If You Don’t Know Your Cost Per Order, You’re Guessing
I’ve been in retail for 25 years. I’ve owned businesses, I’ve packed boxes, and I’ve paid the bills. And if there is one thing that keeps me up at night—or rather, used to keep me up before I figured this out—it’s the realisation that most warehouse operators have no clue what it actually costs them to ship a single order.
We pay people by the hour. That’s the reality. Time is the currency of the warehouse. So, logically, time has to be the most important thing to measure. But how do you translate "time" into a number that tells you if you're making money or bleeding out?
The Calculation is Simple, But Most Get It Wrong
You need a system that can tell you your Order Fulfilment Cost. Not vaguely, not quarterly—daily.
(For more on this, read why Contribution Matters More Than Profit is often a better metric).
Here is the formula I use:
Divide the whole direct operational cost by the number of orders you ship.
That’s it. But the devil is in the details. Who counts as "direct operational cost"?
Do not include management. Do not include software developers. Do not include the accounting team. Why? Because those people are your fixed overheads. They get paid whether you ship 100 orders or 1,000 orders. Including them in your per-order calculation muddies the water. It hides the truth.
Why This Number Matters
Without the order cost, you are blind. You cannot see the tiny wins. You might change your packing tape dispenser to a faster model—did it help? If you aren't tracking cost per order, you're guessing. You might change your pick path—did it save money? Who knows?
When you know that it costs you exactly £3.50 to get a box out the door, you can start to chip away at it. £3.40. £3.30. Those pennies add up to thousands over a year. But you can't manage what you don't measure.