focused approach to the way they
do business. And then areas where you can negotiate with 3PLs, in
my experience, would be the initial processing fee on an order. So
typically speaking, the most labor-intensive and expensive part of
the work that we do are the individual picks. So 3PLs are rarely
going to have margins to negotiate on the pick fees for your
orders.
Joe: And the pick is literally someone
walking around and picking your product off the shelf and putting
it on the proper conveyor belt to have the label put on.
Jesse: Exactly.
Joe: Okay.
Jesse: Yeah, so you want to negotiate on the
larger items on that list. So things like storage, processing fees,
get rid of any minimums and stuff and kind of like frame your
business as one that's even if you're just starting, it's ready to
scale you’re a smart team, you're going to scale it quickly, get
rid of those minimums, focus on things like storage, processing,
packaging, and you could kind of dwindle those down a little bit.
Joe: Are there startup fees in most cases with
3PLs that I have to pay you $5,000 for the pleasure of doing
business with you and that's just the setup fee and then it's going
to be a monthly pack and ship fee?
Jesse: If that
comes across your desk, throw it in the garbage.
Joe: Just throw it in the trash, okay.
Jesse: Yeah, throw it in the trash. If you have
really complex integration needs like an ERP system like NetSuite
and a ton of different marketplaces, then there might be; you could
expect some sort of integration fee and tech fees for that. But if
you're just running like run of the mill, Amazon, Shopify,
Walmart.com, maybe an accounting system; like all of that should be
out of the box with the 3PL that you work with.
Joe: Can you just dumb down what an integration
fee is?
Jesse: Yeah, so you're going to want your
3PL to plugin with whatever systems are running your business on
the shopping cart side or the marketplace side of things and so you
that you don’t leak your sales channel. You want the 3PL to plug
into there so data flows back automatically, your team has very
little to do, that really is going to take the weight of shipping
and fulfillment off your plate. And some companies charge for these
integrations really like a setup fee, which isn't right because for
Shopify, for example, we've built the integration already. We enter
a couple of lines of code and the integration is done in five to 10
minutes so why would we charge you $500 for that? It's just not
right.
Joe: Good markup, $500 for five minutes of
work. I like that.
Jesse: I do like that markup,
but we don't do it.
Joe: Not if you want to keep
the customer long term, I suppose, right?
Jesse:
Yeah. So, we've built out; and you want to find a 3PL that owns
their tech stack. So what I mean is they kind of own their platform
and they own the integrations. So we've built out these
integrations so we've done the work upfront already and it's ready
so we could just deploy it for the merchant.
Joe:
That makes a lot of sense because that's probably where the $500
charge comes from, is because they're using somebody else's
software that somebody else is charging them and they're passing it
on to the product owner.
Jesse: Exactly, yeah.
Joe: Is there a particular; I know that within
Shopify, within the different websites platforms, there are
different integrations for processing shipping. Is there a favorite
integration that most 3PLs are comfortable with? And I cannot think
for the life of me of a single one of them right now and I've used
them before in the past but is there any particular integration
that people like in terms of that processing of the order and
having it ready to be shipped just to be shared with a 3PL or am I
a little off track here?
Jesse: A little off
track. A little, so that's like if you just had a regular Shopify
store, you would actually install the Shipping Tree app in your
Shopify store.
Joe: Okay, so you've got your app
that you would install.
Jesse: Yeah.
Joe: Okay.
Jesse: But you're
talking about a product like Ship Station.
Joe:
Yes, that's the one I was trying to think of. Thank you. All right.
Jesse: So Ship Station is great. We integrate with
them also. Ship Station is great if you're selling on a ton of
marketplaces like Etsy, Groupon; like if you're really marketplace
heavy grand Ship Station is great because it brings all that in one
place and then that's just one integration for us to run and
manage.
Joe: Okay, for people that are selling on
Amazon is the largest marketplace and some of their own Shopify
sales as well is there a benefit to using a 3PL to store inventory
before shipping it off to Amazon, and do you provide those types of
services?
Jesse: Yeah, totally. So we do that a
lot for our customers. We kind of run in parallel to Amazon like
the verticals and the brands we serve and everyone needs to work
with Amazon these days especially in CPG and cosmetics and
supplements and stuff. So, yeah, our storage rates are generally
cheaper than Amazon and more flexible.
Joe: You
can probably do kitting that Amazon's not doing, right?
Jesse: Yeah, so we could help prep your stuff to
go to Amazon. So if your factory isn't putting the Amazon FNSKU
barcodes on the boxes we could do all that work for you.
Joe: And you happen to be in Southern California
so if it's coming off a boat it just have to go very far, which is
kind of a strategic location, I would imagine.
Jesse: Exactly, yeah.
Joe: I had
a guy named Rocky Cliburn on the podcast in the last, I don't know,
maybe it was a year ago and Rocky was just this great buyer in his
60s. He was a general manager of car dealerships, if you can
imagine, for his entire life and then he bought a jewelry business;
an e-commerce jewelry business from Amanda here on the team. And
Rocky and his daughter ran the business and within months improved
the margins by like $8,000 to $10,000 a month by working with their
fulfillment center in terms of shipping rates and packaging and
things of that nature. You and I chatted prerecording here about
saving on postage in terms of improving the value of a business and
so you understand we always talk about the value of a business and
it's really based upon profit, which is actually called seller's
discretionary earnings. It's not about topline revenue. It's about
what you get to keep. And a lot of folks don't focus on the 3PL
potential savings as they prepare an eventual exit of their
business. So how do you end up saving thousands of dollars on your
shipping and postage like Rocky did if you're working with a 3PL,
what kind of recommendations have you implemented for clients of
yours?
Jesse: That's a great point; a great
question. So there's two things there. One is choosing the right
shipping methods and another is the packaging that you're choosing.
So I'll start with the packaging and for example, a jewelry company
they might have one standard box size for all their orders just to
they think it's a good solution that’s like a catch-all. Every
order ships in the same box so it either might be too big or it
might be too small. If you optimize that, especially for smaller
weight items, every ounce is almost 20 cents with the Postal
Service. So if you could figure out a way to ship in a smaller box,
maybe a more efficiently sized box, even though you think it might
be it's a bigger inconvenience to have to source two different
sized boxes or whatever it may be, you're going to knock 5%, 10%
off your postage just right there optimizing for box size
especially for orders under a pound.
Joe: How much
do boxes really weigh I mean if we're talking about the size of a
shoebox?
Jesse: So a shoebox is quite like half;
almost half a pound, I would say.
Joe: Okay, so if
you can save a couple of ounces, you might be saving $400 or $500 a
month if you're shipping a thousand orders a month or something
like that.
Jesse: Easy, yeah.
Joe: Back in the day, when I was doing what most
folks do that are listening, we had a fulfillment center up in
Maine, which is just crazy because I was shipping all over the
country but that's where I was from at the time. But they had a
subcarrier. It wasn't the US Postal Service. They had somebody else
that was sort of a cheaper version of that that would take it to
the US Postal Service and then the US Postal Service would deliver
it for that last mile or so. I forget what that's called but is
that something that a lot of 3PLs can utilize and how do you find
out about it if you're working with a 3PL now?
Jesse: Yeah, so those are called shipping
aggregators or an aggregator service. A lot of the major carriers
offer that these days. The FedEx one is called Smart Post, and then
there's a DHL product called DHL E-commerce. So those guys would
pick up from your 3PL, bring it as close as they can kind of to the
customer, then USPS finishes it. So those are good and bad. They're
great for saving money. They're bad for making first impressions.
Joe: So they take a little longer to ship, right?
Jesse: Yeah, exactly because there’s more
touchpoints. But I think what we spoke about was; like we have a
lot of subscription-based companies.
Joe: I think
we did that. I think that's what we did, is did it on the recurring
revenue aspect of it where it didn't need to be there in two days,
you could get it in five.
Jesse: Exactly. Yeah, so
we could set it up. And always look for this in a 3PL to have
flexibility with mapping your shipping methods. It's really
important that they don't just like put all your orders like this
is it, this is what you have to use because we work with all the
carriers. We probably have over 100 available methods and we work
with our customers to make sure they're using the best ones. So for
a subscription-based company, that first-order should go out with
like a fairly premium single carrier option like USPS Priority Mail
or FedEx Ground or whatever it may be so that is quick and the
tracking is seamless. And then once they get into that subscription
funnel; the customer, you could set it up programmatically so that
instead of the order shipping on the anniversary date, you ship the
order like three days in advance and you use one of these slower
and cheaper methods. So that way the order is going to arrive
within one or two days of the correct window for the subscription
renewal, you're going to save easily 30%, 40% on your postage that
way, and yeah, everyone is happy.
Joe: That could
certainly add up, that's for sure. That subcarrier method, is there
tracking with it as well or not?
Jesse: There is
tracking, but it's known to go dark the tracking sometimes.
Joe: Okay.
Jesse: It's not as
reliable as a single carrier because yeah.
Joe:
Okay, do you have; actually location, does it really matter? As I
just said a few minutes ago, my fulfillment center was up in Maine.
I was shipping all over the country.
Jesse: That
might be the worst place, Sanford Fulfillment Center.
Joe: Oh really? Okay [INAUDIBLE 00:19:30.4]. Why
would that be the worst? Is it just zone wise is the best place
inside of the country or is the best place in Southern California
where you are?
Jesse: Okay, so if you could only
choose one fulfillment center or one location, middle of the
country is best unless obviously, all your customers are west.
Like, if you’re a surf brand and all your customers are on the West
Coast choose a West Coast 3PL. But if you're just a normal run of
the mill brand and you could only have one facility choose
something in the middle, that way shipments are never really going
to go to the outer edges of the zone map. So if you just Google
search a zone map, the country will be split up into kind of
columns like a heat map with the further you go, the further the
zone and it goes up to nine zones. If you're in the middle of the
country, the furthest zone is like six or seven possibly. And so
with Maine, the reason why Maine is not so great is New York,
historically one of the biggest population centers in terms of
e-commerce orders going to that area, that's a zone two or three
for Maine. So you're not even getting the benefit of being that
close to New York geographically and then everything in L.A. is a
zone nine.
Joe: Let's talk dollars, though.
Jesse: Yeah.
Joe: And you've seen
this with clients that you've brought in. How much are we talking
about? If somebody is; and I know it's hard to quantify, so maybe
we're only talking percentages but…
Jesse: I could
give you an example.
Joe: Please. Yeah. Thank you.
Jesse: Yeah. So we opened our facility in Ohio
last year and we had a customer; one of our better customers, the
supplements company, they were shipping everything out of our L.A.
warehouse, obviously. Right away they probably spent close to
$100,000 a month on postage.
Joe: Okay.
Jesse: Or they did when we were; they still do it
[INAUDIBLE 00:21:34.4]. Right away when we started shipping out of
Columbus and Los Angeles; so now you cut it down to furthest the
package is going is zone four. Right away they started saving
$15,000, $20,000 a month.
Joe: Holy cow.
Jesse: Not changing anything and the shipping
speed…
Joe: I hope everybody is listening to this
far just because in that situation, $100,000 a month, even if all
you spend is $10,000 a month on shipping, you're saving 15% to 20%.
Jesse: Yeah.
Joe: Go ahead.
Jesse: And your customers are getting their orders
quicker.
Joe: So they're happier too; you’re
getting no return rates, higher customer satisfaction.
Jesse: Yeah.
Joe: The value that
adds to the company in terms of customer satisfaction is huge but
the value in terms of the sellability of the list price of the
company for that one spending $100,000 and it drops to $80,000 a
month, that's $240,000 of real cash saved on an annual basis.
Jesse: Yeah.
Joe: The size of
that business, I'm going to guess maybe it's at a four-time
multiple. They just added nearly a million dollars to the value of
their company by saving $240,000 a year. That's that net worth.
It's pretty incredible. So as whatever, it's just shipping, I'm
going to focus on revenue, just stop focusing on revenue alone and
look at some of these other things, because it's just math and
logic saves a tremendous amount of money. That's awesome. What
other tips and tricks do you have here Jesse? Come on, keep
throwing them at us.
Jesse: Yeah, so splitting up
inventory; that's a big one. So using multiple facilities and find
a company that has a few facilities and if you could afford it,
there's a lot of fulfillment consultants out there who aren't
terribly expensive at all. But it could be a really daunting
process for brands going through their whatever they use Excel or
the ERP or their inventory systems and be like, how am I going to
split up the inventory between two warehouses? I don't know where
demand is, all that stuff. There's people out there and software
tools out there that could help figure that out for you.
Joe: It's not something that a 3PL will do when
they've got multiple centers or you'd refer them on to these
consultants?
Jesse: Yeah, we could do it. For
inventory planning, we're building tools for that. It's really
complicated to do and to do properly. It's not our core competency.
And it's a big responsibility to do that properly. We could totally
look at your shipping data and tell you how much you would be
saving by using Facility A, Facility B, or them in conjunction.
Joe: Okay, so splitting up inventory to the right
fulfillment centers you're saving like your client did 15% to 20%.
Jesse: Yeah.
Joe: Any other sort
of immediate thoughts come to mind in terms of somebody that either
let's assume that they don't even have a 3PL now what should they;
I know obviously you want them to go to ShippingTree.co and work
with you but if they're already in a relationship with somebody,
how do they improve that relationship and any other tips that you
can think of?
Jesse: So always think of your 3PL
partner not just as another vendor, but really as a partner and
part of your business and kind of put yourself in their shoes when
it comes to the way you send them inventory, the way you keep them
in the loop on sales or promotions you're running. Like really
consider them like an outsource or your shipping department that's
just outsourced. So if you were doing your fulfillment, you
wouldn't run like a flash sale and then call down to the warehouse
20 minutes after the flash sale launch and be like, hey, buddy you
have 15,000 orders coming down the pipe. You would tell your people
in your own company a few days in advance. So do that with your
3PL, help make their jobs a little easier, send them stuff that's
barcoded, clearly divided. We deal with a couple of hundred
customers and you could imagine how many different items we have in
the warehouse. All our merchants are really passionate, but like, I
can't tell the difference between print like bandana print 1 and
bandana print 2 you know?
Joe: Yeah, we always
hear stories of Amazon messing products up. I'm sure it happens in
3PLs as well. It's not you.
Jesse: It happens but
there's things you could do to mitigate that. Like work with them
as a true partner and if you sense any pushback in trying to
improve the relationship, I would look elsewhere.
Joe: Yeah. Can 3PLs do fulfill by merchant with
Amazon Prime?
Jesse: Yeah.
Joe:
And are you in that situation or is it not a 3PL, in general, it's
more of the product at the 3PL, how does that work?
Jesse: Okay, so fulfilled by merchants we could do
no problem. And then there’s Seller Fulfilled Prime, which is that
is actually on the merchants. They have to get their accounts
authorized for Seller Fulfilled Prime.
Joe: Even
if they're using a 3PL?
Jesse: Yeah, so their
specific Amazon seller account has to be authorized for Seller
Fulfilled Prime.
Joe: Is that a daunting task or
something?
Jesse: Yeah, it's at least 90 days, and
yeah.
Joe: And what's the benefit to that in your
opinion?
Jesse: So the benefit there is you get
the prime badge on your Amazon listings, you kind of get all the
benefits of winning the buy box that you'd get with using FBA but
the package could be sent out in your own custom packaging. You
control the whole process and generally, it's a little cheaper than
Amazon; storage wise and stuff like that.
Joe: You
still have to abide by the terms of services I would imagine. You
still don't own the customer, even though you've got all the
customer data minus the phone number, I suppose. Is there any
advantage to doing Seller Fulfilled Prime using a 3PL in terms of
customer data that you get to keep versus just using FBA?
Jesse: I don't think so. It's more like a
flexibility piece.
Joe: Okay.
Jesse: So those sellers that were set up with
Seller Fulfilled Prime when COVID hit and FBA stopped allowing
shipments in, they didn't skip a beat, they kept their Prime badge,
all that stuff.
Joe: Yeah, okay.
Jesse: It's a little bit more secure.
Joe: Having control as opposed to letting Amazon
have full control of it, yeah. Okay. This has been great. We're up
against the clock here, but this is fantastic stuff. I think that
anybody out there listening needs to dig deeper into their expenses
on the 3PL side. If all you're doing is fulfilled by Amazon, you
might want to look at at least a 3PL like Shipping Tree to do
kitting and prepping and getting it shipped off to Amazon so you're
not paying exorbitant storage fees at Amazon and then as your
offline Amazon sales grow running a Shopify side so on and so
forth, I think is great to do. So any last-minute thoughts in terms
of other things that people could do to benefit themselves with 3PL
negotiations and working with them before we wrap this up?
Jesse: No. Just be aware of this. Like I said I
think the biggest red flag are those proposals you get back that
are like two or three pages long with a ton of line items. That's
going to be a headache of a relationship for you to manage. Find
someone that keeps it simple for you. It's a complicated process.
It's my job to simplify that for our merchant customers and find
someone that will do that for you.
Joe: I got you.
Okay, how do folks reach you and your firm, Jesse?
Jesse: If you’re going to reach out you could
email me directly
Jesse@ShippingTree.co or go to
our website and fill out the form there.
Joe:
Awesome. I appreciate your time. We'll look forward to a lot of
folks reaching out to you as well.
Jesse: Cool.
Thanks, man. Take it easy.
