Why Your 3PL Margins Aren’t as Strong as You Think

Running a 3PL means living in the details. You’re moving fast, solving problems, and keeping brands happy. But even when everything looks fine on the surface, your margins may be bleeding in places you’re not watching.

Most of the time, these issues aren’t obvious. They hide behind manual reports, siloed systems, and “good enough” performance metrics. And they chip away at your profitability one late order, mispriced invoice, and inefficient shift at a time.

In this article, we'll talk about where those hidden costs come from, how they impact your business, and what you can do to stop them.

Labor Inefficiencies You Can’t See

Labor inefficiencies usually don’t show up in your standard reports. You may see headcount or payroll totals, but those numbers don’t explain why you needed overtime on a Tuesday, or why your throughput dropped at one warehouse but not the other. The real issues are hiding in your floor layout, picker assignments, and daily task priorities.

In one case, a mid-sized 3PL operating out of three facilities saw a steady drop in units picked per hour at its Kansas site. Nothing obvious had changed. But when they reviewed pick path data, they realized that two top-moving SKUs had been relocated during a restock and were now stored near the back. Just that one shift added 20 to 30 seconds per order across hundreds of orders a day. Multiply that across shifts, and the overtime costs alone were eating thousands each week.

Another area that doesn’t get tracked well is how orders are prioritized. Without clear visibility into which brands are at risk of SLA misses or churn, your team may be picking based on convenience, not consequence. A late DTC order for a sensitive client should not get the same priority as bulk restocks with a looser window, but your WMS can’t make that call. Intelligence layered on top of your WMS can.

Unprofitable Clients Hiding in Plain Sight

Not all revenue is good revenue. You may be shipping 10,000 orders a week for a brand and still losing money. This is due to complexity.

Some brands drive up costs with high SKU counts, split shipments, or a high mix of B2B versus DTC orders. Others eat margin by flooding you with last-minute changes or requiring manual processing steps. Without client-level cost visibility, those differences don’t show up. You just see volume.

One 3PL we worked with found that their biggest client was also their worst-margin account. They were handling DTC and B2B, but the brand’s wholesale orders were bulky and came with long handling instructions. Once they broke out costs by order type, it was obvious that the B2B side was bleeding them. They renegotiated the rate card to account for the extra work and moved that client from negative to break-even. Not perfect, but no longer a loss.

It’s common to let legacy clients slide through unchanged for years. Maybe they came in with sweetheart pricing or you didn’t model the operational cost correctly at the start. But if you’re not reviewing margin performance by brand on a regular basis, you’re almost definitely giving away service.

Client trust is about being clear on what it takes to serve them and what changes as their needs evolve. You can’t do that if you’re flying blind on profitability.

SLA Misses That Stack Up Fast

Most SLA problems don’t start with a giant miss. They start with a few late orders here and there. One order that doesn’t ship in time because of a stockout. A rush order that missed the cutoff because it got stuck in a batch queue. A few small issues that don’t raise a red flag but still break the promise you made to the client.

What often happens is these problems go unnoticed until the brand calls you out. That creates a reactive cycle where your team is constantly apologizing and rushing to fix things, often with extra labor or overnight shipping. The actual penalty cost is only part of the damage. The real cost is the downstream churn risk, the support tickets, and the time spent firefighting.

One 3PL got ahead of this by setting daily alerts tied to SLA health by brand. On a Tuesday morning, the system flagged a group of orders from a cosmetics brand that were projected to miss SLA based on current pack rates. They pulled in extra pickers, prioritized that batch, and cleared the risk before the client even knew there was a delay. That brand stayed green on SLAs and never escalated.

When you treat SLA tracking like a static metric, you miss the opportunity to act. A live view lets you course-correct during the day, not after the damage is done. That keeps your team focused on prevention, not recovery.

Revenue Leaks in Your Billing Process

Billing sounds like a back-office function, but it has a direct line to your bottom line. The problem is, most 3PLs don’t have billing systems that actually reflect how they operate. You might be capturing order counts, but are you billing correctly for rework? Storage? Extra handling?

One CFO told us they discovered 8 percent of their billable events weren’t being invoiced. Why? Manual reconciliation. Their billing team pulled data from the WMS, layered in notes from ops, and then built invoices in spreadsheets. Every exception was a chance for something to fall through the cracks. And those cracks got wider every time order volume spiked.

Automated billing fixes that, but not all automation is useful. What matters is aligning your invoicing with how your operation works. Clear, reliable invoices build trust with your clients. When they can see what they’re paying for and how it ties to actual services delivered, they push back less and pay faster. That’s money staying in your business instead of sitting in accounts receivable.

See the Full Picture Before the Damage Adds Up

Most 3PLs aren’t ignoring their margins, they’re just not seeing the full picture. When you don’t know what’s hiding behind the numbers, it’s hard to protect profitability. That’s why better visibility, smarter alerts, and real-time cost clarity aren’t nice-to-haves. They’re what keep your business healthy as you scale.

Start finding and fixing the margin leaks hiding inside your operation. Book your demo today at Octup.com.