3PL Services Tips #7 – Rich Boland, Client Services, Precision Group
If you want to ensure your proposal succeeds, building a 3PL business case that finance will sign off is essential.
The 3PL business case: building an ROI finance will sign off
The question that usually decides the 3PL shortlist is this: “Will it actually reduce our fulfilment costs — and can I prove it to finance?” Here is the honest answer. A 3PL does not just replace warehouse rent and a few staff members. Instead, it replaces the full cost system behind fulfilment. That includes labour variability, space inefficiency, picking errors, carrier complexity, and the operational drag that slows growth. The five cost buckets a 3PL addresses:
1. Labour
In-house labour is often treated as fixed when it is anything but. In practice, it fluctuates with promotions, peaks, and weekly spikes. By contrast, a 3PL standardises workflows and supports productivity through WMS processes and barcode-based picking. The result: lower labour cost per order.
2. Storage
Melbourne warehousing costs are not just rent. Specifically, they include the space mismatch problem — paying for peak capacity year-round, poor layout, and stock accuracy loss from cramped conditions. A 3PL provides scalable space, designed for fulfilment. Crucially, it also brings cycle counting and barcode tracking to reduce “lost stock”.
3. Errors and rework
Wrong items, missing items and damaged goods carry multi-layer costs. Specifically, you are paying for replacement product, freight, customer support time, and the negative reviews that follow. Even a low error rate becomes expensive at scale. However, barcode-based picking and inventory discipline directly reduce this cost.
4. Freight
Freight cost is not just the rate per parcel. It is also the admin time spent managing carriers, the failed re-deliveries, the packaging choices that drive up cubic weight, and the dispatch cut-off misses. In practice, a good 3PL manages carrier selection, enforces cut-offs, and reduces cost per order across all of these.
5. Inventory accuracy
Three problems sit under this bucket. Overselling creates refunds. Stock-outs reduce conversion. Phantom inventory causes cancellations. Real-time inventory discipline reduces all three. Better still, it gives you the confidence to scale marketing spend.
A simple ROI framework
Here is the four-step framework I recommend when building the business case for finance.
- Step A: Calculate your current all-in cost per order – Include rent, labour, packing, freight, returns, rework and support time. The key word is all-in. Anything you currently spend to get an order out the door belongs in this number.
- Step B: Estimate the 3PL all-in cost per order – This covers storage, pick and pack, freight, and value-adds. Ask your shortlisted providers for a worked example based on your actual SKU profile, not a generic rate card.
- Step C: Add the avoidable costs line – This is the line most business cases miss. Specifically, it captures reduced errors, fewer stock write-downs, less peak hiring, and less time managing exceptions. These costs are real, but they sit in different parts of the P&L and rarely get totalled.
- Step D: Stress-test with conservative assumptions – Discount your savings estimates. Inflate your transition costs. If the ROI still works under conservative assumptions, the business case is solid. If it only works on the optimistic case, you need to keep digging.
Ask us for a cost-to-serve comparison
Ask my team at Precision Group for a cost-to-serve comparison: your current all-in cost per order versus a 3PL model, with a conservative ROI scenario included.
