Ask ten 3PLs how they charge their clients for storage, and you will get ten different answers. The number of variables involved in calculating the price of storage makes it very difficult for 3PLs to determine optimal storage pricing charges. However, it can also be one of the most customer-friendly, yet profitable sources of revenue if done right. Continue reading more to find out the pros and cons of some of the most popular methods of charging for storage.
Flat rate
In this pricing model, 3PLs charge their clients a fixed monthly fee for storage. This can be a good model for you if you do not have to store a large amount of SKUs or units for your clients.
Pros:
- Single fee (can be tiered) keeps application of storage charges extremely efficient.
Cons:
- Fails to capture all associated charges and nuances of storing inventory.
Fixed fee per product stored
In this pricing model, 3PLs charge their clients a fee for each unit of item on-hand. This model makes sense if lot or inventory tracking by location is too complex in your warehouse, or if you have clients with a high SKU velocity.
Pros:
- Easy to guarantee accurate charges since inventory is automatically tracked in most Warehouse Management Systems (WMS), and quantities are adjusted for each Purchase Order (PO) and outbound shipments.
- You can apply different unit charges for SKUs with unique characteristics and implement a very simple, yet quite flexible pricing system.
- Eliminates the headaches of tracking inventory by lot, location type, and doing manual inventory checks very frequently.
Cons:
- Fails to capture actual space occupied by each product.
- Does not account for SKU velocity unless manually factored in.
- Does not account for special storage requirements unless manually factored in.
Fixed fee per location occupied
In this pricing model, 3PLs charge their clients a fee per storage location occupied. This model entails setting a fixed price per different storage location type used. For example, 3PLs may charge their clients a fixed amount for utilizing a bin, and a different amount for utilizing a pallet.
Pros:
- Very accurately measure true space occupied by client in a warehouse.
- Associate charges to different storage location types, and easily apply charges for clients.
Cons:
- The feasibility of implementing such a pricing structure is heavily dependent on your WMSs capabilities, and the warehouse setup. While several WMS allow inventory tracking by location, they fail to record key facts such as stackability of pallets which may lead to complications if each pallet is not individually tracked as a location in itself.
- May require manual labor at warehouse to conduct a pallet count.
Fee per unit volume occupied
In this pricing model, 3PLs charge their clients a fee per unit volume (sq. footage, cubic footage) occupied by the client. While this is the most data-intensive process to setup, it may be the most accurate and effective way to charge clients for storage.
Pros:
- Allows a cost-basis pricing model for storage based on rent and utilities at any given point of time.
- Lets 3PLs most accurately charge clients for storage based on usage.
Cons:
- Data-intensive as each storage location needs to have a per unit volume charge assigned to it individually, through its location storage type, or specific SKUs. Maintaining and updating rates may require thorough data analysis and manual labor.
There is no single best way for 3PLs to charge their clients storage fees. The best way for each 3PLs depends on the requirements of their clients, their order and SKU velocity, and their WMS setup, as the latter can present significant challenges and limitations in implementing complex and flexible pricing structures.
If you are interested in setting up flexible and profitable storage pricing models with minimal effort, consider using Rails’ invoicing solution. Rails automatically pulls storage location, product inventory information and gives you the ability to implement all of the aforementioned pricing models. Additionally, Rails allows you to make storage pricing more flexible and customer friendly through functionality such as excluding empty locations from being charged and calculating charges based on daily location usage and inventory levels.