Just as there are multiple opinions on how to spell drop shipping (my preference), there are also multiple versions of what it is. In general, using a drop shipper is when you partner with a supplier to display their products in your store. The supplier stores product until it is ordered or creates the product upon demand, and ships said product directly to the customer.
The practice can be profitable for smaller businesses, especially those who sell personalized items or clothing and can be an overall efficient strategy for any business. The partnership allows you to sell and have shipped products you don’t own or stock and having fewer shipping steps (it doesn’t come back to you first) reduces the potential for damage and loss. Shopify describes drop shipping the most simply as a retail fulfillment method in which the merchant never handles the product.
1. The consumer purchases a product via a retailer’s online store.
2. There is an auto push of information to the supplier with all of the necessary details.
3. The supplier creates the product (or pulls it from inventory) and ships it to the consumer in the name of the retailer.
There are several different types of drop shippers. The business could be a manufacturer that provides shipping, cutting out any middleman. They fulfill your customers’ orders start to finish. This model is the cleanest and least expensive. There are also dropship wholesalers or suppliers that purchase one type of product in bulk and then package and ship it on behalf of the retailer selling the product. This can be cost effective for businesses that use one supplier. If different items are provided by different wholesalers and a single customer orders three different items provided by three different wholesalers in three different areas of the country…it can get a little messy with shipping and other aspects.
The third model involves drop ship aggregators that purchase multiple products from several manufacturers. which allows a retailer more product variety but enables products to ship from a single location. This simplifies the process, especially where shipping is concerned, but also increases costs.
Pros of Drop Shipping
Lower startup costs, less capital required.
Allows a company to operate without maintaining inventory and dealing with all of the things that accompany it – cost, storage, packaging, shipping, and returns. (Not to mention the time it takes you or your staff to do all of these things.)
Minimal cost and overhead. Allows a business to avoid a full setup of space and equipment and, instead, to work from a laptop, website, e-commerce site. Not to mention it allows flexibility in where you do business from.
Low risk – you pay only for the products you sell.
Reduced risk when trying new products, able to test items without having to invest in large inventory.
Increase the variety of products you offer.
Easier to scale, especially at busier times of year (seasonally popular items).
Cons of Drop Shipping
Smaller profit margin than if using a traditional manufacturer or wholesaler– need to sell at a greater volume to compensate.
If the products you sell are in a competitive market, this is probably not the most cost-effective choice.
No bulk pricing discounts.
Retailer is liable for all errors and problems, regardless of whose fault it is.
Less control – of product quality, of the presentation of your products, of the amount of time it takes from purchase to delivery.
If you utilize different suppliers for different products, there is the added complexity of shipping from different distances.
Customer service can be a challenge.
Utilizing a drop shipper is not recommended for brand-centric organizations as there are a number of elements of the purchasing experience that the brand has no control over. There are usually no options for special presentation or packaging, you have to play the telephone/email game to address any shipping issues, and without a proper communication process in place, you may be unaware if an item is currently unavailable and will take longer to be delivered. A drop shipping model is also not recommended for businesses with thin profit margins as adding a third party may not be regularly equalized or overcome by sales volume.
Product consideration is important when considering whether or not to use a drop shipping partner. The size and weight of items must not be cost-prohibitive and, in general, there needs to be a high enough profit margin to accommodate the added expense of a drop shipper. It is also best to consider only items that are durable so accomplishing delivery of the product in one piece is not a concern.
There are businesses that exist for the sole purpose of selling products they never see and certainly don’t make. This is why it is essential to maintain your brand integrity whether you are drop shipping only one of your products or all of your products. There are, obviously, differences between businesses that utilize drop shipping in an attempt to lower the costs of selling their brand and those companies that are only interested in drop shipping items without brand attachment. It is important to separate your brand from the drop shippers who sell copious amounts of random things on eBay and Amazon or low-cost Chinese marketplaces like AliExpress.
It is also imperative that you fully vet any drop shipper you intend to work with. Fully research and interview the drop shipping partners you are considering.
Considerations when choosing a drop shipper:
High level of service on the sales end
Technological capabilities that are able to sustain growth
Punctual and efficient shipping practices - ensure that products being shipped are as advertised and that your shipping criteria are met
Customer friendly return policy
In general, it is essential to have excellent and regular communication with any drop shipping partner in regards to inventory and time to manufacture and/or ship. Weather patterns and other unforeseen situations may delay delivery so it is important to be kept aware of location-based situations. Cloud-based software exists that allows both you and your supplier to have full knowledge of available inventory.
Fees should never be charged monthly or annually. Those are signs of a less than quality outfit. Certified drop shippers and wholesalers don’t charge setup fees, monthly, or annual fees. Per order fees are standard and will vary depending on shipping needs of the product. Minimum order sizes are also not unusual. You may find it to be in your best interest to pay up front the minimum purchase requirement amount to establish credit with the supplier and relieve any stress of order fulfillment.
The number of suppliers is constantly growing so there is bound to be one that caters to your niche. Learn about the distribution channels in your market, complete your due diligence and increase your reach without increasing your expenses. For more information about drop shipping and all of your digital marketing needs, contact Strategy Driven Marketing today.