EP 8 - Financial Incentives in Warehousing

Find a warehouse partner who believes in you and wants to help you be profitable.

How many of you have thought about how your warehouse partner makes money?

Shipping is the big money maker for most warehouses, not fulfillment and storage.

Warehouses negotiate rates with shippers like FedEx, UPS, and USPS, and take a “markup” fee before passing the shipping rates to the brands.

Why does this matter?

It matters because it changes how you evaluate a warehouse partner. Yes, having a reliable warehouse partner matters more than anything else, but after that, shipping is the next most important thing, even more important than fulfillment costs because shipping typically makes up a larger percentage of COGS than fulfillment and storage.

Let’s walk through an example:

• USPS: costs $4, sells to warehouse partner for $6

• Warehouse Partner: buys for $6, sells to brand for $7.50

• Brand: buys for $7.50, absorbs into COGS.

If this brand wanted to reduce shipping expenses, what are their options?

1. Ask your warehouse for better pricing.

2. Have them negotiate stronger rates with FedEx.

3. Optimize packaging and bundling together.

4. Ensure they rate shop across multiple carriers.

5. Review the rate card for optimal weights/dims.

6. See if you can use your own external rates.

7. Audit invoices for overcharges.

Out of those 7 options, only 1 doesn’t cut into your warehouse’s short-term profitability.

Can you guess which?

It’s when the warehouse negotiates better rates with shipping carriers.

The other 6 all require the warehouse to sacrifice margin in the short term.

The bet is that by helping you grow and stay profitable, you’ll grow and they’ll earn more of your business long term.

You want a warehouse partner who plays the long game. Willing to share in the short-term pain so you can both win bigger in the long run.

See you all next Thursday 👋

Keyan