Dropshipping Information
What is dropshipping?
According to Wikipedia,
dropshipping is a supply chain management technique in which the retailer does not
keep goods in stock, but instead transfers customer orders and shipment details to
wholesalers, who then ship the goods directly to the customer. The retailers make
their profit on the difference between the wholesale and retail price.
In a nutshell, you market and sell a product online at a price you choose. Then,
after your customer purchases the item, and you receive payment for it, you place
an order for the product you just sold with a "drop-shipper." The drop shipper
charges you a wholesale price and ships the product directly to your customer. You
pocket the difference between the wholesale (or near wholesale) and retail prices. The best part is that you have no inventory to hold or
finance, and no shipping hassles.
One of the biggest problems drop shipping addresses for
retailers is inventory control. In a traditional
retail store setting, products are ordered in bulk from the manufacturer and must
be stored in a secure area until displayed. This means maintaining a proper storage
area, hiring employees to handle the stock and investing in security measures to
prevent theft. With drop shipping, the retailer does not keep a large inventory on
the premises. More space can be devoted to displays, and fewer employees need to be
hired to handle shipping, receiving, inventory and security.
Many manufacturers also embrace the idea of drop
shipping, because the retailer essentially becomes an additional
salesman. Delivering large orders or bulky items to a retailer costs money in
handling and fuel.
With drop shipping, the manufacturer can use inexpensive shipping methods (UPS,
FedEx, local delivery companies) to get the ordered product to the customer
directly. Manufacturers also own much more secured warehouse space than most
retailers, so their products remain safe until ordered.
When drop shipping is available, many retailers and internet-only stores
discover it solves many more problems than it creates. Shipping is left up to
professionals, there is virtually no inventory to track and more retail space is
available. Smaller shops can offer exotic or over sized products without worrying
about importation costs or expensive storage.
Manufacturers also benefit from reduced shipping costs and more sales exposure of
their products.
by Stuart Lisonbee, Doba Education Specialist
For retail businesses, expanding into a new market can be a risky proposition.
Aside from additional marketing costs, there are also the costs of storing new
inventory that may or may not sell.
This is just one more situation where drop shipping can help save you time,
money, and a lot of unwanted stress. Just like drop shipping is a low risk way to
break into the retail business, it can also help your existing business get its
feet wet in new markets.
Let's take a look at an imaginary online retailer that sells camping equipment.
For years, this retailer has focused on specializing in tents and sleeping bags
only. Now, to increase sales and profits, he wants to expand into more camping
accessories such as cookware, backpacks, propane, emergency equipment, and so
forth. The problem is, he's worried that he won't be able to overcome his
reputation as a "tents and sleeping bags only" store, and he'll be stuck with a lot
of inventory he can't sell.
In comes the drop shipper. Now the tents-and-bags-only retailer can start
offering an expanded offering on his website without risking an investment in
inventory.
One of four scenarios could possibly occur:
- He is unable to sell any items from his expanded catalog, and goes back to
selling just tents and bags. He only loses a little time from the effort.
- He sells some items, but not enough to justify bulk purchases of the
additional items. He sticks with drop shipping the new items to keep his new
customers happy and coming back for more. Hopefully, sales continue to increase
and his expanded selection becomes a major part of his business.
- The expanded selection is a huge hit, so he starts purchasing inventory to
save money by purchasing in bulk.
- He finds that he loves the time he saves from drop shipping so much, he
expands his drop shipping operation to include his tents and sleeping bags!
Whatever you're thinking about expanding into, drop shipping could be the
solution for your business. Using a drop shipper will allow you to run your tests
without the risk of losing money on inventory.
When looking for a drop shipper, the usual rules apply: make sure they provide
real-time inventory reports to minimize the risk of backorders, make sure they use
a reliable shipping provider that also provides tracking information, and make sure
they process orders in a timely fashion so you don't end up with angry
customers.
About the Author:
Stuart Lisonbee is an eBay Certified Consultant and Doba's first-ever Education
Specialist. Prior to joining Doba (http://www.doba.com <http://www.doba.com/), Stuart worked for eBay as a
Customer Support Representative, and ran a retail department store's
PowerSeller-level eBay business. Stuart has authored over one hundred articles on
online business success, along with several eBooks designed to help others grow
their eBay businesses.
By Jeremy Hanks, President of Doba
Many retail merchants looking for products to sell without the high costs of
inventory and the hassles of packing and shipping products have discovered the
perfect solution—drop shipping. With drop shipping, you list and
sell a product at whatever retail price you set, collect your money, and then order
the product from a drop-ship wholesale supplier.
The supplier packs and ships the product directly to your customer.
Drop shipping is the ideal low-risk solution for starting a retail business,
particularly for online merchants. You don't need a great deal
of startup capital to launch your business. With a drop ship supplier and an eBay
account or your own webstore, you can immediately start selling products online.
You order the product only after you receive payment from your customer, so if the
product doesn't sell, your loss is limited to any listing fees
you paid. If the product does sell, you can simply ramp up your marketing and sell
more products.
By outsourcing inventory management, packing, and shipping to the drop ship
supplier, you can invest more time, energy, and creativity in the more enjoyable
and critical aspects of your retail business—product and market
research, marketing and advertising, customer service, and actually managing your
business.
Weighing drop shipping pros and cons
If you're wondering whether drop shipping is right for your
business, weigh the pros and cons before making your decision.
First, consider the benefits of drop
shipping:
- Drop ship setup fees are minimal.
- You pay your supplier after your customer pays you.
- Your supplier stores and manages the inventory - you
do not have to purchase or manage inventory
- Your suppliers pack and ship products for you.
- You don't have to hire additional personnel to handle
packing and shipping.
- You can test the market on a shoestring budget by selling one or two
items.
Of course, drop shipping also has a few
drawbacks you should consider:
- Drop fees may increase your expenses. A drop fee is a per-order fee that
covers the cost of processing the order. You typically pay the same fee no matter
how many products you include in your order.
- You can't save money by purchasing in bulk.
- Your supplier may run out of a hot-selling product.When your supplier runs
out of a hot-selling product, it may put you in a backorder
situation, your customer orders an item that is out-of-stock,
so you can't deliver it. Although this is something to be
concerned about, you can minimize the risks by carefully monitoring your
supplier's inventory, running shorter auctions, or even
having a few of a popular product shipped to you, in case a backorder situation
arises.
Tracking down drop ship suppliers
To implement drop shipping in your retail business, you have two
choices - either search for drop ship suppliers on your own and
negotiate with each one individually or gain access to multiple suppliers through a
product sourcing marketplace.
Several websites offer lists of drop ship suppliers. Many such lists, however,
can be difficult to work with, and some are outright scams. In addition, even after
you have a list of suppliers, you must contact each one individually, negotiate
prices, and then learn each supplier's system for taking orders
and managing your account.
If you do decide to negotiate with drop ship suppliers individually, be aware
that many suppliers require some proof that you'e running a
legitimate business:
- Proof that your business is a registered entity.
- A company name and tax ID number.
- A description of your type of business, marketing techniques, target market,
and so on.
- Current gross sales figures, expected order volume, number of hits you have
on your Website (if you sell online), and the typical conversion rate (the number
of hits that actually make a purchase).
- Credit references and customer testimonials.
When you contact suppliers, ask the following questions:
- What's your average discount on a product?
Wholesale price as a different meaning for
different suppliers.
- Do you have a minimum order requirement?
- How much is your drop fee? A drop fee is a flat fee charged per order, which
is the same regardless of how many items you include in the order.
- Do you provide digital images and product descriptions that can be used to
advertise the products for sale?
- How often will you supply me with updated quantities of products in
inventory? If a supplier rarely updates quantities in inventory, you face an
increased risk of selling a product you cannot be deliverd to your customer.
- What’s your return policy? A no-return policy can
negatively affect your bottom line.
Simplified drop shipping through a product sourcing
marketplace
A product sourcing marketplace can take many of the hassles out of locating and
negotiating with drop ship suppliers and help you get your business up and running
(and growing) much more quickly with much less risk. A reputable product sourcing
marketplace offers several benefits:
- Access to dozens or even hundreds of drop ship suppliers.
- A single account to keep track of.
- A single, consistent interface for ordering products.
- Lower wholesale prices by leveraging the buying power of its many
members.
- Additional services, including education, product and market research tools,
and technical support.
- Ability to "push" a product offered by a
supplier to eBay or other online marketplaces -including your
own Webstore - without having to cut and paste product
descriptions and photos.
Choosing a product sourcing marketplace
When selecting a product sourcing marketplace consider the following:
- Which agent offers the lowest wholesale prices? Wholesale prices vary from
one supplier to another. Compare the wholesale prices of several identical
products to determine which prices are lowest.
- Which services are included in the price? Some product sourcing marketplaces
may offer lower wholesale prices by trimming back on services.
- Do the marketplace suppliers offer product descriptions
and photos to use in your marketing?
- Does the marketplace offer tracking information for shipped items?
- Do suppliers offer blind drop shipping, so the item appears to have shipped
from you?
- Does the product sourcing marketplace offer fraud protection?
- How much is the average drop fee? All drop ship suppliers charge a drop
fee—a flat charge per order, regardless of how much you order.
This is typically $2 to $5.
- Is the product sourcing marketplace reputable and reliable? Your
customer's satisfaction depends on the reliability of your
product sourcing marketplace and its suppliers. A reliable marketplace and
suppliers increases customer satisfaction, which boosts long-term sales and
profits.
- Is the product sourcing marketplace committed to its
customer success? Some marketplaces merely provide access to
drop ship suppliers without offering you the tools and training you need to
succeed. Make sure the product sourcing marketplace you choose is committed to
the success of your business, and that they provide you with education, training,
fraud protection, and reliable technology.
Achieving your goals with drop shipping
Drop shipping can ease your workload and trim the cost of doing business, but it
does not guarantee success. The retail business is very competitive, and if you try
to compete on price alone, you're likely to find more
disappointment than success. The following tips can help you achieve your
goals:
- Identify a niche market. Match your interests to your market.
Don't try to sell everything.
- Research! Remain on constant lookout for popular products that other
retailers are not delivering or not marketing well.
- Sell the benefits. Don't just describe a
product features - describe how the
product makes the customer's life easier or more
enjoyable.
- Keep an eye on inventory. Before listing an item, make sure your supplier has
sufficient stock.
- Compete on trust. Customers need to know that their orders are secure, their
information is safe, and that you’re reliable.
Doba is committed to simplifying and streamlining the process of product sourcing
for eCommerce entrepreneurs who are looking to start or grow their retail business
with the drop shipping solution. Doba offers a Lowest Wholesale Price Guarantee,
free and premium educational and training resources, and additional tools to
improve the success of Web retailers. Check out Doba for yourself and sign up for
Doba's Free 14-Day Trial at www.doba.com/partners/flashecom
About the author:
Jeremy Hanks the co-founder of Doba. He leads the company in executing against
its strategic vision and coordinates and oversees day-to-day operations of the
business. Prior to co-founding Doba, Jeremy spearheaded the development of numerous
businesses in the supply chain, wholesale distribution, and retail industries. He
founded GearTrade.com, an online marketplace for used and distressed inventory,
where he was the company’s President and CEO. He led the company
through a merger with e3vertical, where he was CEO and focused on providing
ecommerce and supply chain management solutions for small and midsized businesses.
He holds a Bachelor of Science degree in Business Management from Brigham Young
University.
