Understanding Cost Per Unit (CPU) in Shipping and Fulfillment
What is Cost Per Unit (CPU)?
Cost Per Unit (CPU) is the total cost incurred to produce, store, and ship a single unit of a product. Understanding CPU is essential for businesses to price their products effectively, manage inventory efficiently, and maximize profit margins.
Key Components of CPU:
Production Costs – Includes raw materials, labor, and manufacturing overhead.
Storage Costs – Warehouse rent, utilities, and inventory management.
Fulfillment Costs – Picking, packing, and processing orders.
Shipping Costs – Carrier fees, last-mile delivery, and international duties (if applicable).
Packaging Costs – Boxes, mailers, protective fillers, labels, and branding elements.
Returns and Reverse Logistics – Cost of processing returns and restocking inventory.
How to Calculate Cost Per Unit
Formula:
If your total cost for producing, storing, and shipping 10,000 units is $50,000: This means it costs $5.00 per unit to produce and fulfill the product. Simple, right?
Ways to Reduce CPU and Increase Margin
1. Optimize Packaging
Use lightweight packaging to lower shipping costs.
Right-size boxes to reduce dimensional weight (DIM) charges.
2. Negotiate Carrier Rates
Work with multiple carriers to compare rates.
Take advantage of bulk shipping discounts.
Consider hybrid services like USPS Priority Mail Cubic or UPS SurePost.
3. Outsource to a 3PL
Save on warehousing, staffing, and fulfillment technology.
Benefit from a 3PL's negotiated bulk shipping rates.
Streamline operations and reduce labor costs.
4. Leverage Bulk Shipping Discounts
Consolidate shipments to reduce per-unit shipping costs.
Utilize regional carriers for local deliveries to cut transportation expenses.
5. Automate Inventory Management
Use inventory forecasting tools to prevent overstocking and dead stock.
Implement barcoding and RFID tracking to optimize order accuracy and reduce labor time.
6. Streamline Fulfillment Operations
Improve warehouse layout for faster picking and packing.
Implement automation, such as conveyor systems or robotic picking.
Use batch processing for order fulfillment to reduce labor time.
Why Shipping and Fulfillment Costs Impact CPU
Shipping and fulfillment costs play a critical role in CPU calculation. High shipping fees can eat into margins, so optimizing logistics is essential. Strategies such as outsourcing to a 3PL, negotiating carrier rates, and using regional distribution centers can significantly reduce CPU.
How a 3PL Can Help Reduce CPU
A Third-Party Logistics (3PL) provider helps reduce CPU by:
Lowering Storage Costs: Paying for only the space you need.
Cutting Labor Expenses: Avoiding the cost of hiring, training, and managing warehouse staff.
Optimizing Packaging: Offering cost-effective, streamlined packaging solutions.
Reducing Shipping Fees: Providing bulk-negotiated carrier rates and optimized shipping routes.
Automating Fulfillment: Improving speed and accuracy to reduce order processing time and minimize errors.
Final Thoughts
Reducing CPU is a strategic way to increase profit margins in eCommerce. By optimizing packaging, negotiating carrier rates, outsourcing fulfillment to a 3PL, and improving inventory management, businesses can control costs while maintaining efficiency. A proactive approach to CPU will not only enhance profitability but also provide a competitive edge in the eCommerce landscape.