Welcome to what is dropshipping and how to use it to your advantage. Drop shipping, the shipping of merchandise from your supplier’s inventory directly to your customer, is one of the fastest growing ways for entrepreneurs to enter the world of ecommerce quickly, without a lot of upfront investment. It is the art of selling online using your dropship business on e-commerce platforms, displacing traditional retail in favour of the modern dropshipping business.
Drop shipping itself is not a new concept; it is a well-tested approach that mail order companies have used for years to streamline order filling. And, it’s perfectly designed to work in the ecommerce environment. Especially with the advent of social media, marketing campaigns and internet connection that together create the get rich quick world of dropship. It’s your very own online store, welcome to the world of dropship.
If you are interested in starting or expanding your business by using drop shipping, help yourself to be more successful by taking this course to learn drop shipping basics and get experts’ tips on how to use this tried and true technique in your web, mail order or sample shop business. Think of this as a free guide, start a free trial to learning how to dropship and telling you what is dropshipping. You’ll learn how to navigate supply chains, selling products directly to customers, inventory management and bypassing traditional retailers to ship directly to retail businesses and individual. Dropshipping is flexible and this guide is built to fulfil all your questions about dropshipping as a whole!
Steps to Drop Shipping Successes
Determine whether or not drop shipping can work for your business. Download the guide to get started on the basics, or use your free trial!
Select a product or products that you can successfully sell — you don’t need to worry about packaging and shipping. Dropshipping doesn’t require you to manage stock levels either.
Locate and select a drop shipper for your product(s). You can use business tools to search them, and make sure that they have high quality products and excellent ease of getting started. Avoid working on a low margin for a high dropshipping profit for you as a business owner.
Organize the logistics and incorporate the products into your business. Purchase some products as a sample to see if they’re up to your standards, and that’s about it. Your products are ready to sell! This is one of the benefits of dropshipping over many other business models.
Establish policies that keep you in charge of the customer relationship; anticipate and avoid problems.
This e-course is designed to help you launch the drop ship aspect of your business. It’ll help answer a lot of dropshipping FAQs and tell you the benefits of dropshipping as well as the disadvantages of dropshipping when you run your very own e-commerce store.
Section I explains the business of drop shipping and discusses the pros and cons to help you make the best decision for your business.
Section II explains how to select products that will sell successfully.
Section III discusses how to select the best drop shipper for your business.
Section IV explains how to set up the logistics of drop shipping.
Section V explains how to maintain control of your customer relationship.
By the end of this e-course, you will have the information you need to build or expand your business through the use of drop shipping. You need a lot of control to run a dropshipping business, who knows you might just become one of the next success stories/
Section I – Introduction to Drop Shipping
Step 1 involves understanding drop shipping as a business strategy and determining if it will work for you. Let’s begin by quickly reviewing the distribution chain as a way to understand how drop shipping fits into the model. The question is, as ever, what is dropshipping?
Traditional Distribution Chain
In a traditional distribution chain, you as the seller (sometimes known as the reseller) purchase an inventory of products from manufacturers, wholesalers or distributors.
Manufacturer – the creator of the product
Wholesaler – usually provides products to distributors; may sell directly to retail buyers
Distributor – works to distribute products to as widely as possible at a low shipping cost. Purchases from manufacturers and wholesalers and avoid traditional retailers
If you purchase from the manufacturer, you pay the manufacturer’s wholesale price (MWP). If you purchase from a wholesaler or distributor, you pay the MWP plus the mark-up charged by anyone else in the distribution chain. For example, let’s say you purchase from a distributor who purchases from a wholesaler, and that the original manufacturer’s wholesale price (MWP) was £10.00 per unit. Below is what you would pay in this example:
£10.00 (MWP) the wholesaler’s markup of 10% (£1.00) distributor markup of 10% (£1.10) handling/shipping (£.50/unit) = £12.60/unit.
You maintain an inventory of the product, market and sell it to your customers at a marked up price that will cover your costs of marketing, inventory and so on, for example, £20.00/unit. (£5.00 to cover your costs and £2.40 profit/unit).
You package and ship the product to your customer, charging your retail price plus the cost of shipping and handling. £20.00 £3.00 shipping/handling. Your profit is £2.40/unit. Yes this hands you a lot of control but it might be difficult to maintain this fulfilment method in the long run, especially with all the issues that come with retail inventory management.
Drop Shipping Model
In the drop ship model, you arrange to sell products offered by selected manufacturers, wholesalers and/or distributors.
You do not purchase inventory. Instead, you promote the products through photos and information provided by the supplier and/or by showing sample products.
When the customer orders the product, you collect payment then transfer the order and payment to the supplier who then packages and ships the product directly to the customer, often with your shipping label or other branding. Hence, you ship directly to business owners and individuals with good profit margins as long as you have products to sell. There are low barriers to entry in this business model as you have lower costs than traditional retail as well as online retailers. Think of it as a bit like the print on demand fulfilment method but with a wider range of products and a third party dropshipping suppliers.
In this model:
You transfer shipping costs to the customer. (You will save £.50/unit; your customer will pay more for single order shipping.)
You may be able to reduce your £5.00 overhead costs because you don’t need to purchase in bulk, store and handle the merchandise. Say that saves you £1.00/unit. You also need to consider credit card costs.
Now you have two choices. You can either:
Sell the product for $20.00/unit and increase your profit to $3.90/unit ($2.40 profit $1.00 saved on overhead $.50 saved on shipping) or
Pass on some of the savings to your customers in order to be more competitive and sell a greater volume of products.
Sounds perfect, doesn’t it? Well, you’re absolutely right; drop shipping can be a wonderful way to build or expand a ecommerce business for many reasons. Of course, there are some drawbacks as well. Let’s take a look at the advantages of drop shippping and the disadvantages of dropshipping product.
Advantages of Drop Shipping
Drop shipping truly offers exciting opportunities, especially for new and small businesses (though many major retailers use drop shipping as well).
You don’t need to purchase and manage inventory. In a traditional retail or reseller setting, you purchase enough inventory to be able to fill customer orders as they come in, most of the time. If you are just starting out in business, the inventory costs can be huge. Even if you are established, it may be difficult to afford expansion into a new line or stocking up in anticipation of the holiday buying season or the spring growing season. It’s important to maintain timely packing slips and understand the pros and cons of shipping products directly to your customer. It’s an entirely new supply chain
You don’t need to store inventory. Unless your inventory is paper clips, tacks and staples, you will need to have some sort of storage capability. (Even small items can be difficult because they need to be stored so that they are accessible for the “picking and packing” process.) Storage is one more overhead cost that needs to be considered in your pricing. This mitigates low margins, indeed you might even get very high profit margins became you don’t purchase inventory and the products go directly to the customer.
You don’t have to deal with unsold stock. Most companies try to have enough stock on hand to meet demand. If demand falls short, you have product sitting on your shelves that you need to move in order to either get some return or simply free up cash for the business. Companies often resort to “inventory” or “warehouse” sales, selling at very low prices, sometimes under cost, to move inventory remainders.
You don’t need to handle the product. Shipping product requires manpower to do the picking and packing.
You don’t need to manage relationships with shipping firms (UPS, US postal, etc.). This makes the business model effective and makes it easier to start selling online without having existing connections. This reinforces the idea of low barriers to entry.
You can try out new products with almost no investment. If you are a web retailer with an online business and an e-commerce account, you just put up the new products on your website and if they sell, you make money. If not, you only lose the time you spent putting up new information. Third party suppliers are effective in this case, your role is to simply curate an in demand selection of products to sell. Take advantage of dropshipping on Amazon as well as facebook ads to increase sales.
Your customers never have to know that there is a third party involved. Most drop shippers will place your shipping label on the merchandise.
Disadvantages of Drop Shipping Products
Okay, getrichquick world of dropshipping so what’s the catch?
Sometimes your supplier will mark up your products to cover their costs of drop shipping so the MWP price may be higher than the price for a bulk shipment. Usually the savings in your overhead costs more than covers the mark up.
You are not in complete charge of the customer relationship. If your drop shipper makes a mistake, the error will reflect poorly on your company.
You can become more vulnerable to rationing. For example, if you resell gaming electronics and ABC’s newest version is selling like hotcakes, your orders may not be filled and you can’t do anything about it.
You won’t know about quality problems until you hear about them from your customer. When you handle and ship product yourself, you can be certain that the ceramic piece is not chipped or the model includes all of the accessories.
You could lose your customers to the manufacturer who decides to go retail. For example, if a manufacturer who drop ships cosmetics for you decides that, now that it has the name and address of your customers, it can send a reminder to replenish supplies by reordering on their website, you have been cut out of the loop. However, in reality, if a manufacturer chose to do that, they would quickly lose their distribution network and could be in breach of contract with their resellers. So, while customer encroachment is a possibility, it’s not likely to happen. And, you will place restrictions in your agreement with dropshipping partners to prevent this problem. (See Section III on Authorized Dealer Agreements.)
Is drop shipping a good strategy for you?
Every business situation is different but there are some general considerations that apply.
Drop shipping is an excellent approach to get into business. This approach allows you to start up with very little capital investment and very little risk. If you are starting out, this may be a great way to source products and test the market.
If your company offers or intends to offer a wide variety of products, wholesalers or distributors are in a much better position to manage many different products; that’s their expertise.
If your product demand is highly variable or apt to change quickly with fast-moving trends, you may be better off letting the supplier manage the ups and downs of the marketplace by keeping the inventory on his shelves, not yours.
Is your strength marketing and customer relations? It needs to be; you have essentially outsourced the fulfillment function and your business ideas now depends on your ability to promote products and manage a relationship through third parties. It’s a good opportunity to use a website builder and business name generator to create the best possible website for you in the world of dropshipping. You may wish to run market campaigns and use facebook ads to boost sales, just make sure you have the right domain name, web host and business name to run your dropshipping business.
Does your industry offer drop ship opportunities? More and more industries do.
What have you learned?
By the end of this section, you should know that:
Drop shipping differs from the traditional supply chain.
Drop shipping offers many advantages such as low costs of entry, reduction of risk and elimination of many overhead costs and elimination of inventory management.
There are some risks associated with drop shipping such as loss of control of the complete customer relationship.
You should analyse your business situation to be sure drop shipping is the right solution for you.
Now that you understand the business of drop shipping and, if you believe it’s a workable solution for you, let’s talk about overall business strategy.
To our success working together,