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Key Takeaways
- Percentage-of-spend pricing ties a 3PL’s fee to your freight spend.
- 3PL contracts may limit your ownership of data, rates, and history.
- Itemized invoices make it easier to see what a 3PL costs you.
- Fixed ACV, gainshare, and per-shipment models better align incentives.
Third-party logistics (3PL) providers manage outsourced services like distribution, warehousing, and freight, often for high-volume businesses. Many 3PLs structure their pricing to scale up with your freight spend, so as your freight costs rise, your 3PL spend tends to rise alongside them. That model works for many shippers. Others compare it with fixed-fee or performance-based pricing, including the pricing used in some managed transportation programs.
This article breaks down how 3PL margins and pricing work, what to check in a 3PL contract, and other pricing models to consider.
How Traditional 3PL Pricing Works
3PL pricing models vary, but one of the most common models is percentage-of-spend pricing. Under this model, the provider’s fee is tied directly to your total freight costs. That affects how incentives line up between you and the provider.
How Incentives Work Under This Model
With percentage-of-spend pricing, your 3PL’s revenue rises as your freight costs rise. The pricing model itself doesn’t tie the 3PL’s fee to making you more efficient. Many 3PLs still work to lower their customers’ costs, so if cost reduction is your main goal, ask how the contract rewards it.
What You May Not Own in a 3PL Contract
Depending on how your 3PL contract is structured, you may have limited ownership over important assets. Here’s what to look out for.
Carrier Relationships
In many traditional 3PL arrangements, the provider manages communication between shippers and carriers. For some business owners, this will be a boon. But if you decide to shift away from a particular 3PL, you may find that those carrier relationships don’t transfer with you.
Rate Data
Under many 3PL contracts, 3PLs typically keep ownership of the data generated while maintaining your freight. While you are in partnership with the 3PL, you may have some access to this data (depending on the company), but full ownership is theirs.
Performance History
Performance history accumulated during your 3PL engagement may also belong to the provider. This can make it harder to track changes over time on your own, so ask whether you can export this history during and after the engagement.
Network Insights
A 3PL also builds deeper insights into your carrier network. On-time delivery rates, tender acceptance, and invoice accuracy are carrier performance metrics a 3PL analyzes as it manages your freight. How much of that analysis it shares with you, and how often, varies by provider, so agree on reporting up front.
Getting Clarity on 3PL Invoices
With some 3PL pricing models, the invoice does not show the provider’s margin, so customers can’t see how much of each charge covers carrier cost and how much is the provider’s fee.
That can make it harder for business owners to evaluate the value of a 3PL partnership over time. Asking for itemized invoices, or for a pricing model with a stated fee, makes that evaluation easier.
Pricing and data terms also vary by model. In some 4PL arrangements, for instance, the provider manages your freight using your carrier network and their technology. Data ownership stays with you, and pricing is structured to align the provider’s incentives with your cost-reduction goals.
Alternatives to Percentage-of-Spend Pricing
Fixed ACV
Fixed annual contract value (ACV) refers to 3PL provider pricing that is locked in with a one-time fee each year. This gives business owners a predictable cost and lets them adjust their operations without the provider’s fee changing with freight spend.
Gainshare on Savings Above Target
Another 3PL pricing model is gainshare on savings above target. This is a performance-based pricing model where the 3PL provider would be paid a percentage of financial savings generated due to your partnership with them. This aligns incentives; the provider only earns more when they deliver savings beyond an agreed amount.
Per-Shipment Subscription
Lastly, you may want to consider a per-shipment subscription, where you pay a flat fee per order. This gives you predictable costs that scale with volume.
How to Evaluate Whether You’re Overpaying Your 3PL
3PL pricing varies 40-60% between providers due to different fee structures, volume tiers, and hidden charges, which can make it hard to evaluate whether you’re getting a fair deal. That said, common signs that you're overpaying for a 3PL include:
- Invoices that vary widely, especially when paired with a lack of transparency.
- Accumulation of unexpected charges such as program fees or an account management line.
- Lack of responsive customer service.
Choosing the Right Pricing Model for Your Network
Brokerage and 3PL services are the right fit for some freight and some teams, and managed transportation fits others. Loadsmart offers both freight brokerage and managed transportation, so the choice comes down to your network. If you want a different pricing structure or more insight into your freight data, Loadsmart’s managed transportation provides visibility into your freight operations, with pricing structures designed to help you move efficiently.
Frequently Asked Questions
How Do I Find Out My 3PL’s Margin?
While net profit margins for general warehousing and logistics providers are usually in the 3% to 6% range, 3PLs usually do not publish their margin on a given account, so the most direct route is to ask for itemized invoices or a pricing model with a stated fee.
Can I Negotiate a Fixed Fee With a 3PL?
Yes, some 3PLs will allow you to negotiate a fixed fee, depending on their pricing structure.
What Does Data Ownership Look Like in a Fixed-ACV Contract?
What data ownership looks like in a fixed-ACV contract depends on the agreement you make with a 3PL around both your input data and their proprietary platform data.