Drop Shipping Overview
Drop shipping is a method used to facilitate and fulfill online purchasing. It is an attractive business model with few up-front and maintenance costs, and is compatible with many well-known, reliable online suppliers. It is also attractive due to the variety of products that can be offered and the ease of shipping, since packaging and shipping is left for the suppliers to take care of. Downsides of drop shipping include low margins, high rate of competition, and unreliability of suppliers.
WHAT IS DROP SHIPPING
Drop shipping is the term for a method of retail fulfillment. This method generally involves an online retailer who sells products to consumers but does not actually keep those items in their inventory; instead, after an order is placed by a consumer, the retailer forwards the order to a wholesaler (or in some cases, the manufacturer). The wholesaler/manufacturer fulfills the order and mails the product directly to the consumer. The retailer never even sees the inventory. Instead, the retailer facilitates the order with the wholesaler and also handles any customer service issues, such as returns or refunds. Drop shipping retailers make money by buying products at wholesale price and selling them at retail price.
THE PROCESS OF DROP SHIPPING
Drop shipping in itself is a process; the term "drop shipper" can refer to either the retailer or supplier, so for clarity I will be specific in my terminology.
It is important to use drop shipping compatible suppliers or have an agreement with the supplier; their job is to package and send the product, but with the retailer's logo and return address.
The retailer sells a product to a consumer via the retailer's website. The consumer pays for the cost of the product and shipping at the time of the purchase and the funds are transferred directly to the retailer. The retailer forwards the order to the supplier and pays for the order (the supplier will usually have the retailer's credit card on file). The supplier then packages and ships the order directly to the consumer, alerting the retailer with the order's tracking number and invoice. The retailer forwards the tracking number and invoice to the consumer. Communications between the retailer-consumer and retail-supplier are most often done through email. The drop shipping process is complete at this point unless the consumer has an issue with the products in the order, in which case they direct their complaint to the retailer who in turn works out a refund or replacement with the supplier.
COSTS OF DROP SHIPPING
Drop shipping is a very attractive business model due to low up-front costs and overhead. Retailers don't need to invest a bunch of capital in buying inventory up front, since they will already be paid by the consumer by the time they purchase the item from the supplier. Likewise, they do not have to spend money on warehouses since they have no physical inventory to store. The costs that retailers incur include the cost of maintaining their website, marketing, and business expenses like licenses and registrations. When it comes specifically to the cost of drop shipping, it really comes down to the supplier, as some suppliers will charge a fee for drop shipping services or markup the price from the wholesale price.
It's important to note that drop shipping retailer should expect to have low margins, due to the abundance of competition of online retailers.
DROP SHIPPING COMPATIBLE SITES
Most drop shipping-compatible suppliers are online marketplaces, such as EBay, Shopify, and Amazon. AliExpress is another drop shipping supplier that many new drop shippers use, as it connects retailers to Chinese suppliers.
There are several online marketplaces that work specifically with drop shipping retailers. The main feature of these sites is that they connect the retailer to hundreds or thousands of suppliers willing to drop ship their products. Platforms such as Oberlo, Doba, Salehoo, World Wide Brands, and Wholesale Central all operate this way.
ITEMS OFFERED BY DROP SHIPPERS
Drop shipping retailers can offer a much wider variety of products than other online retailers since they don't actually have to wait to have the product in hand to sell it. They can add products to their selection real-time, as soon as suppliers stock it.
While a retailer can choose to list whichever products they want, its best to go about that process logically. The retailer should aim to offer products that, first and foremost, they can make a relatively healthy margin on. The products should also have positive reviews and a healthy sales history. The retailer should be picky and thoroughly researched in the products they offer.
Successful drop shipping retailers emphasize a few flagship items and sell 10-200 products. Offering too many products may overwhelm the consumer.
Having quality images of the products offered via drop shipping is vitally important to the success of the retailer. It builds a sense of value and trust with the consumer and can be used to distinguish that retailer from their competition.
If a retailer only offers a small number of drop shipped products, they should request or purchase a sample from the manufacturer. This way, the retailer actually has a physical sample of the product and it can be used in photographs and other promotional publications. The retailer has full control over the images of the product and can also see the quality for themselves.
More often than not, retailers are offering hundreds or thousands of products and it is not quite reasonable to purchase samples of all those products. Retailers are encouraged to still purchase samples of their most popular items and create their own images. The other option is to use supplier images. High-quality supplier images generally indicate that the supplier is a reliable and quality choice to work with. Sometimes the images may need to be Photoshopped to remove watermarks.
Another popular way of getting images is to encourage consumers to post photos of themselves with the products. A retailer can repost the photos (with the consumer's permission) to their own website. Retailers can encourage consumer photos by offering discounts and special deals.
TIPS FOR DROP-SHIPPERS
-It is super important to have a reliable and established relationship with the supplier. The retailer is the "face" of the business behind the product the consumer buys, but the quality of the product and quickness of turnaround are all down to the supplier. If a delivery takes forever or the order is wrong, the consumer directs their complaint to the retailer, even though the issues are beyond their control. Therefore, retailers must work with reliable suppliers to maintain good business reputations.
-Be careful when deciding on the consumer's shipping rates. It is easy for retailers to charge a flat rate on shipping, but that comes with potential problems. If an order is very small, a flat rate charge may seem too pricey and the consumer may pass on the order. On the other hand, it might encourage the consumer to purchase a bigger order. One option would be to base shipping price on the number of items in the order or by the overall weight of the order. Another important aspect to consider is that a customer may order two products from one retailer, but the one retailer gets each product from a different supplier. The retailer needs to decide whether to absorb the cost of the extra shipping, or to pass it along to the customer.
-Drop shipping retailers are recommended to focus on marketing, due to high competition and low ecommerce conversion rate. The emphasis should be on driving traffic to the retailer's website and also optimizing that website shopping experience. Retailers should also focus on having great customer service to build their customer base and online reputation.
To wrap it up, drop shipping is the process of shipping a product directly from the supplier to the consumer, as facilitated by the retailer. The consumer purchases and pay the retailer, who in turn buys the product from the supplier while organizing direct shipment to the consumer. This is usually at a low profit margin to the retailer. Retailers have many options of sites to sell through, including popular online marketplaces like Amazon and eBay as well as drop shipping specific sites. Retailers who drop ship products benefit from having low costs, zero storage issues, and huge product variety, while they must navigate challenges such as unreliable suppliers and the quality of product images.