An important metric in the e-commerce space is calculating cost per order (also known as CPO). The CPO is not simply the labor involved in the shipment of the product. Still, it is a sum of items, including the costs associated with accepting the shipment of the product at your facility (receiving, storage, and inventory costs), fulfillment (picking, packing, and shipping), and reverse logistics (processing returns to the facility).
Of course, whether you’re tracking the CPO for a short timeframe (day, week, or month) or a more extended period (quarter or year), there are a series of additional numbers beyond labor that you’ll need to calculate your organization’s CPO accurately. There are additional outlays for consumables (packaging for the orders) and costs for shipping (postage and freight service charges). Within logistics accounting, many moving parts and expenses fluctuate from week to week, so the correct numbers need to be plugged into your CPO formula to achieve accurate results.
for the orders) as well as costs for shipping (postage and freight service charges). Within logistics accounting, many moving parts and costs fluctuate from week to week, so the correct numbers need to be plugged into your CPO formula to achieve accurate results.
Labor Costs
Labor costs are the sum of all the labor involved in the actual management of inventory (pickers, packers, and inventory workers). This should also include labor that deals with receiving (inbound shipments)–counting, inspecting, integrating it into inventory, and picking and packing orders. Labor includes workers not directly involved with the products: supervisors, administrative personnel, and maintenance staff. Note that labor costs include benefits and payroll taxes in addition to salaries.
Physical Facility Costs
Another line item is facility costs. The physical facility’s overhead is undoubtedly the largest number in the calculation—it includes mortgage or lease expenses, insurance, taxes, utilities, equipment, and maintenance. The equipment used for fulfillment and the warehouse management system (WMS) systems and software (including system maintenance, software licenses, and upgrades) must be included in the calculation.
Packing and Shipping
In addition to the labor and physical facility costs, there are other expenses to factor in. This includes the cost of consumables (shipping supplies), including boxes, envelopes, packing material, and labels. It is necessary to include the total cost of shipping services, as it is an outlay on every shipped order. The costs of consumables and shipping can vary from order to order.
Getting a Total
Once you’ve calculated all the totals from the labor, facility, and supplies categories, you’ll need to know the number of orders shipped for that time period. Your total costs divided by the number of orders shipped are the total cost per order. Understand that the CPO (the quotient) is an average order value and that there are variables in each order, such as weight, number of boxes, and shipping method.
The CPO calculation doesn’t include the following accounting functions resulting in a higher or lower total. One must also consider depreciation of equipment, utility rate changes, insurance premiums, tax hikes (or decreases), legal costs, and others that may be one-time charges, such as a city sewer assessment.
Author Chris Capelle is a technology expert, writer, and instructor. For over 25 years, he has worked in the publishing, advertising, and consumer products industries.
References
https://en.ryte.com/wiki/Cost_Per_Order_(CPO)
https://www.mytotalretail.com/article/how-calculate-fulfillment-cost-per-order-413367/all/
http://blog.atlanticwebworks.com/cpo-the-best-metric-for-measuring-your-marketing-effectiveness