Dropshipping

TABLE OF CONTENTS

5 Hard Truths about Drop shipping

Drop shipping right approach

Drop shipping Done Right: Case Study of Dark Horse Marine

How to pick the right Suppliers

Drop shipping startup: FAQs

Bottom line

Drop shipping is a form of order execution that does not require that a business store items. Instead, the company sells the product and passes the order to a third party supplier who then ships the order to the client. But drop shipping, contrary to common opinion, is not a very fast scheme. It definitely looks like simple money — you sell and cut goods by others — but when you take into account all the drawbacks, obstacles and day-to-day management, it's not easy. But if you're taking the right approach and using the techniques shown below, drop shipping can still help you create a profitable company ... Not as soon as you would have thought.

Let's tell it:

If you're just drop shipping, it's hard to get your company off the ground, but if you're already known in ecommerce, you can use drop shipping to supplement your existing services, and boost your business. We are going through all the troubles identified with drop shipping in this guide. But drop shipping can still be an effective method for ecommerce brands, even if it isn't used properly. We'll also clarify how to effectively shoot down and highlight some of the company's case studies to demonstrate what we say. If you are a novice to drop shipping you may want to review the FAQs in the bottom before reading the bulk of this document. Getting a background in such specialized topics is better.

5 Drop shipping Uncomfortable Truths No Talks About

Before you put all your savings into a new business of drop shipping ...... consider a number of things! It is hard to keep a business running by drop shipping alone, let alone starting one from scratch.

This is why:

1. Low margins to benefit

Yeah, when you don't have to handle or store your own inventory, the overhead is low — but the returns are the same. You are putting in less money so you are taking out less money. That means that you just have to do a lot of business to stay alive, let alone make a profit.

Think of it this way:

The bulk of the money goes to the supplier for every sale you make. Basically what you earn is skimmed off top. This is not enough to cover your marketing / advertising costs, to maintain your site, to handle sales orders and to cover your office hours. You can forecast your income using these variables according to Your Small Business (they are averages so they will vary depending on your industry and situation):

Margin of 20 per cent

Rate of conversion 2 per cent

Use this equation to determine a working approximation then:

(Traffic x 0.02) x (Avg command value x 0.2) = Gain

While this is good for a fast start calculation, there are a couple of problems to remember as well:

It is likely that your discount on sales from suppliers and wholesalers will be less than 20%. This does not account for any of the above extra costs you have to pay on your end. That is not the ultimate advantage. You'll have to eat into your earnings on most goods in order to keep the sales rates competitive. If you stubbornly hang on to your 20 percent margin, you'll quickly be undercut by other firms. You will also find that your profit is also primarily decided by your traffic, so if you build an ecommerce company from scratch, you will struggle for a long time as you build a customer base. More, according to BigCommerce's Adam Enfroy, drop shipping is a lot of work no matter how you dice it. Drop shippers still have to deal with their wholesale vendors, order routing, refunds, and customer service, although it seems hands off. Approaching drop shipping is even more sensible when you already have a daily source of traffic.

2. Quite tough

There will still be excessively ambitious entrepreneurs focused solely on the "low overhead" aspect, ignoring the above obvious facts. Because it takes very little capital to start a drop shipping business, the low entry barrier means a lot of competition, with the most successful markets suffering more than others. The larger a corporation is, essentially, the more they can reduce their markups to deliver the lowest rates. Reiterating what we said above, smaller businesses have to slash their profits just to keep their prices competitive, and at some stage it becomes unsustainable. To make matters worse, there are chances that you may not have an exclusive contract with your suppliers. That means that any number of competitors may sell exactly the same products as yours. And if you're just starting out, your rivals have the resources you don't have to undercut your prices with years of experience. That means consumers can buy someone else exactly the same thing for cheaper-why would they buy from you?

3. No supply-chain monitoring

When customers complain about product quality, speed of delivery, or return policies in regular ecommerce, you should fix the problems yourself. In drop shipping, you are more or less at your supplier's mercy — but you are the one who still has to communicate directly to your customers. Drop shippers are essentially trapped, doing little more than hoping the supplier will address the issues while at the same time reassuring the customer of something that is beyond their control. Besides that, there is also a contact pause as the drop shipper goes back and forth between the customer and the supplier. If one reacts slowly, all contact will cease and the issues will take longer to resolve. Customer support is totally paramount in ecommerce. Even the slightest transgression — like a pause in contact — is driving your customers’ right into your rivals' hands. And if they're outspoken about it, then those bad reviews could end your business early on before it even begins.

4. Questions on legal responsibility

While this is not a common problem for drop shippers, mention should be made of this. Some vendors are not as legitimate as they say and you don't really know where the product originates. Perhaps more disappointing is when manufacturers knowingly use a trademarked logo or the intellectual property of another company, which happens more than normal. Whatever illegal activities the vendors are up to, you’re immediately complicit with their provider. A good Drop shipping Agreement Contract will rectify this possible issue but not every drop shipping upstart knows that. It is something that you would want to keep in mind when selecting suppliers.

5. Hard to create a label

Like ghostwriters or songwriters behind the scenes, drop shippers have to realize that someone else is going to get the credit for their work. If the product you are selling is so great, your customers will concentrate more on the name of the product and completely forget about the shopping experience. It's not your logo on the box, after all. Branding is essential for ecommerce, as shoppers prefer to go first to their favorite online stores. You will never get the daily traffic required to sustain an online business without customer loyalty, particularly a drop shipping one. Again, that's yet another explanation why drop shipping makes more sense for brands already in existence than new ones.

The Best Way to Drop shipping

Drop shipping makes sideshow better than main case. While its limitations make it difficult to sustain a company on its own, it still offers sufficient benefits to help ecommerce companies dramatically improve their business. Consider these four techniques to successfully employ drop shipping.

1. Research into business

Drop shipping works better toward the end as a means, not the end itself. While a long-term commitment to drop shipping is unviable, it may be extremely useful to use for temporary projects — especially in market research. Using drop shipping to minimize the possibility of new products being tested and used for market research. Instead of raising your inventory costs by packing your warehouse with an unpredictable product, use drop shipping to test it over a trial period. More than just finding out if it is selling or not, you will also have a better estimate of how much it is selling for, giving you a more accurate number of how much to buy for your initial stock. This is doubly important to try out new types of product, which always carry inherent risk. Perhaps you have been quite successful, for example, in selling dog products. Would that also translate into good for cat products? That might be a hit-or-miss but by drop shipping a few products you can always test the water and see how it works.

2. Protection against over sales

Experienced ecommerce brands know fluctuations in the market aren't always predictable. Rather than raising inventory costs by overstocking to meet unlikely maximums, having the supplier drop shipping as a backup saves you money without losing those sales. This is especially useful when overflowing in season. By stockpiling only the products you know would sell, you can reduce costs and if an unforeseen demand for sales comes in, you can satisfy them with drop shipping. It is a great precaution for all retailers against the uncertainties they face. It also makes great insurance against extreme circumstances with drop shipping options in place. If something like a natural disaster happens to your warehouse, by dropping the products from elsewhere you can still fulfil pre-made orders. The same applies to side-stepping delays in shipment surprises.

3. Strategic structures to shipping

Complications in shipping are one unfortunate consequence of growing your business. The farther away you get from your factory or distribution centers, the more you can pay delivery costs. Drop shipping can be the ideal cure for those distressed areas outside of your productive regions. Perhaps shipping that costs far too much, or perhaps storage prices are too high to justify setting up a new shipping center. Perhaps it's a matter of taxes or additional costs, as when shipping out of the state or region. The deciding factor in keeping you out of the red may be to focus on drop shipping for those selected areas. In addition, just as drop shipping can be useful in market analysis, so can you use it to explore new places; why not use drop shipping in a new place for a trial period to see if opening a new facility there is worthwhile?

4. Items high-maintenance

Some goods cost more than others to stock up and ship. In some cases, drop shipping them may be more lucrative for you than storing them yourself. What do we mean by goods that are extremely maintenant? Any goods involving additional shipping or storage fees, such as:

Large Goods — some products take up too much space, their profits do not account for the high storage space costs.

Strong goods — Consider drop shipping from a retailer or wholesaler if the weight of a product means it costs too much to ship.

Delicate products — delicate goods need careful consideration when shipping. In such cases the supplier or manufacturer might be better qualified than you to meet these specifications.

Valuables — High-value objects such as fine jeweler, antiques, etc. require extra protection not all warehouses are able to provide. You should leave the storage to someone who can better secure them, instead of risking theft.

Special Requirements — maybe you want to sell products that need to be held frozen, or light sensitive materials. If special requirements are needed in your product, you may be better off drop shipping than storing it yourself.

If your whole business is specialized in these types of goods, there is no point in paying extra storage and shipping costs for a specific subset of your business. But by selling those items by drop shipping, you can always keep your customers happy.

The Drop shipping Done Right: A Dark Horse Marine case study

Medium Equestrian Marine

Dark Horse Marine is a niche vendor — most people in their lifetime will never need to buy an anchor stainless steel fortress. But Dark Horse uses that to its benefit, rather than to restrict itself; they sell all kinds of unique items that would only attract the kind of people who need anchors. They are providing the "complete boating solution," from water sports equipment to boat-based entertainment systems to mapping software. And their clients are grateful that on one platform they can meet all their niche needs. While Dark Horse sells on Amazon, eBay, Walmart, and Jet, their personal BigCommerce site is most proud of them. Recently they modified the platform to be quicker and more Google-friendly, and are already enjoying an increase in traffic and conversions. Approximately 10 per cent of their market is drop shipping, according to company president Robert Matos. When asked why he uses drop shipping, he cited a few of the same reasons that we have listed above:

Test out new pieces

Dark Horse is seeking to find the best balance between electronics and machinery at sea. Since there is no well specified boundary on what kinds of "marine goods" its customers want, innovation is a crucial part of its sales strategy. Big and heavy products are too expensive to store and to ship. Just because it's fit for the ocean doesn't mean the warehouse is fit for it. Anchors are the very definition of "heavy," and much of their equipment for boat outfitting is huge, or otherwise bulky. Dark Horse removes the high-maintenance products to reduce the cost of storage and shipping — and reinvests the money through marketing campaigns. One of the early difficulties Dark Horse found with drop shipping was arranging the shipping logistics, but by implementing Ecomdash order management software, they have recently solved this problem. Automation has opened up more manpower, which they make good use of in other areas. Matos further clarified how one of the reasons drop shipping succeeded is because he found excellent suppliers for his business. He actually uses two suppliers, but is looking into additional ones. Dark Horse's top priority in selecting suppliers is to keep the goods well-protected – essential for electronics – as well as their integrity in keeping with their business commitments. That's a good point from which any ecommerce company can learn: your drop shipping effort is just as effective as the suppliers that you want to work with.

How to Choose the Right Suppliers

You enter a business relationship with the supplier any time you add drop shipping into your sales strategy — at any capacity. As we described above, you are always at the mercy of your drop shipper for product quality, timely delivery, and even legal enforcement, as the vendor. That means you have to pick them out with utmost care. Samples of what your drop shipper offers should always be reviewed, above all. You want to make sure that the goods are as advertised, for one thing, but you can also see if their delivery meets the standards. There are also plenty of questions about how the supplier does business outside of the quality of the goods. Here's a quick-reference checklist of questions to ask yourself before you sign up for someone to do business with:

How do they treat refunds or goods which have been damaged?

How long does it take them, from sale to delivery, to complete an order?

How do they treat their customers? (Take free time to test yourself.)

Can they guarantee commissions?

Can they provide defense against fraud?

Can you find reviews online, or references?

Forget the Drop shipping Arrangement Deal as well, explained above.

We've previously compiled a list of the twelve most common drop shipping suppliers to help quicken your research time. The article reviews each pros and cons, so you'll be able to compare them and find the ones best for your needs.

For Beginners Drop shipping: FAQ

Here are just a few quick responses to commonly asked drop shipping questions.

How does Drop shipping really work?

We mentioned that earlier but will go into more detail a little bit. Drop shipping is when a retailer fulfils third party orders and has them delivered directly to the client. In other terms, the vendors pass the sales order to the seller, who fulfils the order afterwards. Typically the vendor pays for the item at a discount by dealing directly with a producer or wholesaler; their benefit is attributed to the difference between the original cost of the item and at which price they sell it. The vendor is not directly selling their own inventory or ship products. Instead, they concentrate primarily on promotions, advertisement and maintaining their presence online.

How do I embed drop shipping into my business?

We only suggest drop shipping as a supplement to a conventional business model in ecommerce, as we describe above. If you already have an online presence in one or more stores (or at least know how to set up that), integrating drop shipping is close to introducing any new product, with a few distinctions. Research can products will suit your strategy, business and client base well. Study how your rivals market the commodity, specifically pricing. Find the right supplier (see our previous checklist). Complete a method of fulfilment that works for you both and integrate it in your system. This may be simple, or involve ironing out some wrinkles, depending on your sales management software. List your latest product, and market it. Be sure to mention any special requirements, such as delivery times or location changes.

Is drop shipping statutory?

Yeah, drop shipping is legislative. You may run into other legal issues depending on who your supplier is (as we discussed above), but drop shipping alone is a perfectly valid way of fulfilling your order. Just remember to cover yourself with a contract to the Drop shipping Agreement.

How much does running a drop shipping company cost?

Truth is, it can vary from $0 to around $1.100 anywhere, depending on how much sweat equity you want to put in.

What advantages does drop shipping offer?

There are at least five clear reasons that almost every ecommerce retailer can take drop shipping into consideration.

Minimizes risks for startups

Reduces Commodity Cost

Higher prices for procurement and storage

A wide range of items

Flexible

Does drop shipping make profit?

Yeah, mercantile drop shipping can be lucrative. Drop shipping is a low-risk business model that enables you to deliver goods to your customers without incurring large operating costs as with a wholesaler. Because of these reduced prices, drop shipping is easier to make profitable than other business models a lot quicker.

Do I need a business entity to register for drop ship?

Yeah, once you start making sales, you'll need to register your company, but there's no rush to do so before you start making them regularly. This is because most payment providers need you to prove that they have such qualifications on your company.

Is eBay enabling drop shipping?

Yes, gout shipping on eBay is permitted. Drop shipping (which they also refer to as "product sourcing") is approved, but the vendor is kept responsible for a successful delivery within the time frame set out in the listing and for the satisfaction of the client. And eBay seems to prefer drop shipping. Specifically they say this: "You are not obligated in your listings to mention that an object comes directly from the supplier."

Is drop shipping permitted at Amazon?

Yeah, gout shipping on Amazon is permitted. The central page on the subject of the Amazon Seller however lists two exceptions: Use the name or contact details of another vendor on your packing slips, invoices, etc. Buying the goods from another online store and getting them delivered directly to the customer (that means you cannot purchase the product online and enter the name and address of your customer). Amazon also notes that, with all documents, the vendor must be the seller on record and meet the obligations that come with it, such as returns.

What are some product ideas that go drop shipping?

If you are interested in drop shipping but don't know where to get started, here is a list of inspiring product ideas. We wanted to list only auxiliary products that could suit any industry's product range.

Tote bags can support a cause or charity.

New t-shirts.

Cute coffee mugs.

Bookmarks which are motivational.

Inexpensive Jewelry or Watches.

Marketing products (shirts with your logo, belts, mugs, pens etc.).

If not, see the Market Research section above for a more tailored approach.

Do drop shippers go foreign shipping?

This varies widely across drop shipper, so you will need to check it out. International shipments can get costly fast, and it's difficult to get reliable quotes for hundreds of countries about shipping rates, customs and duties. It also takes much more time for a drop shipper to process a foreign order, as more paperwork is involved. Some will demand a surcharge and others will just not bother.

Bottom Line

We don't want to give the impression we’re against drop shipping-quite the contrary, when done correctly, we think it's a quite useful technique. The issue is drop shipping is unacceptable for new brands given its unique drawbacks. But for new businesses the reasons it doesn't work become less important the bigger a business gets. For example, an existing business already has a healthy traffic flow and need not worry too much about developing its brand. That's why drop shipping makes the most experienced ecommerce companies a fantastic complement — just don't rely on it for the heavy lifting!

Source: https://www.bigcommerce.com/blog/dropshipping/#executive-summary