E-Commerce Fulfillment: 16 Questions Every Founder Should Ask

Order fulfillment is part of the business that founders often take for granted, in part because it seems easy. An order comes in, a box goes out. But if the process is messy, it’s already broken. Every missed shipment, wrong SKU, or late delivery chips away at growth and eats into margins.

Fulfillment is the last interaction your customer has with your brand, and it’s often the most expensive one to get wrong. Costs pile up faster than founders expect, and small mistakes turn into real money. This guide breaks down the questions we hear most often about fulfillment and the straight answers on where it goes wrong and what it really costs.

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1. How should e-commerce businesses track and account for fulfillment costs?

Good accounting follows the operation. It’s almost impossible to do good accounting unless you understand the operations of the company.

To start, you need to look at the labor attributed to whoever is picking and packing and shipping. That could be one person half the time, or it could be multiple people doing multiple things, so you need to split up and allocate their salary.

Packing supplies matter too. Boxes, tape, labels. Early on it might seem insignificant. At $1 million in revenue you might spend $20,000 a year. But at $10 million, supplies might be at $200,000. Now it’s not insignificant.

It’s tedious to count boxes and rolls of paper and put a value on it, which is why a lot of times it just gets expensed when you buy it. That can be fine until it’s not. If you buy $40,000 of packing supplies all at once, you probably shouldn’t skew one month’s numbers with all of it. You should spread that cost over the period you’ll use it. To do that, you need some sort of inventory system.

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2. Why do fulfillment costs increase as an e-commerce business grows?

Fulfillment costs grow with the business. Take labor, for example. You start small and probably pick, pack, and ship yourself. Then you hire someone part-time. As the company grows, you add more SKUs and more orders. Now you might have to hire two or three people.

Shipping rates are another example. When you’re just starting out there’s not much negotiation with UPS or FedEx. But, if you double or triple in size and you’re still paying the same rates as when you first started, that adds up. You need someone raising a hand and calling the rep.

As you get further removed, complexity grows and there’s more room for error. Someone grabs the wrong SKU and ships the wrong thing. You pay for the return, you ship a replacement you can’t charge for, and you eat the labor and materials.

To keep costs from getting out of hand, pay attention to your fulfillment cost as a percentage of sales and in total dollars. That percentage should move in plateaus as you grow. You hit inflection points. Maybe you outsource to a third party. Later you might bring it back in-house if volume supports a team. If those plateaus are not showing up, you could be leaving profit on the table.

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3. How does free shipping affect e-commerce profit margins?

Put simply, you’re going to eat the shipping cost.

Shipping is one piece of fulfillment. There is also packaging and labor. If your margins can absorb it, you can always offer free shipping, but you had better keep close tabs on your fulfillment cost, both as a percentage and as a dollar amount.

Even if margins do not support free shipping, you might still use it strategically. Maybe offer it on inventory that’s a little stale. But you should model the impact. The dollars per order will be lower, so before you offer free shipping, you need to be confident that you will bring in more dollars in total. If you can reach the volume that makes financial sense, do it. If not, you’re likely going to lose your profit.

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4. What is the biggest mistake e-commerce founders make with fulfillment?

The biggest mistake is trying to manage fulfillment yourself without the right level of detail. Until you can buy a robot, fulfillment is managing people. And fulfillment done right is process and procedure, down to warehouse design for the fewest steps from shelf to truck.

There are some terrible third parties out there, but there are good ones too, optimized to be efficient so they can make margin on a low-margin business. If you are not a detailed person, which a lot of brand owners aren’t because they’re creative, you should not be managing fulfillment once it takes more than one person.

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5. What fulfillment metrics should e-commerce businesses track?

The most important metrics are error rate, return rate, and inventory adjustments.

Error rate and return rate will tell you if you’re shipping the wrong product to the right person, or the right product to the wrong person, or damaging shipments.

At Eucalyptus, we order from brands before we work with them because we want to see what we get. For example, we have ordered two units and gotten two case packs. That’s the worst for the business because most people won’t tell you; they just got free product.

Inventory adjustments are the other big metric. Do physical counts at least quarterly; monthly is even better. If the adjustments from physical to book are growing, you’ve got a problem. People might be shipping too much product because they’re overworked or careless, or someone might be putting a case pack in the trunk on their way out the door.

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6. How can e-commerce founders improve fulfillment quickly?

Walk back to wherever your fulfillment is happening and watch it happen. People will be on their best behavior when the owner is standing there, but you’ll still get a rough idea. Do people walk with purpose? Do they know where to go? Is there a consistent way things are done?

If your fulfillment center is off-site, go visit. It’s worth it for peace of mind and understanding. Customers getting the product is the last impression they have of your brand, and it’s the most impactful.

Look for controls to minimize errors. If controls exist and problems continue, you’ve got bad people. If controls do not exist, you might have good people working with terrible processes.

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7. What are the pros and cons of using Fulfillment by Amazon (FBA)?

The main pro is access to Amazon’s reach and logistics. You get fast shipping and access to a massive customer base without having to build the infrastructure yourself. For some products, that can drive huge volume.

The cons are cost and risk. You need to have either huge volume or extremely strong margins to use FBA, because Amazon takes an enormous chunk. With promoted ads it gets even worse. For some clients, margins on Amazon are half what they are in other channels.

There’s also the knockoff risk. A product goes up and someone copies it. We had a client in Wired because of knockoffs. Customers thought they were buying from her and then complained about quality.

If your brand is about quality and you don’t have a lot of margin to spare, Amazon may not be the channel for you.

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8. Is it normal for wholesale and direct-to-consumer orders to use different fulfillment systems?

It’s not uncommon. Retail orders might come through Shopify or BigCommerce. Wholesale might be phone, email, text, or marketplaces like Faire. Some people used to write orders at trade shows or use sales reps.

It’s also not uncommon to fulfill differently. Some outsource only wholesale and keep direct-to-consumer in-house to control of the customer experience. That can be right if it fits your brand and margin.

There’s no single right answer. The question is whether you are doing it effectively, efficiently, and profitably.

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9. What signals show that fulfillment is causing problems, even if it looks like it’s mostly “working”?

The number one signal is customer complaints. Either shipments aren’t arriving on time, the wrong product shows up, or the wrong quantities are sent. Most fulfillment companies won’t raise their hand and admit they’re doing a bad job, it’s going to be your customers telling you they didn’t get what they were supposed to get, or they didn’t get it at all.

When companies scale, they sometimes take fulfillment for granted. But if your brand is built around customer experience, messy fulfillment is already broken. Was the order correct? Was it packed properly? Was it damaged in transit?

Some clients even add handwritten notes for first-time or repeat orders. That extra effort can matter. But there’s a mistake, you’re tanking the goodwill you built through sales and marketing.

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10. When does it make sense to outsource fulfillment or switch providers?

All the signs are the same: rising customer complaints, wrong products, wrong quantities, or missed shipments. If you’re doing fulfillment in-house and those issues are growing, the problem is usually weak management of the team. At that point you either need to hire someone specifically to oversee fulfillment, which most smaller companies can’t afford, or you need to move to a fulfillment center that specializes in it.

Switching is scary. It can shut down your operation for a while, and in the worst case you can lose customers. But if complaints are going up, refunds are eating into margins, and revenue is slipping because customers no longer trust they’ll get what they ordered, you don’t really have a choice.

At best, switching means losing a week of shipping. At worst, it could take a month or longer to get products moved, unpacked, and systems aligned. A good fulfillment center should be able to explain exactly how they’ll get you running quickly. If they can’t give you clear answers and timelines, don’t switch to them. Once your product is in transit between centers, you lose control. That’s why it’s critical to spend the time up front with the new provider before making the move.

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11. How do you compare in-house fulfillment costs vs. using a third party logistics (3PL) company?

It is impossible to compare if your books are bad. If your books are done properly and costs are in the right buckets, then you can compare. That means separating fulfillment labor from other roles like design or sales, accounting for warehouse space, supplies, and postage.

Once the numbers are clean, the harder question is about your brand. If you sell a high-end product with lots of customization, outsourcing is tough because most 3PLs won’t take the time for special touches unless you pay a premium. If you have good books, the financial comparison is straightforward. But whether outsourcing makes sense comes down to your brand promise and what your customers expect.

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12. How do customer expectations shape fulfillment decisions like shipping speed and customer experience?

It depends on what you’re selling. If your product is inexpensive and in a crowded market, customers aren’t expecting much beyond a smooth delivery. Maybe you add a small gift for someone who has ordered multiple times, but you don’t have a lot of room for extras.

If you sell expensive, highly customized items, customers expect a boutique experience with premium packaging or handwritten notes. The real question is whether your margins support it. If you know your numbers, you can make informed decisions about whether you can afford to add extra touches.

Small changes like adding two minutes per order for nicer packaging may sound harmless, but that can mean five to ten fewer orders shipped each day. That tradeoff might be worth it, or it might not. Start with the numbers. And remember that boutique experiences are hard to scale, especially with a 3PL.

Shipping speed works the same way. If your shipping has always been slow and customers never complain, you may not have a problem. But if you used to ship same-day and now it takes a week, your loyal customers will notice and they will care.

Amazon has raised the bar. People expect fast shipping, sometimes next day. If your product is highly customized or expensive, customers might accept a longer wait. If it’s a commodity with lots of competition, you need to get it out quickly or your competitors will.

The answer depends on what your brand is built on. If it’s speed and low price, you have to deliver speed. If it’s quality and a boutique experience, you probably have more leeway.

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13. How do you raise prices or charge for shipping without losing e-commerce customers?

You don’t. Customers will be upset. But if you’re transparent and not overly aggressive with price increases, it’s manageable. In wholesale, most businesses understand occasional changes. Once a year is usually fine. Every month or two is probably a different story.

Right now tariffs and supply costs change constantly. Everyone is raising prices. If you explain why (e.g., labor costs, tariffs, shipping), customers may not like it, but they’ll understand.

It comes back to your brand. If you’re the cheapest option, raising prices is dangerous. If you’re the premium option with loyal customers, you can probably increase prices more often. Your brand values should guide the decision.

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14. How do product returns affect e-commerce fulfillment costs and margins?

The impact of returns varies by business. For cheap, commoditized products, it often costs more to restock than to refund, so many companies just let customers keep the item. For customized products like engraved goods, returns usually aren’t possible.

On the wholesale side, most companies refuse returns because retailers would otherwise send back unsold seasonal products. The common exception is defective items.

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15. Can improving fulfillment processes boost e-commerce growth and margins?

Most founders who move to a fulfillment center do it as part of a growth plan. The goal isn’t to cut costs, but to free up the owner’s time. When fulfillment is off their plate, they can focus on product development, marketing, or sales strategy, which drive top-line growth.

Using a 3PL rarely saves money. It’s usually more expensive. But it’s often cheaper than hiring a full-time fulfillment manager, and it allows founders to focus on higher-value parts of the business.

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16. Why is process so important in e-commerce fulfillment?

Until robots take over, most fulfillment workers are temps, day laborers, or people not planning a career in the field. That means process is everything. You need clear expectations, good warehouse layout with the right equipment in the right place, and documented procedures for picking, packing, and shipping.

If you don’t have the time to create those processes, that’s another sign you need a fulfillment partner.

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Final Thoughts: Making E-Commerce Fulfillment Work for You

Fulfillment problems don’t stay small. They drain cash, create unhappy customers, and stall growth.

The good news is that fulfillment issues are solvable. With the clean books and the right systems, you can see the real costs, decide if outsourcing makes sense, and build a process that supports both margins and customer experience.

At Eucalyptus, we help founders get the financial clarity and operational support they need to turn fulfillment from an afterthought into a strategic lever for growth. If you’d like a partner to help you think through your fulfillment strategy, book a free 15-minute call to see how we can help with your specific needs.