How to use drop shipping to eliminate overhead costs and boost profits in your eCommerce business.
If you have been a retailer for more than a month, you doubtlessly know that the costs of stocking, packing, and shipping inventory can significantly decrease your profit margins and create additional hassle for you and your employees. In these rough economic times, it might be time to consider a method of product fulfillment that avoids many of the costs associated with eCommerce and leaves you free to concentrate on building your bottom line.
Drop shipping is an agreement with wholesalers where you provide them with your collected orders and your supplier then packages and ships the product right to your customer’s home leaving you to simply collect the profits. With drop shipping you do not need to worry about having too little or too much inventory, making the time to pack and ship your products or any of the numerous other worries associated with product fulfillment.
In this guide we will show you exactly what to do to start drop shipping, and also some common problems to look out for. Here are some advantages and disadvantages of drop shipping to consider.
Advantages of Drop Shipping
- Little overhead and minimum setup fees
- Your suppliers manage your inventory
- Your suppliers package and ship your products for you
- You only pay for the products you sell after you collect payment from the customers
Disadvantages of Drop Shipping
- Products might change without notice
- Supplier’s fees could rise at any time leaving you to pay more for each product
- You won’t get bulk discounts because you buy each product individually
- No control over shipping times and quality
How to Find Drop Shipping Suppliers
Finding the right suppliers is essential to using drop shipping in your online store. Good suppliers mean good prices, high quality customer service, excellent order fulfillment skills, and a good selection of products to choose from.
You may be surprised which companies offer drop shipping so to get started make a list of all manufacturers and suppliers who offer the products you want to carry. Be careful when considering overseas suppliers or “wholesale drop ship directories” as many of these places have questionable business practices or are involved in the sale of less than legal goods.
Once you have located the suppliers you would like to contact, it’s time to start making phone calls. The first thing you will want to ask is if they actually offer drop shipping services. Don’t waste your time asking about their products before you know if they will even work with you.
Once you have established that the supplier does drop shipping here are some other essential questions to ask:
- Is there a minimum order requirement?
- Are there any other requirements to open an account?
- What are the fees involved in drop shipping?
- What type of product support or information do they offer?
- What are their prices and will they offer you price breaks based on quantity sold?
Drop Shipping Agents
Another option available to you as an eCommerce merchant is a drop shipping agent. Much like a travel agent who gets you good deals on holiday vacations all over the world, a drop shipping agent will provide you instant access to an endless supply of products at a discounted price. Not only do you get access to a wider variety of products at a cheaper rate that if you do it alone, but you also receive a significant time savings because you will only need to deal with one agent instead of numerous suppliers.
Drop shipping agents will likely charge you a significant monthly fee, however in drop shipping the old adage “you get what you pay for” often holds true. Unfortunately, there are a number of less than moral companies out there who will overcharge you for products or provide you with terrible service. Be sure to carefully compare different agents, get testimonials and compare prices before choosing the agent that is right for you.
Common Drop Shipping Issues
Even though your suppliers will be packing and shipping products for you, it’s ultimately your responsibility to ensure that your customers’ orders arrive promptly and in good condition. Most suppliers will provide you with tracking information so it is important that you stay on top of this information and stay in contact with your customers should there be any problems.
You should also have a system in place for handling back orders or out-of-stock items. Unfortunately this is sometimes a reality when you do not have direct control of your stock so make sure you are prepared. You might consider taking a loss and buying the product elsewhere and then sending it to the customer yourself. This will show your commitment to customer service and keep people returning to your store time after time. If this is not option, you should immediately contact your buyer and explain situation while offering them a full refund.
Finally you should make sure to have a cohesive return policy. Your suppliers will likely not all have identical policies but it is important that you establish your own standard for how you handle returns and stick to it. Even if it costs you some money when your supplier won’t accept a return and you have to take a loss, the accumulated goodwill will be far more valuable to your company in the long run.
Drop shipping can be an incredibly valuable way to increase your profits and grow your business. Without the costs and hassles that plague many eCommerce sites, you can focus on increasing your sales and beating your competition. Because you don’t have to maintain any stock, you can offer an endless supply of products on your online store with no additional costs or risk.
Despite its considerable upsides, there are also some reasons you might choose not to use drop shipping. Because you are not buying in bulk and because you must pay considerable drop fees and agent fees, you might face margins that are significantly lower than in a traditional eCommerce model. Also by giving much of your product control to an outside vendor, you risk customer service issues that you could more easily prevent in house. Finally drop shipping has attracted many less than honest people whom you must be cautious of if you choose to follow these strategies.
As with any business decision, you should carefully consider the pros and cons of drop shipping before starting. Examine your current business model and calculate for yourself if drop shipping would be advantageous for you. Many businesses have found drop shipping to be highly profitable and rewarding while others have determined that conventional eCommerce practices are ultimately superior. With sufficient research, it should become quite clear if drop shipping is the right strategy for you.