350: How To Outsource Inventory Management To A 3PL With Aaron Rubin

00:00
You know, listening to the My Wife, Quit Her Job podcast, the place where I bring on successful bootstrap business owners and delve deeply into the strategies they use to grow their businesses. And today I have Aaron Rubin on the show and Aaron is the founder of Ship Hero, a third party logistics and warehouse management software company. He also built an online store at age 19 and grew to 7 million in top line revenue. Now in this episode though, we’re going to talk about the ins and outs of using a 3PL. Before we begin, I want to thank Postscript for sponsoring this episode.

00:28
Postscript is my SMS or text messaging provider that I use for e-commerce and it’s crushing it for me. I never thought that people would want marketing text messages, but it works. In fact, my tiny SMS list is performing on par with my email list, which is easily 10x bigger. Anyway, Postscript specializes in text message marketing for e-commerce and you can segment your audience just like email. It’s an inexpensive solution, converts like crazy, and you can try it for free over at postscript.io slash div. That’s P-O-S-T-S-E-R-I-P-T dot I-O slash div.

00:57
I also want to thank Clayview, who’s also a sponsor of the show. Now, are you working around the clock to build a business you always imagined? Do you want to communicate with your fast growing list of customers in a personalized way, but in a way that gives you time to work on the rest of your business? Do you ever wonder how the companies you admire, the ones that redefine their categories, do it? Companies like Living Proof and Chubbies. Well, they do it by building relationships with their customers from the very beginning, while also evolving in real time as their customers’ needs change.

01:22
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01:51
Now, finally, I wanted to mention a brand new podcast that I recently released with my partner, Tony. And unlike this podcast where I interviewed successful entrepreneurs in e-commerce, the profitable audience podcast covers all things related to content creation and building an audience. No topic is off the table and we tell it like how it is in a raw and entertaining way. So be sure to check out the profitable audience podcast on your favorite podcast app. Now onto the show. Welcome to the My Wife, Quit or Job Podcast.

02:19
where we’ll teach you how to create a business that suits your lifestyle so you can spend more time with your family and focus on doing the things that you love. Here’s your host, Steve Tu.

02:33
Welcome to the My Wife Quarter Job podcast. Today I’m thrilled to have Aaron Rubin on the show. Now, Aaron is someone who’s been a member of the e-commerce fuel community for a very long time. And I believe he’s actually the shipping expert on the forum and he runs his own 3PL or third party logistics firm and warehouse management software company called Ship Hero. He is also a longtime veteran of e-commerce where he started and built an online store at 19 years of age. He grew it to 7 million bucks in top line revenue. Now, so why am I having Aaron on?

03:03
Amazon has been tightening its grip on how many units sellers can send into FBA. And I’ve actually been getting a lot more questions about 3PLs lately. So today what we’re gonna do is we’re gonna do a deep dive into Aaron’s experiences with e-commerce, along with every question that I can think of when it comes to using a third party logistics firm to handle your inventory. And with that, welcome to the show, Aaron. How are you doing today? Hey, I’m good. Thanks for having me. How are you? I’m good. So Aaron, I…

03:30
checked out your interview on the Tropical MBA podcast and you have a very interesting startup story about how you got started in e-commerce and eventually had that led to starting your own 3PL. So I wanna hear first about that first painful journey and what lessons you learned first. Sure, so my first company sold apparel for martial arts, started it, yeah, like I said, 19 in college. had sort of the only…

03:56
The last real job, I’m 41, my last real job was when I was 16 working as a lifeguard. So after that I had made money online doing a bunch of different things. The most popular of which was had a website with scanned pictures of Cindy Crawford photo shoot from Sports Illustrated. I had banner ads on that. So that made me like 20 grand or something, which you know, 17 was great. I remember that Pepsi commercial, right? Is that?

04:25
Yes. That was Cindy Crawford, right? Yeah. I think so. Good old days. So, and it was totally like, you know, it wasn’t like Playboy. It was just Sports Illustrated. But at the time, it was popular on the internet. Different era. Yeah. So a family friend reached out, actually wanted to talk to my brother. My brother, my older brother was a computer programmer, wasn’t interested. So he punted it to me and he wanted to, he wanted to buy a website called kickpunch.com that sold martial arts.

04:53
Products and he wanted sort of a second opinion You know my second opinion was like I want to say like $9,000 or something that the guy was asking and like I was like it’s not worth 9,000 You could probably build it for less and he’s like well, why don’t we just build it together and I was like, okay cool I figured it’d be another little side project that had a bunch of these little things I was doing to you pay my way, know sort of pay my bills in college So yeah, I jumped on it figured that’s what it would be and then you know the

05:23
company still exists. That was my primary way of making money for 15 years or so. So you were selling karate geese, was that the one that grew to 7 million? Yep. All right. So can you, how did you grow it so quickly to 7 million? Well, so we had some up and down. So when we started, we were just buying from this supplier in, so I’m like a little bit outside of New York city. There was a physical store in Manhattan.

05:53
that sold these products and what we would do is we would just order from him. He would ship it to our warehouse, which was my co-founder’s father’s basement. And I would pack them because he was 10 years older than me. So he was married, had kids, and he lived a different spot. whatever, he was working a full-time job to make money. I was in college. I didn’t have to actually attend classes. So I would just pick and pack all the orders.

06:23
So that’s how we started and like at the time, this was like 1999, you wanted to buy these sort of products online. There wasn’t a lot of choices. And then also we bought the domain A1MA for A1 martial arts and there was no Google. So this is pre-dated Google. So everything was the Yahoo directory was the sort of definitive source. So we were in there and it was alphabetical order. So A1MA ranked first in our category and that was it. That was the entire strategy at launch.

06:51
Man. Okay. And so people just found you through that directory or did it just later become all word of mouth because Google and the search engines weren’t. Yeah, it was just, I mean, it started with all that directory over time. You Google took off the directories no longer became valid and people did, you know, a one one MA. You know what mean? Like that sort of, that thing doesn’t last too long. And we ended up switching the name to karate Depot because we wanted to rank for karate equipment and you know, having the, the domain.

07:18
have a key, the keyword was important back then. So we switched the name there and yeah, that we were just entirely focused on Google optimization, but it was always SEO focused. There was no paid at the time. didn’t do any banner ads. It wasn’t much you could do back then. was all, it was all search and asked for how much was word amount. was no Google analytics those days. There was no attribution. So we could see the refers, but that was, it was really tough to know where people came.

07:46
So what ended up happening with that e-commerce store? I think you had a falling out with your partner or something like that. Yeah, I I’ll spare you the painful story, but basically the company had grown. growing pretty nicely every year. took a few years to get to a million dollars and then we were growing it like a million dollars a year into the financial crisis. And then when the financial crisis hit, two things happened. Revenue dropped because our

08:15
primary audience was mothers or parents who were putting their kids in karate school and didn’t want to spend all the money that the school was charging because the school would charge full price. We were charging a little bit less so they would buy from us. But the karate schools all had a huge drop in enrollment when financial crisis hit because no one, know, was tough times, right? A lot of layoffs. So the business shrunk and at the same time everyone pulled

08:46
pulled their access to capital. So I had an American, we used a few American Express cards. One of them went from like a $50,000 limit to a $500 limit. And like I would buy on it. So I couldn’t even like, it wasn’t like it was floating. was just like, it wasn’t like it was rolling over month to month. It was just the cashflow, right? Which just wasn’t there. I couldn’t buy anything on a $500 limit. And then also we had a credit line with a bank called Citizens Bank.

09:15
which we had never been late a day on, but they said, you know, it was at will. And they said we had, think, 60 days to pay it off and it was like $170,000. So all that hitting at the same time caused a cash crunch, which we thought would be, which I thought would be fine, but in reality wasn’t because our financials were wrong. So we had more debt on the books, less cash than was on the books and…

09:43
all the profits that we thought we had been making, we thought we’d be pulling half a million dollars in in profit, we weren’t. We were making significantly less than that, because the books were all wrong. So along those lines, what do you do differently today? Were you using a bookkeeper at the time when that happened? Yeah, so my co-found, we had an outside accountant and my partner did the, handled the whole financial stuff.

10:11
So, and the outside accountant was my partner’s friend. So I had no relationship with him and I had no visibility into what was going on. I would just see like a, here’s a PNL, you know, once a quarter or once every six months. And I didn’t have any info deeper than that. And I just trusted it all. Okay. Okay. I see. So if you were to do things differently, you’d hire like an independent accountant and bookkeeper.

10:40
Yeah, exactly. mean, just, you A, just look at the numbers more, right? Not like, just trust the really high level info, sort of dig a little deeper, ask some of the tougher questions. Cause there was in the summer when the financial crisis started, he did tell me there was issues and I was like, okay, let’s, I want to understand everything. I want to dig into everything. And he was super resistant and then came back with like, yeah, everything’s really fine. I just understood anything. Like, don’t worry about it. And like,

11:08
just wouldn’t give me access to see, you know, get my own QuickBooks login and really understand the data. And I should have fought harder at that point. It would have given me six more months of time. But he was super resistant that I didn’t fight hard enough. I don’t mean to bring up memories like that, the disconnect for me is how does that lead to like a warehouse software company? Yeah, so what happened after that was

11:36
So we were insolvent, like we had more debt than assets and like a shrinking business with no profits. But then we also had a lot of debt that was personally guaranteed. So we couldn’t just walk away because that would require personal bankruptcy. I told him that, well, my first, we had started these like couple other side businesses when we were selling like nursing scrubs. like,

12:02
totally unrelated, he had never spent a day working on any of it. I’d just done it all myself. I’d set up the website, got the sourcing and I did it all myself, but it was part of this entity. So I told him, let me have that, you can take the rest of the business, but I don’t want any of the debt. Just give me this business that I started as part of this and let me walk away. He said no. So then I switched to, okay, I’ll even give you that, just take everything, but you need to pay off the debts. I don’t want to up paying any of these debts.

12:30
that are personally guaranteed, I don’t want to have to file personal bankruptcy, to which he also said no. So what we ended up with was I took everything. So I took all the debts personally. And the way I was able to do it is I, my father took out, who is a college professor, didn’t have a ton of money, but he had a house that was paid off. So he took off, took out a mortgage and gave me the money for that. And I used that to pay down the debts.

12:56
to get my partner out and then I, so then I was the only owner of it after that. That seems like an unfair deal to me, but go on. Yeah, it was either that or we were both going down. Right. So like, you know, it wasn’t gonna, he wasn’t willing to take it. So I didn’t have much of a choice. So I had that and then I had this business that was super underwater and I also had the debt to my father. So now I really couldn’t just declare bankruptcy because now like- Right, your dad’s involved, yeah. Yeah, I’d be sailing with a debt that he had no way to pay back.

13:26
because it’s a mortgage on his house. So I had to make it work and it was brutal. Like I worked, like if there was a job that I could outsource for like 12 bucks an hour, I’d it myself. I did it myself. I was just struggled for years to sort of get that company back to zero. And once I did, it got a lot easier. So then I grew it back to the point where we never got

13:52
We got to, I think we had been at, I don’t remember the exact numbers, but it was like 6 million pre this, and then it was, we got to like 7.3 million post this whole financial crisis thing. And we switched to the customer segment. started Brazilian Jiu Jitsu was an emerging martial art at the time. So we sort of got a pretty dominant position in that industry. went out, there was no good, there were good suppliers in Brazil and good brands in

14:22
The UK, no one great in the US. So I couldn’t get deals with any of the people in Brazil. So I went to the UK, made deals with a couple of the biggest brands for like to be their US distributors, started a website which still exists and it’s still super popular, is BJJHQ.com, which is Brazilian Jiu Jitsu headquarters. It’s a flash sale site. What I saw is, do you know back country? Yeah, I do. So back country had this thing called steep and cheap.

14:50
which was like their flash sale thing, which was a deal that they initially, and then it’s converted to like rolling where every 20 minutes was a different deal. But anyways, I was at, I think IRCE, no, I didn’t go to IRCE. I didn’t have the money to go to IRCE. So I bought the DVDs of speeches at IRCE and someone from back country spoke about how they launched steep and cheap and like it quickly became like 50 % of their revenue or something like that.

15:19
I loved the idea because I had no money. I had no money in the bank to buy inventory, but by doing a deal all day, I only had to buy enough stock for a few days ahead. I think at the time, were a lot of these companies kind of folding and you were just buying off excess stock? What do mean? For these deals, like your sourcing. No, no, so we didn’t do it really buying closeouts. We never really did it that way a little bit, but what we ended up doing was just buying totally

15:49
valid popular products, but what we were able to do is, hey, we’d buy a decent quantity, so we’d get a decent price, but also logistics were a little bit easier because it was only one product, so you didn’t have to store and ship a variety. But the biggest thing was cash flow. So I didn’t have any money, but if you got to stock 500 products, you have to have inventory of all these different products. But if you only sell one deal a day,

16:17
just need to buy like the next week worth of products, right? So like, and usually you could buy it on a credit card or get 30 days term. So like sort of was a really good cashflow, which is what I needed because I had zero money in it. had like zero dollars in the bank. So we went all in on that and it worked. So, you know, we ended up launching our own brands and sort of keep, keep going with that. But that was really the way we went from zero to actually like having a real business again.

16:46
And you used the 3PL for your inventory, right? No. we went back and forth. What happened was after the whole issue with my partner, we had no money. We didn’t really have much of a business. So we went with the 3PL. And that 3PL went bankrupt. us and a company called Everlast, which is a large boxing brand, outsourced to these same guys. And then, yeah, those guys went, well, those guys just

17:15
did an awful job, both us and Everlast sued them. They declared bankruptcy to get out of the lawsuit. And then someone else bought them. So they continued to exist, but our lawsuits got tossed or whatever. We had to start all over because it wasn’t the same company anymore. So that was a disaster. So we ended up going back in-house, but we didn’t really have to have a really significant warehouse because we just won item a day.

17:43
But you grew this business back to where it was previously. when did you decide to start Ship Hero then? Because you already have this successful e-commerce business. Why throw that away and do a SaaS company of all things? Yeah, so we had grown it. We grew it back to be bigger than it was and much more profitable. So it got to the point we were making just over a million dollars a year of profit. So I paid my dad back, cleared all the old

18:10
debts because we had credit card debts from they’ve been rolling for the last five years. Cleared everything out. Finally got to a place where it’s a little more comfortable. The martial arts business, I had just backed into it. I started doing Brazilian Jiu Jitsu after a while and I actually like it. But most of what I was doing was sort of apparel manufacturing and design because that’s really what we were. that’s not something that I’m at all passionate about.

18:40
Okay. It’s not my thing. I did it because I needed, you know, like I had a wife and kids and know, bills, but it was great. Like I, you know, it, you know, paid for all those things, but it wasn’t something I cared about and would want to do if I didn’t need the money. So, my background is computer programming. That’s where I started. Um, and I always wanted to get back into it, but when I was making like just enough money to live, it, you know, it didn’t really have a luxury of, of doing what I wanted. did what I had to.

19:10
And then once the company got to the point where I was like, okay, I have extra money. Now I could bank some of that, save a little bit of it, and then start investing. And then instead of doing those $12 an hour jobs myself, hire a couple of people, let them do it, stop packing my own boxes, and go after something that I found just more personally satisfying, something I’m more excited about, which was gonna be software and…

19:38
shipping. mean, I’d run the warehouse for so long, done a lot of the work myself. I just was super familiar with it. I knew what I wanted, how I wanted the warehouse to run. I knew how the software I wanted to be. And then once I had this sort of the money, I decided to go for it.

19:54
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20:23
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20:52
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21:03
You know, one thing that I was, when I was listening to your tropical MBA podcast, I was thinking to myself, like SaaS businesses usually, because we have a similar background. I’m an electrical engineer and I was thinking to myself, I’ve always wanted to start a SaaS business myself, but it is very capital intensive and you almost need to get funding, but you bootstrap this whole thing, right? If I recall. Yes. Yeah. So how do you, when you’re starting this warehouse software company,

21:29
And I’m sure the listeners out there who are running e-commerce businesses, they’re thinking to themselves, okay, should I go 3PL or should I run my own warehouse? So how do you know which route to take? Yeah, so well, to make that choice, I would pretty much always go 3PL if you really have to debate it. So back in the day, there weren’t a lot of good 3PLs and it was super scary.

21:57
to outsource to a 3PL, because the standard 3PL business model is spend all your time and energy acquiring a customer and then spend zero time and energy doing a good job for that customer, because it’s super difficult to switch. So once they’re in your warehouse, they’re not going to leave. And all your competitors aren’t that good either. So there’s no one really great for them to go to. So unless you were a top 500 retailer, you sort of were stuck with these crappy 3PL options.

22:26
you got to run your own because you can’t trust your business to a crappy 3PL operator. But that’s changed over the last five years. So there’s a lot of good options. On the forum, we talk about that a lot. There’s people who leave lots of feedback. And sure, there’s still some poor quality ones. even on the couple of guys that are actually on the forum, there’s Big Sky Fulfillment on there. There’s Societa Industries on there.

22:55
There’s Phoenix Direct on there. Those guys are all like quality operators, right? And a bunch of others. So like now you have good choices and like the idea that you should build your own warehouse and figure out how to pick pack orders, hire your own team, you know, deal with all the labor and workforce management stuff that comes along with it. If you have a standard off the shelf product.

23:19
It’s just not worth it. If you’re doing custom products, which I think you might be, right? Do you guys do some custom? we do embroidery. I don’t think a 3PL, unless you guys do custom stuff. That’s funny. actually, in my e-commerce business, one of the big ways we stood out was we bought a couple of Tajima machines and make… Yeah, that’s like us. Yep. So we embroider the back of uniforms for schools. So yeah, I’m super familiar with that. there are 3PLs that will do that. I can actually name a couple, or I can find a couple.

23:48
You know, that’s more niche, right? So that might pay to do in-house, but that’s the outliers, right? That’s like 5 % of the population, 95 % of 95 % of people sit outdoors. What’s funny, Aaron, is I actually never recommend any specific 3PLs to anyone because I’ve been burned many times in the past. Here’s what usually happens. Like a 3PL I recommend because a colleague might use them or several colleagues. It’s always good for a bit, but then when things fill up or when things get busy,

24:16
there’s always some disaster that happens. And then, and I want the listeners to know I’ve never used ShipHair before and this isn’t an advertisement for your company, but I’m being frank here, like what makes like a good 3PL and what’s to stop a 3PL from being what I’ve experienced in the past? Like what makes your service different? Yeah, so mean, certainly that is the norm. We are, like I said, they get you in and then at some point they start doing a horrible job and you…

24:43
as the merchant, you pay the cost because the customers leave you, right? So yeah, totally get it. So just to get a little bit of the history, we didn’t actually start our own 3PLs for a long time. For many years, our approach was we had all these 3PLs, there’s hundreds of warehouses using our software. And we said, you can make deals with any of these 3PLs and use whichever ones you want.

25:10
and it’s all networked. if you wanted to, let’s say you were in one 3PL and you wanted to switch to another one, you could do it seamlessly. You don’t have to change your software and you don’t even have to move your product. You can just send your new product to a new warehouse and just let the old warehouse run out of stock. Cause that’s the hardest part is moving it. So we really wanted to just solve exactly the problem you said, which was the same problem I had when that 3PL went bankrupt. I wanted to solve and I did not want to do it by opening warehouses. I wanted to do it with just the software.

25:40
Which is still, the software still does it and we do still have, we do have clients that have moved between 3PLs and use multiple different ones and we totally support that. So I would definitely encourage people to look at any of the 3PLs that we serve and you could Google it. I think it’s marketplace.shiphero.com. can see a list. Okay. So let me, let me just kind of reiterate what you just said. So a lot of 3PLs use your software.

26:07
and those are part of a network. So the idea is that if one 3PL goes down, in theory, because the other 3PLs use the same software, you can just start using a new one and just pick up exactly where you left off. Yeah, exactly. a customer of ours is Universal Music Group, so they’ve got everyone from Lady Gaga to Justin Bieber, Taylor Swift, everyone, right? So they had a couple of their own facilities, but then they also used all these other facilities for around the US and around the world. And if they’re not happy with one,

26:36
They don’t make a big deal about it. They just add a new one and they stop giving business to the old one. And it’s pretty undramatic, right? So you can do that today. It’s actually ecommerce3plfinder.com is the URL. And these are just clients that use us. You’re not using us directly. They’re just using us. And that works really well. And that sort of protects you from that downside. What about when shipments like, let’s say I ship a container in and…

27:02
and they never put it in or they claim they lost it or some disaster like that. Still you’re at a lot of money though, right? Well, I’ve never heard of someone saying they never got a container. That would be pretty awful. Well, not never got it, but like it took forever to get in. They lost parts of it or… Yeah, I mean, so that happens a lot, right? So, yeah, so that’s a horrible experience and hopefully that’s a lot less prevalent these days. You know, the other thing is there are…

27:27
we’ve gone from an era where it was mom and pops, which didn’t have a lot of accountability to being much more established brands. So the same way like, know, Coke can’t put out a really horrible product because like they’ve invested so much in their brand. It’s just not worth it for them. It’s the same thing with a lot of the modern three PLs where like, you know, us as an example, but anyone else, you can just Google

27:54
know, Shapiro fulfillment reviews, right? And like it’s on these platforms on, you know, the Shopify app store where I have no control. I can’t remove them. I can’t block them. I can reply, but if people are not happy, they can make it super obvious, right? So you can go through your top, you know, 10 three PLs and just look at them in the Shopify app store or any of the other trust pilot G2.

28:19
you know, anywhere, right? Or even just go on, you know, e-commerce fuel, if you remember, ask there, ask on Twitter. And like, you’ll see which ones are good and which ones are bad. And they’re definitely good ones and definitely bad ones. And where it used to be really hard to find that these days, I think it’s pretty much out there. You can tell who’s, who’s doing an awful job and some do an awful job still. if you are, if you’re considering a three PL, what should your sales volumes be like before you even consider it?

28:49
to make those numbers work. It’s usually once you’re beyond your sort of available space, right? So if you’ve got a garage, you’ve got a basement, you can ship it yourself, you have the time and space, like do that. But then once you get to a point where it’s like, I got to sign a lease, that’s when you should start looking at, maybe I should just out.

29:09
I’m just trying to think, let’s say, let’s try to put some numbers in the mix. Let’s say you’re selling a non-oversized Amazon product and maybe you’re doing six figures in revenue and you’re trying to make this comparison between 3PL and Amazon FBA. In general, would you say that the 3PL will tend to be cheaper than Amazon’s warehouse? No, mean Amazon, if you’re exclusively selling on Amazon, use FBA to the degree you can as much as possible. It’s going be cheaper than using a third party warehouse.

29:38
Amazon’s expensive if you’re selling like on Shopify and you want to ship directly to your customers using Amazon then yeah, Amazon’s pretty expensive. But for direct Amazon sales, Amazon’s the best option. So for people who have their own store and Amazon, do you recommend a combination of both or or Amazon fulfillment for your own store as well? Like what are the trade offs and when is the breakdown? When does it become when does it make sense to do one or the other?

30:05
Yeah, once you get above like 25 orders a day that’s shipping through your own channels, that’s when people start to send it on their own. Storage on Amazon is super expensive and the shipping’s not cheap for direct sales either. So, but if you’re just doing a few, it doesn’t matter, right? You just need to cost. It’s not worth the hassle of dealing with a 3PL. But once you get above like 25 orders a day that are off Amazon sales, that’s when you should probably start looking at if a 3PL makes sense. Okay. And

30:33
Are only smaller items generally a good fit for 3PL? And what parameters for products work best in terms of like size, margins, and that sort of thing? It doesn’t matter. mean, 3PL is just a warehouse. So every product needs to go through some warehouse, either it’s your own or it’s outsourced. Size is generally not a factor. It’s really if there’s stuff that’s non-standard and small that you can run into issues.

31:00
For example, like we mentioned embroidery or if you write custom notes on shipments to customers or you like to wrap it with pretty paper in a certain specific way. Like if you’re doing a thousand orders a day, you’ll have no problem finding many 3PLs that will be happy to do that. But if you’re doing 10 orders a day, they’re not gonna train someone at a 3PL to be able to handle like, this is how the customer X wants things done. So.

31:28
If you’re small and really custom, do it in-house. But if you’re standard, the 3PL is almost always a good option. And if you’re custom and big, 3PL is also usually a pretty good option. So what are some questions that you would ask for 3PL? I mean, you have the advantage of being a customer at one point for a 3PL. What questions do you ask? And are there any things to just watch out for? Yeah, so the big difference or a big

31:56
thing to look out for is how the pricing works on the shipping. So in general, just to pick round numbers, if it’s gonna cost you $10 to get a package to your customer, about $2 of that’s gonna go to the 3PL and about eight is gonna go to a shipping carrier like UPS. People tend to get really obsessed about the $2 when talking to the 3PL and forget the $8. You shouldn’t do that. You should look at what’s the total cost for me to get this package to my customers. Because what people see is like,

32:25
I’m just going to get this UPS account and there’s this list of pricing and the pricing that UPS provides is, you know, I do this for a living and I have a hard time figuring out what a package is actually going to cost, right? Because there’s residential surcharges, delivery area surcharges and a bunch of fuel surcharges and know, it’s 6 % for fuel and it could be $2.25 for delivery area surcharges. But how many go to a delivery area surcharge? I don’t know. And then there’s zones. There’s zones like one through eight.

32:53
you would think that, oh, well, half of them will go, you know, the same amount of, go to one as we’ll go to eight, but it’s wrong. like 10 times as much goes to zone eight as zone one, because the zones are increasingly large in size, because it works like based on a circle, right? So like the concentric circles get much bigger. So the math becomes, you know, to the point where even doing an Excel is really difficult. You pretty much have to use algorithms to understand what things are gonna cost.

33:17
Which of course is well beyond the scope of what most people can do. So what they do is they ignore that and they just focus out, okay, how much is it gonna cost to pick and pack the order, right? So you end up at a supplier or the 3PL that saves you 15 cents on picking and packing but costs you 75 % on the shipping charges because dirty secret, the 3PLs get kickbacks on the shipping charges. So they might say you can use our UPS account and it’s great, but they get a kickback from UPS off of what you spent, which is highly variable.

33:47
So, and you have, and it’s opaque, you don’t know what that number is, right? So, going in, you have no idea what those numbers are. So, what I would always recommend is get an all-in price. Just say like, I’m gonna give you this product, how much is it gonna cost to get to my customer? Don’t give me a breakdown of like, well, this is the pick and then there’s this UPS fee. Just give me a total amount. Ideally, with no zones. If you need to do zones, give me what the average is gonna cost me so I can know that it’s gonna cost me.

34:15
875 on average to ship this item to my customer in the US, right? If a 3PL can’t give you that, the number’s probably not that good. Otherwise, they’d be happy to share. It’s interesting, because I’ve looked at a number of 3PLs over the years, and some have really complicated pricing structures, which make it really hard to actually estimate what your costs are. There’s pick fees, there’s shipping fees, storage fees. I’m just kind of curious how you guys run it.

34:42
Yeah, so we just provide a… It’s just on the website. Go to fulfillment.shiphero.com, just click on the pricing tab and it’ll tell you. There’s no zones, there’s no multiple fees, there’s no receiving, no storage for the first product that sells within 60 days, no pick and pack shipping separate. just, it’s gonna cost you. It’s like a flat rate, basically. Flat rate, anywhere within the lower 48. Is there any savings on, do you pass any of shippings?

35:11
costs back to the customer? Like you’re getting kickbacks because you’re doing so much volume, right? Yeah, but so we just give you the total price counting everything. So you don’t have to think about like, how much is UPS or how much is FedEx? we’re just telling you what it’s going to cost to get it to your end customer. And what about the cost to like store stuff in the warehouse? Yeah, so that’s again, it’s all right there. I was just asking you just, just so people listening can just get an estimate in their minds, like how much roughly it would cost.

35:38
Yes, I’m just going to website now. So we do the first 60 days free. So any products that turn within 60 days, you don’t pay any storage on. Okay, nice. After that, it’s $5 a month for a bin and which is 4.4 cubic feet and $30 a month for a pallet. Okay. Do you do seller fulfilled prime? So seller fulfilled prime requires that the seller, not us, is certified. So we do.

36:08
but it requires that the seller is certified, which very few are, and they don’t really take a lot of people. I think it’s been closed for like a couple of years from the sign-up. it’s like I have it for my e-commerce business, where it was approved from years ago, and you can take that to any warehouse you want. And we have a couple other people that have it, but it’s a decreasingly small percentage, because they’re not opening it up a lot. And what would you say is your competitive edge, personally?

36:37
for Shapiro. So like me as a person or my company? Your company and you, guess, since you’re running it. I we have, I think we’ve got a pretty good team. It’s pretty, pretty aligned on where we’re trying to go. So like we’re not a venture-backed company like you discussed. So I think you mentioned, so we’re bootstrapped. do it like we’re pretty like blue collar and hands-on. I mean, it’s a blue collar business. mean, yep.

37:06
you’re unloading containers and putting them on shelves and making sure everything just gets there, Yep, exactly. like we’re a software, like I’m a programmer and that’s like we have 40 some odd engineers, but we’re pretty practical in terms of like the job is to put the right item in the right box and ship to the right customer and sort of not that complicated, but it requires showing up every day and doing the work.

37:35
Right? Like you can’t call out a day and not ship the orders for a customer. Like nothing else matters if you don’t ship it. So I think we’ve got the right attitude on that. also, again, not being, you know, venture backed. don’t, like we don’t sell like, oh, you’re to get stock options and you’re going to make, you know, $10 million when we IPO. Like that’s not the pitch we’re giving our employees. A lot of our employees, you know, maybe have had that’s

38:02
engineers or designers have had that experience somewhere else, which didn’t go well, right? Because most venture-backed companies don’t succeed. And even if they do, in general, the employees are not the ones that make out with a lot of money. Their options tend to not be that valuable, except for very few outliers. And they work you really hard, right? So it’s like, oh, work really hard, and then you can get this payoff. And then the reality is you do the really hard work, but you don’t get the payoff. So we pitch a different message, which is…

38:30
Like you’re gonna work hard in terms of like we expect you to do the work, not be delegating the work to someone else, but also like you’ll be done by five o’clock. You’re not gonna be working nights. You’re not gonna be working weekends. And we’re gonna pay you a reasonable salary so you can live your life today, not dream about in 10 years from now, a potential exit that may or may not happen is sort of out of your control anyways. You’re one employee in a fairly large organization.

38:57
I mean, I think we attract the right people there who care about their craft, they care about their job, they do well, and they stick. Like we almost never lose employees, which is super important and super rare, I think, in tech companies. Can you actually just give me an example of what good warehouse software does for you? Like as we talked about earlier, we run a warehouse ourselves, and I don’t want to say it’s a disaster, but it’s definitely not as efficient as it could be. So what are some just typical inefficiencies of doing it yourself that can be optimized?

39:26
So I mean, the first question is, are you scanning products or are you just selecting without scanning barcodes? We are not scanning barcodes. Right, okay. So basically, if the people doing the work in the warehouse are beyond the sort of founder and immediate family members and you’re not doing any scan-based verification, a couple of things happen. One, you make a lot of mistakes and two, so one thing we found,

39:55
at my e-commerce company was our top performing employee was doing twice the work of our lowest performing employee, but was getting paid like $2 an hour more, right? But we didn’t know that until we had put in software because how would you know, right? Just sort of eyeballing it is really tough and really tough to fire someone based on like, it doesn’t seem like he’s working that hard. And know, this guy seems like he’s working harder. Like, so real software will give you that, will give you the accuracy. You’re not gonna make mistakes.

40:25
label items, have barcodes, you scan them, you just, don’t make mistakes. And you see who’s doing a good job and who isn’t, which is super important to making sure you retain the people that are good and you get rid of the people that aren’t. Okay, that makes sense. I remember Kevin Steckow told me once that once he started doing barcoding, he immediately knew and then he implemented some three strike system for screw ups too. You can immediately tell who screwed up with the packing also of a particular order. Yeah, yeah. mean, it’s so eye opening. Like,

40:54
It’s so obvious once you have the data. I’m like, wow, that guy’s horrible. And then you tell yourself the story like, oh yeah, I always knew he seemed like he was kind of maybe taking a nap in the back. you don’t pull your trigger on it because it’s really hard to make those personnel decisions without hard data. Like you don’t want to fire someone when you’re like, I think he’s not great. But once you can see like, yeah, I mean, every day he ships an item wrong. I told him scan it and then he didn’t scan it and he shipped it wrong. Yeah, you have no.

41:22
You don’t feel guilty at all about firing that person. Like I told them to scan. Are you gonna get fired? He didn’t scan I fired him Interesting. So we have a lot of loose inventory lying around because we actually pack on demand So we sell stuff in different sets and then we have the personalized part And so there’s always and then there’s stuff that’s not sellable because there’s like a stain it you’ve done textiles before and so would it be the same thing you just have a barcode for that bin whenever you take one out you just scan it yeah, so we actually have sellable and non-solvable bins as well, so

41:52
you do want to track what you have that’s not sellable. But yeah, you track it and then you can do, like the system will never tell you to pick non-sellable, never tell like Shopify you have non-sellable available, but you keep track of what it is. Yeah, and you just barcode everything. Not everything is barcodable, but most things are. Right. So in terms of customization, inserts, custom boxing,

42:20
What do you guys charge for that? And when does it make sense? Yeah, so mean, a lot of people do custom boxes and do inserts. We include three picks. So if your order has one or two items in it and you want, and an insert is just a pick. So we just count it as a pick. So if you have less than one or two, if you have only one or two items, the insert is free. And if you have more, we charge, I want to say 25 cents, but I’d have to look it up. Yeah, 25 cents.

42:50
for each additional pick. Custom boxes, like that’s just on the merchant to provide that. We don’t pay for the actual box if it’s a non-standard box. But that’s it, we don’t charge extra for that. pretty common. So you also have the luxury of seeing like all the macro trends due to COVID. And what are you seeing in terms of people selling on Amazon, like types of products and people running their own stores? Are most people just kind of ditching their

43:19
their own in-house operations at this point? No, mean, everything’s up. you know, I mean, there’s certain categories that are down, but for the most part, you know, both Amazon, non-Amazon, like everything’s grown a lot. Actually, non-Amazon, we’ve seen been growing faster than Amazon. There’s been a lot of a lot of growth in big companies doing more online. So we work with like Mars, the chocolate company.

43:48
people like that who maybe didn’t have Frito-Lay, who maybe didn’t have a large direct to consumer presence that COVID really pushed them to do that. So that’s been big. But yeah, I mean- When you say you ship, you mean your software as opposed to your three people, right? Yeah, yeah. So yeah, so in general, our software a lot is used by larger entities. you know, our largest ones are doing like $500 million a year, like on online sales.

44:16
And then our fulfillment is mostly smaller, so like a million plus. So realistically, to use your software, you pretty much have to be like an eight figure company for it to make sense or? 10 million is eight figures, right? Yeah, yeah. It’s basically where we start. And then from the 3PL standpoint, you’re recommending if you’re getting like 25 orders a day on average. Yeah, that’s basically where it starts, like 500 orders a month is sort of the bottom end.

44:46
our biggest ones doing, well we actually had a cool one, which is a customer called Byte, which does like Invisalign sort of things, which was a fulfillment customer and sold earlier this month for just over a billion in cash. So that’s on the top end of sort of the customers we deal with. So what are you seeing in terms of e-commerce growth right now?

45:12
So any projections for this year? Yeah, I think a lot in the US is going to depend on stimulus and the economy. Like Q4 was sort of disappointing. Really interesting. OK. Yeah. Well, Q3, we were up. I think we’re up 130 percent year over year. And then Shopify was up like they published their numbers also. So I want to say like 110 percent or something. Right. Which is huge. But then Q4.

45:41
We were up, I want to say about 110 % in Shopify. And I could look up these numbers in 70 after Shopify was up like 70 % year over year. like still big numbers, but much lower than the Q4 numbers. like we, we work with Shopify as part of Shopify fulfillment network and awesome. Everyone else’s, you know, their expectations are expectations. Everyone’s expectations were higher for Q4, you know, partially that was just sort of planning, right? You always want to plan for, you know,

46:09
the larger number so you don’t get caught unprepared. But I think we all expected a bit more out of Q4 than we got. And then Q1, it’s been okay. But again, I think there’s a lot of sort of the economy issues, unemployment, and it’s not as, and people are going back to stores a bit more than they were. it’s not like

46:38
the crazy growth that we were seeing earlier in mid 2020. Can you comment real quick on like just Shopify fulfillment network as a 3PL? Yeah, I Shopify fulfillment network is great. They are still pretty limited into a whole they’ll take in. A lot of those products shipped using our software and so we’re super supportive of what they’re doing. Yeah, and if you get in, they do great. Are they perfect? No, I think sometimes that’s…

47:07
In issue where people are just so you have such high expectations for Shopify Which is which is tough to live up to right actually shipping the packages. You’re just not gonna be as successful as you are with with your software because you’re gonna hand your products off to You USPS or whoever and a hundred percent of them are not going to get there on time And you know, you’re like well Shopify’s does great and they should get there on time But the reality is you’re you’re beholden to third parties that

47:36
They’re just going to make human mistakes, right? The warehouse could pick it wrong or USPS or UPS can be late or lose a package. So it’s tough for someone, know, anyone to really fix that. But overall, they’re a great service and they use a bunch of different warehouses and I would encourage anyone who sells exclusively on Shopify to look at them as fulfillment offer. So in terms of you personally, are you putting more emphasis on the software or the 3PL aspect of your business?

48:04
working really hard on both. we’ve got a pretty decent sized team at this point where we don’t really have to do one or the other. They’re both pretty decent sized businesses. So I spend my time mostly on product and engineering, which really crosses across both of those. So I’m working on both of them all day. It’s interesting because we have kind of a similar background. For me, the 3PL aspect of it would not interest me at all.

48:34
Whereas the software company, it’s much more scalable. So it’s interesting. Yeah. Yeah. I think there’s definitely a dearth of programmers with interest in warehousing, which I have. I love the warehousing. I love the logistics part. And I think that’s also been the struggle with outsourcing in the past is the people that the warehouses attracted, they had hard time attracting the really good

49:03
Engineers I think sure I think we got a little bit of an advantage being like we started with the software and then we added the warehouses I was gonna just say that I like how you guys are eating your own dog food so to speak right Presumably a lot of the features for your software come from actually experiences you have running your warehouses, right? Yeah, I mean our software runs. It’s the same software, right? We’re basically a customer of ourselves. Exactly. Yeah, exactly Hey Aaron, where can people find more information about you and your company? I get asked questions about three pills at least like

49:32
almost like every day. if you can just give us information about your company and maybe some other resources where people can do their own research as well. Yeah, so I mean, we’re just shiphero.com. You can find both the SaaS and fulfillment. I’m on Twitter. pretty active at Aaron, A-A-R-O-N and A-N-D-M-L, Larry, Larry. That’s my Twitter handle. I’m pretty active there and happy to sort of, you people.

49:58
ask me questions on there and DM me. I try to be pretty responsive. And then, I mean, for people who have access to the forum, it’s a great resource. There’s so many threads about 3PLs and fulfillment and running your own warehouse. So yeah, it’s a great resource there. And on YouTube is the other thing, like we’re pretty active on YouTube, but there’s also a bunch of other people that are pretty active on YouTube. And you could consume hours and hours of really in-depth content of like, like I did a series where I showed

50:28
Like as we were setting up one of our new warehouses and that’s gotten a lot of engagement and you can see like, it’s just like, it’s not scripted or anything. It’s just like, here’s what we’re doing. And I started going from zero up to a fully running warehouse. And you can see like all the details of like how everything works. pretty transparent. And I can tell you now just for people listening, like running a warehouse is not fun and we don’t do a really good job of it. We just feel like we have to do it because of the personalization aspects. But if you’re just selling off the shelf products,

50:58
I’m just looking at the rent that we’re paying right now for our tiny little place in California where the prices are ridiculous. It really just makes sense to outsource all of that. And it’s just something that we’ve been thinking about. Well, biggest cost you’re probably facing is how are you shipping your products out? What carriers? Mainly USPS because everything’s under a pound. Okay. so you’re able to do like first class. Yep. Okay. Yeah. First class isn’t bad trying to get to New York cost wise, but it’s pretty slow. Yeah.

51:28
I think that the biggest disadvantage people have fulfilling out of their own is they’ve got their own warehouse wherever it is and they’re stuck sending it cross country. I’m in New York and we used to sell to California and it’s either slow or expensive. You can’t get it there fast and cheap versus with 3PLs you can because you’ll be in multiple warehouses. I think FedEx OneRate has been really good for us too. FedEx OneRate is great. I don’t know how they do it but yeah.

51:56
It keeps it last, but yeah, if you could fit it in like that FedEx envelope, it’s what, like 9.50 or something you’re paying? Yeah, it’s dirt cheap. Yeah. Yeah, it’s a great service. Used to be USPS flat rate used to be great, but they’ve… It’s got more expensive and it’s not reliable. Yeah, exactly. Double whammy. Exactly. But yeah, I mean, yeah, it’s just, I actually get my wife on here to talk about some of these issues that we have. I’m sure it could be mitigated with the software that you were describing, but I think that would…

52:24
require like a pretty large F &R part, we’d have to think about whether it’s really worth it. We don’t have that many packers really. Yeah, the trick is always on the receiving end. So it’s like garbage in, garbage out. If your receiving process isn’t verifying the items, that is, making sure they’re barcoded, you’ll never be able to get your hands around a problem. So I wouldn’t start at picking a packing. I would start at receiving and making sure that’s right. And then once that’s

52:52
gone on for a couple of months, it’ll be very easy to make sure you’re picking up packing is accurate because that means your inventory’s right and you’re sort of, once everything’s right upstream, it’s easy to get the picking and packing right. Yeah, no, that’s great advice. I mean, it’s actually a pain because whenever we get a large shipment in, it’s like all hands on deck and we have everything on a spreadsheet, but that’s really not that efficient, I think. Right, yeah. Excel as the way to run your business is super common, but…

53:21
Yeah, you know not the best workflow. Yeah Hey Aaron, thanks a lot for coming on man Open my eyes for a couple things and and the cost seemed very reasonable Well, I think a lot of people are just afraid about the variable cost but it sounds like if there’s like a flat base cost structure It’s really easy to calculate whether it’s worth it for your business Yeah, the math is easy. And the flexibility is the other part which is like I don’t know how much you’re paying for On your lease if your business doubled you’d be like, yes exactly more space

53:50
And if your business drops in half, which is what happened to me way back when, I was stuck in that lease with, know, I didn’t have the revenue to fill it out of the space, but it doesn’t matter. You sign a lease, you gotta pay that bill. Yeah, I mean, especially for us, I mean, you’d probably be, actually, you’re probably not shocked. You’re in New York, right? Yeah. But yeah, for what we pay, like, yeah, you’re right. If business were to double, we would be screwed. And if it halved, it wouldn’t be as bad, actually. It’s only if it grew too hard, too much.

54:18
Because just everything is ridiculous here. But anyway, hey, thanks a lot, Aaron. I’ll be sure to link up all those resources in the show notes. All right. It was really good chatting.

54:29
Hope you enjoyed that episode. And with the rising cost of Amazon, more and more people are using 3PLs as an intermediary to store their inventory. For more information about this episode, go to mywifequitterjob.com slash episode 350. And once again, I want to thank Klaviyo, which is my email marketing platform of choice for e-commerce merchants. You can easily put together automated flows, like an abandon card sequence, a post purchase flow, a win back campaign, basically all these sequences that will make you money on autopilot. So head on over to mywifequitterjob.com slash KLAVIYO.

54:59
Once again, that’s mywifequitterjob.com slash KLA V I Y O. I also want to thank Postscript, which is my SMS marketing platform of choice for e-commerce. With a few clicks of a button, you can easily segment and send targeted text messages to your client base. SMS is the next big own marketing platform and you can sign up for free over at postscript.io slash Steve. That’s P O S T S C R I P T dot I O slash Steve. Now I talk about how I use these tools on my blog and if you are interested in starting your own e-commerce store,

55:27
Head on over to mywifequitterjob.com and sign up for my free six day mini course. Just type in your email and I’ll send you the course right away. Thanks for listening.