Are you planning to start your eCommerce store in 2025? Congratulations, you are ready to transform your retail strategy. But, before launching your online store, it’s crucial to understand the cost per order of selling your product online.
Let’s explore the basics of order cost, including, how to calculate and track the most vital eCommerce KPI metric.
What is the Cost Per Order?
Cost per order (CPO) is a key performance indicator (KPI) in eCommerce operations. It represents the total cost associated with fulfilling an order, including expenses like order processing, packaging, warehousing, and shipping.
A lower CPO generally indicates more efficient operations, while a higher CPO could signal inefficiencies that need addressing. Monitoring this metric is essential for ensuring profitability, especially in a competitive market where customers demand fast shipping and competitive pricing.
Components of Cost Per Order
To calculate and track cost per order effectively, you must first identify its key components. These typically include:
1) Order Processing Costs
This includes the cost of labour, technology, and software used to manage orders, process payments, and prepare invoices.
2) Packaging Costs
These are the expenses associated with packaging materials, such as boxes, bubble wrap, tape, and labels.
3) Warehousing Costs
Warehousing costs include rent, utilities, storage fees, and salaries of warehouse staff. If you use third-party logistics (3PL), the fees paid for their services are part of this category.
4) Shipping Costs
This includes the fees paid to carriers for delivering products to customers. It can vary based on the size, weight, and shipment destination.
5) Returns and Reverse Logistics
If your eCommerce store has a return policy, the cost of handling returns and restocking products is also a part of the CPO.
6) Marketing Costs (Optional)
Some businesses also include marketing expenses, such as the cost of customer acquisition, in their CPO calculation.
How to Calculate Cost Per Order
The calculation formula is straightforward:
Cost Per Order Formula = Total Operational Costs / Number of Orders Fulfilled
Example:
Let’s assume your monthly eCommerce operational costs break down as follows:
- Order processing costs: 5,000
- Packaging costs: 2,000
- Warehousing costs: 10,000
- Shipping costs: 8,000
- Returns handling costs: 1,000
Total Operational Costs = 5,000 + 2,000 + 10,000 + 8,000 + 1,000 = 26,000
If you fulfil 2,000 orders in a month:
Cost Per Order = 26,000 / 2,000 = 13 per order
This means you spend 13 to process and deliver each order.
How to Track Cost Per Order in 2025
In 2025, advancements in technology have made it easier to track metrics like cost per order. Here are some steps and tools to help you track this critical KPI:
1. Use an eCommerce Management Platform
Modern eCommerce management platforms like Shopify, WooCommerce, or BigCommerce come equipped with analytics tools that provide insights into eCommerce shipping costs. These platforms can track order expenses, offering a real-time view of your CPO.
2. Leverage a Warehouse Management System (WMS)
A WMS helps streamline inventory management, track warehousing costs, and reduce inefficiencies. Many WMS solutions integrate directly with eCommerce platforms for seamless cost tracking.
3. Automate Order Fulfillment Processes
Automation technologies, such as robotic pickers, automated packaging systems, and AI-driven inventory management tools, can reduce labor costs and errors, thereby lowering your cost per order.
4. Track Shipping Expenses in Real-Time
Shipping expenses are a significant contributor to CPO. Tools like ShipStation, EasyPost, or AfterShip provide detailed shipping analytics, enabling businesses to monitor and optimize delivery costs.
5. Monitor Returns and Refunds
Implementing a robust returns management system helps minimize the costs associated with reverse logistics. Analyzing return data can also help you identify product issues and improve quality control.
6. Adopt Cost-Tracking Software
Cost-tracking tools like QuickBooks, Xero, or NetSuite can integrate with your eCommerce platform to provide a comprehensive view of your expenses. These tools help automate expense tracking and calculate CPO effortlessly.
7. Regularly Audit and Optimize
Regular audits of your operational costs can identify areas for improvement. For instance, switching to a more cost-effective packaging supplier or renegotiating shipping contracts can significantly reduce your cost per order.
Best Practices to Reduce Cost Per Order
Reducing the cost per order (CPO) is a strategic process that requires careful planning, analysis, and implementation. The following best practices are actionable strategies that eCommerce businesses can adopt to lower their operational costs while maintaining, or even improving, customer satisfaction:
1. Optimize Packaging Solutions
Packaging plays a significant role in your CPO, and optimizing it can bring immediate savings. Here’s how you can make packaging in logistics more cost-effective:
- Switch to Lightweight Materials: Use materials that are sturdy yet lightweight, such as corrugated cardboard, compostable mailers, or recyclable plastics.
- Minimise Excess Packaging: Avoid overpackaging items to reduce material costs and shipping weight.
- Leverage Custom Sizing: Use packaging that fits your product dimensions instead of standard-sized boxes to eliminate the need for excessive filler materials like bubble wrap or air pillows.
- Bulk Purchase Packaging Materials: Ordering materials in bulk can reduce unit costs significantly.
2. Negotiate Competitive Shipping Rates
Shipping is often one of the largest contributors to CPO. To bring these costs down:
- Partner with Multiple Carriers: Different shipping carriers may offer varied rates depending on delivery zones or package types. Partnering with several carriers ensures you always have cost-effective options.
- Leverage Volume Discounts: If your order volumes are high, negotiate volume discounts with shipping providers.
- Use Zone-Based Shipping: Optimize fulfilment center locations to ship from warehouses closer to your customers, reducing delivery costs and transit times.
- Invest in Shipping Software: Tools like ShipStation or EasyPost provide rate comparisons across carriers, ensuring you select the most economical option for every order.
3. Outsource to Third-Party Logistics (3PL)
Outsourcing fulfilment and logistics to a 3PL provider can help reduce costs, especially if your business is scaling rapidly. Here’s why:
- Lower Warehousing Costs: 3PL providers have shared warehouse spaces, allowing businesses to save on rent, utilities, and maintenance.
- Improved Shipping Rates: 3PL companies typically have bulk shipping contracts with carriers, passing on the cost savings to their clients.
- Access to Expertise: These providers use advanced technologies like automated picking and AI-driven inventory management, reducing labor and operational costs for your business.
4. Streamline Order Processing Through Automation
Automation is a powerful tool for reducing inefficiencies in order processing. Here’s how you can automate effectively:
- Implement Warehouse Management Systems (WMS): Automating tasks like inventory tracking, picking, and order packing can reduce human errors and lower labor costs.
- Adopt AI-Powered Tools: Artificial intelligence can forecast demand, manage stock levels, and optimize replenishment cycles to prevent overstocking or stockouts.
- Integrate Order Management Systems (OMS): OMS platforms centralize order processing, streamlining workflows from order placement to shipment.
5. Optimize Inventory Management
Carrying excessive inventory increases warehousing costs and risks product obsolescence, while insufficient inventory leads to lost sales. Balancing inventory is crucial for reducing CPO:
- Use Predictive Analytics: Advanced data analytics can help forecast demand patterns based on customer behaviour, seasonality, and market trends.
- Implement Just-In-Time Inventory: Maintain minimal stock levels by receiving inventory only when it’s needed to fulfil orders.
- Consolidate Suppliers: Sourcing from fewer suppliers can simplify logistics and reduce procurement costs.
FAQs – Cost Per Order
How do you calculate CPO?
CPO) is a metric that calculates the average cost incurred by a business to process and fulfil a customer order. It is calculated by dividing total costs by the number of completed orders.
Why is tracking CPO important?
Tracking CPO helps businesses identify inefficiencies, optimize processes, and ensure profitability. It provides insights into how operational costs impact the bottom line.
What is COGS in e-commerce?
The cost of goods sold is the total cost a company has to pay to manufacture and sell a product. It includes labour, distribution, sourcing, and production charges.
How can I reduce my CPO?
You can reduce your CPO by optimising packaging, automating order fulfilment, negotiating better shipping rates, outsourcing to 3PL providers, and analysing operational data for inefficiencies.
What tools can I use to track order costs?
Tools like Shopify, QuickBooks, ShipStation, and warehouse management systems can help track and calculate CPO in real-time.
Conclusion
Tracking cost per order helps you cut costs and increase profit margins. This metric measures the efficiency of a company’s marketing and operational activities. Do you need in-depth actionable supply chain strategies? Get in touch with Qodenext today.
