Watch: How 3PLs scale through margin management

Margin management is critical for all businesses, but is especially important in the world of third-party logistics providers, says Nate Endicott, senior vice president of growth at Enveyo.

It is the nature of 3PLs to face margin issues. Therefore, it is critical for them to understand the difference between billing management and margin management, says Endicott. The first is to think about “front side” activities – warehousing, picking and packing, storage fees and the like. However, they do not necessarily impact a 3PL's entire margin calculation, which also includes the “tail” in the form of transportation and package freight. This is “the most strategic aspect of increasing profitability,” he says.

How then can 3PLs go “from amateur to professional” in their pricing strategies? Many simply calculate the prices as a markup on top of the costs. But the best in class are moving to discount published rates and “finding ways to put more money in their pockets.”

Applying margins plays a key role in helping 3PLs scale their operations profitably. As volume grows, Endicott says it's important to reduce manual “touches.” Technology tools can help automate these processes, reducing the cost of acquiring new customers as the business grows.

As 3PL operations become more complex, better margin management is essential. “To get brands,” says Endicott, “try to become a data technology provider.” And for that to work, 3PLs need to price their services more strategically — and stop relying solely on billing management.

“You have to be laser focused,” Endicott says. “This marginal piece is now suddenly in the foreground. Margin is key for 3PLs.”