How does a 3PL navigate managing shipping accounts for themselves and their clients? In this video, ShipHero’s founder + CEO, Aaron Rubin, discusses the economics behind a 3PL and why it’s important to know when to use your own shipping account or your clients.
Find out how everyone wins with our Economics of a 3PL video. Included are tips for running a profitable 3PL and making sure you and your clients both come out on top when using national and local carrier rates.
Video Transcript
A 3PL, it’s a blue collar business. Your goal is a dollar per order profit, that’s basically best in class. Your other goal is to not lose money or run out of money, which is really easy to do at a 3PL. It happens one of two ways, mostly related to using your shipping accounts. If you’re using your shipping account and a merchant doesn’t pay you,
UPS and FedEx still expect you to pay them and then you get squeezed, right? You don’t have the money to pay. If you’re using your should be account, not your client’s shipping account, you are responsible for the bill. So you need to make sure you’re only doing that if you know that your merchant is going to A, pay you and B, pay you on time.
Because UPS or FedEx will expect to be paid in, say, 21 days. If your merchant is on 30 day terms, you’re already behind. And then if they pay you late, you now get cash crunched for nothing you did wrong. So make sure that you’ve got the right terms or you’re using your client’s shipping account, which will protect you.
The other reason to use your client’s shipping account sometimes is if you’re not going to mark up your shipping, you have no profit margin in there, which means any mistake that happens, you have no buffer to take that out of. So if you make a mistake or even if you don’t, but UPS charges you for something extra. If you are using your account, your client might not want to pay you for that.
But UPS is going to expect you to pay and you’re going to end up losing money on that. So you need to make sure if you’re using your account, you’re marking it up. So then if you mark it up 10%, there’s the occasional mistake. You have the buffer to to offset that, or it’s the client’s shipping account and then it’s their responsibility.
So if there’s a mistake, let them fight directly with UPS or FedEx. It’s not your cash that you need to watch out for. 3PLs in general should be a fairly profitable small to midsize business. If using our ShipHero software, you can bill the client for using your account or you can plug in their account and you can also do it differently per client.
So let’s say you’ve got, you know [brand] as a client, their shipping rates are probably better than yours, so you might plug in theirs. And then if you’ve got a really small merchant, they probably don’t have access to as good UPS rates as yours. So maybe you plug in yours, maybe you have a bit of a markup on there.
So they’re still getting a better rate than they would get on their own. And now you’ve got a bit of a profit center by leveraging the volume you have with the carrier to get better rates. So that’s how everyone sort of wins.
