At age 25, Founder & CEO of Overflow Agency, Joe Spisak, started an eCommerce fulfillment company in a vacant morgue. This is no joke – he worked absurdly long hours for 2.5 years to grow the company to $10,000,000 annual recurring revenue. He then sold the company when he was 28.
Here are the seven lessons Joe wished he knew when he was starting a 3PL.
1. Prioritize quality over quantity when it comes to clients.
Joe learned early on that the vast majority of problems come from a relatively small amount of clients. He quickly learned that it was important to say know to some clients in order to make it easier to say yes to the ones that really count. In other words, focusing on your ideal customer profile is going to be critical. Failing to do so we cause problems for your operations team.
Passing on revenue feels unintuitive and wrong. But after a certain point, when running a 3PL, the primary constraints are going to be time and labor. Wasting tons of time on clients that aren’t the right fit for the business will ultimately cost more and hurt more than saying no in the first place.
Many of the best 3PLs only onboard companies that they know are going to have a good experience with their 3PL. That means that each of their clients is positioned to grow with minimal hassle for either party involved. This allows them to focus on what they do best and keep a sterling reputation as a result.
2. Figure out what differentiates your 3PL from the rest.
There are tens of thousands of eCommerce fulfillment companies out there. Finding a way to stand out from the horde is critical. This is especially true early on.
The easiest way for a small 3PL to stand out among its competitors is to find a super-specific niche. After establishing a foothold in a very specific niche, it’s easier to go after customers that are in that vertical.
When Joe started his 3PL, his first four customers were tabletop board game companies. Card and board games ended up becoming his best vertical and where his company built its niche. Ultimately, he ended up signing a puzzle company that shipped 5,000 orders per day during its peak season, bringing in loads of revenue.
3. Negotiate favorable agreements with USPS, UPS, DHL eCommerce, and FedEx.
Having a highly specific niche is going to make it much easier to compete with other 3PLs. However, it’s important to keep pricing competitive at the same time. The only way this is possible is to keep postage prices in check because that represents such a large expense.
For this reason, it’s absolutely mission-critical to set up agreements with USPS, UPS, DHL eCommerce, and FedEx. It might be a good idea to reach out to some local carriers as well. For every carrier you end up working with, be sure that your warehouse management system can work with them in real time. This will allow you to be able to ship cheaply and quickly for your customers.
The better your rates, the better your margin. This also makes it much easier for your sales team to close deals, ultimately making it much easier to grow your 3PL. As your 3PL grows, keep negotiating those rates.
Bear in mind that the specific terms you are able to negotiate may give your 3PL another competitive wedge. For example, DHL eCommerce and USPS are known for highly competitive small parcel rates. If you’re able to get lower prices with those carriers, it gives your 3PL an edge with products that are less than 5 pounds.
4. Find a real estate agent with logistics experience.
When Joe started his 3PL, he started with just 1,000 square feet in the decommissioned morgue. He then moved up to a 6,000 square foot lease, and then made the jump into a 140,000 square foot building in central Pennsylvania. It took him nearly six months to complete the purchase, and you can imagine the process was complicated and headache-inducing.
It’s only in retrospect that Joe learned you can hire logistics-specific industrial real estate specialists. These highly specialized experts are able to guide you through many of the quirks of 3PL real estate, including considerations such as:
- The number of dock door locations
- Accessibility for trucks
- Proximity to talented workers
- Proximity to carrier sorting facilities
- Ability for carriers to arrange pickups from the location
All these considerations are more than a 3PL owner should need to bear alone.
5. Connect with other 3PL owners.
The idea of commiserating with the competition might seem unintuitive, but it’s really helpful to do so. Many business owners make the mistake of running down their competitors. But this is a waste of time and energy and doing so squanders a lot of opportunities.
Joe was very proactive about connecting with other 3PL owners, and cites the following benefits as a result:
- Sharing knowledge on best practices such as pricing, technology, marketing, and customer support.
- Vendor sharing in areas like packaging, freight, imports and exports, branding and web design.
- Inspiration and friendship.
Successful small businesses tend to have highly specialized niches. Competitors won’t step on your toes as much as you may fear, and they will often be happy to have someone like-minded to share the unique challenges of entrepreneurship with.
6. Find a mentor.
Starting a 3PL is a difficult process, even for the most capable entrepreneur. There’s no reason it needs to be an isolating one as well. The logistics industry is full of amazing people who are willing to share their knowledge and experience.
Finding a mentor makes it easier to figure out how to get a 3PL up and running without as much trial and error. It’s possible to teach yourself everything, but it’s much easier and more effective to find someone who is willing to help you learn from their mistakes.
If you’d like help finding a mentor, send a direct message to @JoeSpeezy on Twitter, and he can help connect you with one.
7. Spend money strategically.
When starting his 3PL, Joe spent money testing just about everything imaginable. Acquiring customers was paramount and finding a proverbial silver bullet was worth risking thousands of dollars. Or so he thought. Through experience and time, Joe found a lot of ways to save thousands of dollars per month, such as:
- Using Google Sheets, Airtable, and or Notion for a CRM instead of HubSpot or Salesforce. (Data can be migrated to those more expensive tools later when the time is right.)
- Purchasing items with an American Express Gold Card to earn 4x points on shipping and marketing spending. Racking up points will make it possible to buy packaging materials with those points and further increase business margins.
- Taking the Section 179 tax deduction. This makes it possible to deduct up to $1 million in equipment expenses per year. Plan for increased income during November and December and buy next year’s forklift, truck, or office equipment to minimize your early tax burden.
- Hiring only marketing agencies with a logistics background.
Starting a 3PL is difficult no matter what, but there are a lot of mistakes you can avoid by following these straightforward tips.
If you have a 3PL and are seeking to grow your client base, get in touch with Overflow Agency today. With our battle-tested methods for 3PL growth, we can help you make an extra $250,000 per year. And if you don’t see a 100% ROI within 3 months, we’ll issue a complete refund.