To say that Shopify has made a name for itself in the eCommerce space is an understatement.
Inspired by a poor online shopping experience with snowboarding equipment, three Canadians started the now-iconic company in 2004.
The mission was simple: democratize technology to allow small, scrappy entrepreneurs to compete in the eCommerce space with big-name brands.
Shopify is an end-to-end eCommerce platform that organizes sellable products and powers the entire point-of-sale experience.
It’s also a powerful website builder in its own right. Many brands have migrated their entire web presence to the Shopify ecosystem.
Fast forward to today. Shopify now owns 20% of the total eCommerce market share.
They continue to pioneer advanced eCommerce tech and services such as augmented reality and — as we’ll dive into soon — 3rd-party inventory fulfillment.
According to their website, the 1.7 Shopify brands have done over $314 billion in sales on the platform. This includes everything from ragtag solopreneurs to brands like Staples, Heinz, and Lindt chocolates.
It’s no wonder that Shopify would take the leap into managing inventory for their customers. It’s the logical next step in adding value.
But is the Shopify Fulfillment Network right for you and your business? What’s the relationship between profitability, growth, and outsourcing your inventory logistics?
We’ll answer all of these questions and more in this post. First, let’s thoroughly define the Shopify Fulfillment Network (SFN).
What is the Shopify Fulfillment Network?
Simply put, the Shopify Fulfillment Network (SFN) is a paid service that takes care of all the logistics of storing, picking, packing, processing, and shipping your product inventory.
In the inventory space, we refer to these as 3rd-Party Logistics or 3PL providers. 3PL services certainly aren’t new. The biggest and most well-known competitor to SFN is Amazon FBA (“Fulfilled by Amazon”).
We’ll compare and contrast these services later in the post.
To accommodate their new 3PL service, Shopify has set up fulfillment centers across the United States that automatically deal with storage, assembly, shipping, and customer returns.
Many of you may be reading this from a warehouse (or spare bedroom) filled to the brim with products, boxes, and shipping materials.
Shopify Fulfillment Network sounds like the answer to your prayers. But the devil is in the details, and transitioning from local inventory to a 3PL is a massive business decision.
Let’s look at the nuts and bolts of how it works and if SFN is suitable for you.
How Does the Shopify Fulfillment Network Work?
To best understand how SFN works, you need to understand the problem it’s aiming to solve. Let’s look at a hypothetical scenario.
Say you’re a small eCommerce operation that makes high-quality leather bags. Your leatherworking gear and inventory storage are all held locally in Indiana.
You find that most of your customers are on the West Coast. Shipping a leather bag from Indiana to California costs anywhere from $15 to $30, depending on the carrier. Not to mention that any sort of “rush order” shipping will eat even deeper into profit margins.
The solution? Get your inventory closer to your customers. That’s what SFN does through its multiple fulfillment centers throughout the country.
After shipping your orders to Shopify, they use machine learning to determine the best geographical location to store your product. Then, they handle all the logistics within the appropriate fulfillment centers — including dealing with customer returns.
How Do You Join the Shopify Fulfillment Network?
Shopify prides itself on a straightforward, simple process for joining SFN (especially if you’re already selling on their platform).
- Step 1: Install the App
- Step 2: Select the products and answer some questions
- Step 3: Get a quote
- Step 4: Send the products
Shopify uses a short vetting questionnaire to determine if you’re eligible for its fulfillment service.
You should be prepared with the following information:
- How many other apps you use to manage your inventory
- If your products require any assembly or specialized storage
- If you’ve got stock currently prepared for fulfillment
From there, you can request a quote.
Now while the process itself is straightforward, there are some prerequisites that you’ll need to shore up beforehand.
Product and inventory requirements
You must have the following three things ready for any product you’d like to sell via SFN:
- A unique SKU
- A unique barcode
- A tariff code (for international shipping)
If you don’t already have a SKU and barcoding system in place, we highly recommend using an inventory management system (IMS) like SkuVault.
SkuVault handles barcode and SKU creation automatically, helping you build out a trackable database of all your inventory. From there, you can pull detailed reports, adjust reorder points, forecast customer demand, and more.
There are workarounds in programs like Excel, but if you’re looking to scale your business cleanly, an IMS is non-negotiable.
How Much Does the Shopify Fulfillment Network Cost?
If the “get a quote” step above sounds vague, well, that’s intentional. Shopify is cagey about its pricing structure for SFN.
I couldn’t find a single reputable pricing example for the service in my research for this post.
This is a double-edged sword. Shopify prides itself in giving merchants total control over branding and even accommodating special assembly and storage needs.
However, this level of control comes with a wide variance in price. It’s a bit like asking a graphic designer: “How much do you charge?”
Well, that depends. If you’re looking for a new logo, that will cost a lot less than a complete brand overhaul.
While the pricing structure is veiled more than we’d like, we are given a bit of insight into how Shopify calculates pricing on a per-client basis. According to the official language, the following criteria determine how much you’ll pay for Shopify Fulfillment Network:
- Your pick/pack rate – How many orders per day is Shopify accommodating for you? More orders mean more resources dedicated to your account.
- Transportation costs – How much does it cost to ship your product? Shopify uses AI to calculate the best shipping rate to keep you under budget while keeping customers satisfied.
- Inventory storage – How much of Shopify’s fulfillment centers will your products occupy? Storing 50 flatscreen TVs is a lot different than storing 50 pieces of handmade jewelry.
- Special project fees – Do you want to bundle your products for the holiday season? Perhaps you’d like to audit your inventory? These will factor into your cost as well.
And those are just the ones Shopify has made public. The other variable is that these are calculated daily.
Depending on how many SKUs you’ve got in fulfillment centers, the evolving nature of your product line, or your monthly sales, your price can fluctuate from month to month.
When you consider these factors, it makes a bit more sense why Shopify can’t just advertise a blanket price.
Pros of Using the Shopify Fulfillment Network
Shopify is one of the strongest players in eCommerce. And you have to respect their gusto in stepping into the ring with Bezos’ behemoth.
Here are some of the pros of going with SFN as your 3rd-Party Logistics provider of choice.
You Can Stay Within the Trusted Shopify Ecosystem
eCommerce businesses trust Shopify because of its simplicity and ease of use. It excels at “getting out of the way” business owners and not bogging them down with technical details. Humans, especially busy humans, don’t like change. If we can stay with what’s known and familiar, we’ll take that option nine times out of ten.
This is why it makes so much sense for people already on the Shopify platform to jump into SFN. For one, the Shopify Fulfillment Network requires that brands register products. If you’re already selling on Shopify, that box is checked.
Existing customers can sign up for the fulfillment network in less than 30 minutes. All your data is ready to go within the Shopify ecosystem, making it smooth and seamless to hand over your inventory for fulfillment.
Further, when your business is built on a Shopify stack, you get one easy-to-understand bill every month. This simplifies accounting and helps you see your expenses in a line-by-line breakdown.
Intelligent Fulfillment Logistics Powered by Machine Learning
Shopify prides itself on using state-of-the-art technologies like AI and machine learning to determine where best to store your inventory.
For example, let’s say 40% of your customers are on the West Coast, another 40% are in the Midwest, and 20% are in New England.
SFN will automatically detect these patterns and split your inventory at the appropriate amounts between their fulfillment centers, getting it as close to your customers as possible.
Deep Brand Control
Many modern customers value the unboxing experience of a new product just as much as using the product itself.
A brand’s packaging and design create a powerful impression on first-time buyers. They also encourage customers to show off their new wares on social media, earning you free publicity.
The Shopify Fulfillment Network allows brands to control almost every aspect of their branding. This includes the design of shipping parcels (both inside and outside) and how those shipments are assembled and arranged.
If aesthetics are a major part of your brand identity, this may be reason enough to go with SFN.
Cross-platform Logistics Integration
Shopify’s cross-platform logistics allow you to fulfill orders other integrated point-of-sale channels. This means orders from Facebook, Instagram, eBay, Etsy, and Amazon can all be fulfilled via SFN (so long as you’ve properly configured your integrations within Shopify).
Cons of Using the Shopify Fulfillment Network
The fact that Shopify is such a new player in the 3PL space comes with benefits and downsides. Here are some of the things you’ll want to consider before jumping on SFN.
Only U.S. and Canada Availability
The most glaring deficit of the Shopify Fulfillment Network is its lack of support for merchants outside of the U.S. and Canada. As they build out their infrastructure globally, this may change. As of now, there are no stated plans to expand into other countries.
As alluded to above, Shopify is very opaque about SFN pricing. It’s free and easy to request a quote, but if you’re a budget stickler who loves to plan, this is an inconvenience.
Shopify Fulfillment Network vs. Amazon FBA
Alright, it’s time for the ultimate showdown. If this were a UFC fight, Amazon FBA would be the seasoned champion and Shopify the young, scrappy challenger.
Let’s look at a few ways the two compare to one another (and which one you may want to choose).
There’s no doubt that Shopify is far superior to Amazon at helping eCommerce businesses control the look and feel of their brand. While Amazon does offer seller pages, it’s nothing compared to the deep customization of Shopify’s website and point-of-sale builder.
Couple this with how SFN allows for custom branding through the entire logistics process, and Shopify is the clear winner on this front.
Unfortunately, Shopify just cannot compete with Amazon’s unrivaled global fulfillment infrastructure. Amazon supports merchants in just about every corner of the world. Perhaps Shopify will catch up, but they’re simply not there yet.
Of course, if you’re not an international merchant (the vast majority of you reading this post), this is of no consequence to you.
Customer Base and Tribe-building
It’s no secret that Amazon is one of the most utilized search engines. It’s up there with Google and YouTube. It’s often the first place people go when they need to purchase a product (or just read reviews and do product research).
When you sign up with Amazon FBA, you’re riding the coattails of the trust they’ve built and their massive monthly customer base.
You also gain the SEO benefits of being listed on their platform and showing up high in searches.
With Shopify, everything depends on you. Your marketing, your branding, your SEO work, advertising, PPC campaigns, etc.
If you like that DIY feel and are willing to put in the work to build out a corner of the internet that belongs to you, perhaps this is appealing.
See, when you build your brand on the Shopify system, you own that customer data. You’re not renting it out on someone else’s platform — you’ve earned it!
This can facilitate deeper relationships with your customers and the ability to pivot to other platforms without losing them.
For reason, I’d say this category is a toss-up depending on your goals.
Should I Use the Shopify Fulfillment Network for My Business?
Alright, so we’ve covered what SFN is, how it works, and how it compares to the biggest players in the 3PL space.
But is it right for your business? Is it something you should invest in right now? To help you with this decision, I’ve come up with a list of questions.
If you answer “no” to a single question, you should pause and consider before jumping into SFN. If you answer “no” to multiple questions, it’s safe to say your business isn’t ready for 3rd-Party Logistics.
On to the questions:
1. Do you have more money than time?
On its surface, this seems like a silly question. Who has enough money? I sure haven’t met that person. But business owners who are inundated with low-value details and constantly putting out fires can relate to this sentiment.
In the growth stages of your business, you have nothing but time and very little money. As your business grows – and with it, the demands upon you as an owner — the tide shifts, and this ratio inverts.
You find that you no longer have the margin to brainstorm and cast a vision for the future growth of your brand. Instead, you’re doing the work of an employee — mechanical, repeatable tasks that don’t require your entrepreneurial brain.
2. Are you fulfilling more than ten orders per day?
SFN won’t let you in unless you’re doing more than ten orders per day. It’s that simple. Further, you should be glad they won’t let you in. Utilizing a 3PL to fulfill fewer than ten orders a day is overkill and won’t result in a positive ROI.
3. Are you based in the U.S. and Canada?
As mentioned above, this is an immediate disqualifier.
4. Do you have under 2,000 SKUs?
As of this writing, Shopify Fulfillment Network will not accept brands with over 2,000 SKUs. If this is you (which would be pretty insane), consider consolidating your products or simplifying your SKU system.
We’d love to show you how to do this in SkuVault (more info on that below).
5. Do you have a reliable inventory management system in place?
Scaling your eCommerce business is no joke. It introduces complications that are impossible to foresee in the early stages of your business.
If you don’t have a digital inventory management system in place, we recommend this as an essential first step.
We already mentioned above that SFN requires unique SKUs and unique barcodes to be considered for the service.
SkuVault can not only help you create barcodes and SKUs but offers demand forecasting and integrates seamlessly with Shopify. Starting with a robust inventory management system should be your first step in scaling your eCommerce business.
We’d love to show you how SkuVault can help. Reach out to our team today for a live demo.