What Should A Supplier Provide Their Drop Ship Retailers?

I have found that the information provided to a retailer can vary widely from manufacturer to manufacturer. What a vendor chooses to provide is their prerogative, but more put together the information is, the more product is going to be sold. This is good for everyone. To build a proper relationship between the drop ship vendor and the retailer, here is a minimum of information that should be exchanged.

An account information sheet – This should include all basic information that the seller would need, including contact information, their account number, ordering instructions, all fees, shipping rules, and billing terms. This may even be something that both parties should sign, just to make sure everyone is on the same page.

A product list – The supplier needs to provide all items that they are offering for drop ship. Preferably, this is a spreadsheet with as much product information as possible. This should include: individual item number, product name, suggested retail price (MSRP), wholesale cost, size, weight, availability, and available options (colors, etc.). There are different schools of thought as to whether this information should include a product description or not. Including one invites duplicate content in the search engines, but not including it can add a ton of extra time before the item can be ready to upload to the store. It is my personal preference to get a standard product description, so I can get the item live on the store quickly. I will often go back and deal with editing the description at a later date.

Images – Chances are you will never physically see most of the items you sell in your store. It is the manufacturer’s duty to provide the retailer with quality images that can be used in their store. These should be clear, and professional pictures that can be easily be manipulated for electronic use. If the picture looks terrible, guess what, nobody is going to buy the item. My feeling is that these should be higher quality images than what you would typically see on eBay. Hire a professional if need be. My preference is to have a CD sent to me that contains all the images I’ll need, but I’ve seen them done on an image server, FTP transfer, or on a good old website.

Support – Finally, the supplier needs to provide ongoing support to the retailer. Bottom line, the manufacturer is the expert on the product. The retailer will have questions, sometimes questions that need to be answered very quickly in order to save a sale. Have someone on staff that is responsible for relations with the drop ship retailers. Make it their job to understand the retailer’s needs and provide them with extra service and care. This simple action will go a long way to encouraging the retailer to focus on your product, rather than someone else’s.

Tags: drop ship, business, ecommerce, suppliers

Drop Ship Fees From A Manufacturer’s View

Drop shipping is a significant cost to your operation. You’ve got to break a case, box and ship a different way than usual and deal with a lot more soft costs than if you just sold in bulk. It is tempting to try to gain a few points of margin hidden in the drop ship fee. However, I strongly urge you to withhold. Here’s why:

It can hurt your credibility – Just like the retailer that sells really cheap, only to rip the customer on shipping charges, your reputation can be at stake. Drop shipping is a service and should be treated as such. Charge the retailer what you need to be profitable on the product itself. The drop ship fee and shipping charges should simply be a cost of doing business that the retailer is covering for you.

You may actually be more profitable with a lower drop ship fee – A retailer has to account for the drop ship fee in the amount they charge their customers. Every little bit you put into the drop ship fee raises that cost and makes the product more expensive in the end. Reasonable and low drop ship fees should make the individual item more economical for everyone and should result in more sales for you.

 It is simply good business – I am much more likely to push and promote items that come from a manufacturer that has open, honest, and reasonable rates. This includes all aspects of obtaining the items. Easy to understand and consistent drop ship fees reflects a desire to work with your drop ship retailers and help them be successful.

Tags: drop ship, business, fees, suppliers

More On Drop Ship Fees

It is my belief that a manufacturer is in business to sell products, and not to provide shipping services. Therefore, I believe a drop ship fee should be enough to usually cover their costs involved in drop shipping. Drop Ship fees should not be a major profit center for the manufacturer. It is a cost of doing business that the retailer is covering. So, the drop ship fee should be in line with the product being offered and will vary greatly. If you are drop shipping pool tables and ATVs, the drop ship fee may need to be of a significant cost.

 However, most drop shipping is done on regular sized items (things that would not be considered over-sized or over-weight). I’ve seen drop ship fees structured lots of different ways: $3 for all orders, $4 for faxed orders, $1 for orders placed online, No drop ship fee for orders over $100, 15% of the wholesale cost, $10 for orders under $200. Personally, I pay drop ship fees anywhere from $0 – $5 per ORDER. If a vendor wants more than $5 per order, I’ll want some explanation as to why they need that much.

Things to look out for There are two big red flags to look out for when it comes to drop ship fees. First, fees should be incurred per order, not per item. If you order two sets of earrings from a manufacturer, it is going to cost them the same amount to prepare that shipment whether there are one or two sets of earrings in that box. If a vendor wants to charge you a drop ship fee per item, I would be prepared to ask lots of questions as to why they need that much. The Second red flag is a % of the order fee. Let’s take our earring example again with a manufacturer that charges a 15% drop ship fee. Let’s say one of the sets of earrings costs $25, which would result in a $3.75 drop ship fee. But our other set costs $100, which would require a $15 drop ship fee. Do you really think it costs the manufacturer $12 more dollars to pack the second set of earrings? I would say not. While I’m sure there are some exceptions to the rule, but my feeling is that if a manufacturer is charging a percentage drop ship fee, they are trying to make additional profit on the order, and I would be unlikely to do business with them.

Can a drop ship fee be a deal breaker? I would say yes. There have been plenty of times that I have declined working with a manufacturer, or fired them later, because I felt their drop ship fee was unreasonable. The drop ship fee is still part of your cost in obtaining the item, and needs to be closely considered before beginning a relationship with a manufacturer.

Tags: drop ship, fees, business, ecommerce

On Drop Ship Fees

What is a Drop ship Fee?

A drop ship fee is an extra service charge that is added to your drop ship order to pay the vendor for the service of drop shipping. Basically, drop shipping is an extra expense for the manufacturer. The drop ship fee covers the extra cost incurred by the manufacturer to prepare your shipment.

Is it ethical?

Absolutely. A manufacturer’s business plan is set up to profit on large bulk orders of products. These are orders that are usually sold in full case quantities, sometimes pallets of a product at a time.

Let’s look at it this way. Say a retailer orders one bulk order of 1000 widgets. The manufacturer pulls the order together, gets it ready for shipment, gives the order to the carrier, and invoices you ONE TIME. There is a specified amount of money it costs the manufacturer to do all of this. Costs that include labor (paying someone to do the work), materials, back office accounting, after the sale support (tracking, dealing with disputes), etc.

Now as a drop shipper, you also order 1000 widgets. This causes the manufacturer to do all of these same things (picking, packing, shipping, invoicing, etc.) one thousand times. Obviously, it is much more expensive for the manufacturer to ship one order for 1 item, then it is to ship one order for 1000 items. So, the drop ship fee helps to cover these extra expenses.

One last note. There is a big difference between drop ship fees, and shipping fees. While they are sometimes combined, usually they are separate fees you pay per order.

Drop Shipping Pros and Cons – Part 2: The Cons

Loss of control – You are at the mercy of your manufacturer. Will they ship when they say they will? Is their product up to the standards they claim? It can be difficult to sell items that you have most likely never held or seen yourself. There is a great deal of trust that you are putting in your manufacturer to do business as they say. Because. . .

Your credibility can easily be damaged – Your customer doesn’t care that you use a drop ship vendor. They bought the product from YOU, and they expect YOU to fulfill your commitment to deliver the product. If your vendor fails to deliver on their promises, it’s your reputation that can suffer.

Lots of competition – Because drop shipping is a relatively easy business model to develop, there could be lots of other stores out there selling the exact same items as you. Competition can get very tight, and you can easily lose the sale to another retailer that is working with the same supplier.

Lower margins – You are not going to make the same margins as someone who buys in bulk. Manufacturers have their business model set up to sell in big quantities. Therefore, they will be unable to offer their best prices to a drop ship retailer. Plus, there will most likely be extra drop ship fees tacked on to the order as the manufacturer has to box and ship your order for you.

It’s not all bad. Check out the Pros!

Drop Shipping Pros and Cons – Part 1: The Pros

Drop shipping has many advantages as a business model, both for a retailer and for a vendor. Obviously, this is the kind of list that could go on and on forever. I’m going to highlight what I believe are the most important.

Considerably less start-up costs – Drop shipping lets you, the retailer, start your business much more economically. Generally, in the wholesale purchasing world, there are huge buy-in or purchasing commitments that must be met in order to become a customer. A manufacturer may require a large minimum purchase amount, or yearly purchasing volume. Each of which can be difficult to meet when you are starting your business. Drop Shipping allows you to establish a buying agreement with a manufacturer without needing to comply with a large order requirement.

Considerably less risk – Regardless of what anyone ever tells you, there is considerable personal or corporate risk when you start a new venture. However, drop shipping does allow you to minimize that risk considerably from the inventory standpoint. If you were to buy in a traditional wholesale atmosphere, you would be required to make a large initial buy, or comply with a volume requirement. All of which take money out of your pocket and puts it into inventory. All fine and good if the product sells, but if it doesn’t, you could run into a cash flow problem very quickly. And what if the product doesn’t sell at all, what then? Drop shipping allows you to sell the item first, and buy it second. You will never have the risk of unsold merchandise, because you’ll always have sold the item BEFORE you buy it.

Less overhead cost – So you get this great deal to sell widgets, and you placed your order for 1000 pieces. Now you’ve opened a whole new can or worms. Where are you going to put that stuff? Chances are you’ll need a warehouse, or at least a storage unit, to keep the products until they sell. Who is going to work in the warehouse, you or someone else? And what about shipping costs? You’ll need boxes, tape, bubble wrap, packing peanuts, labels, and a label printer. You’ll need to set up a pick up service with your shipper, or take the finished packages yourself. Plus there is insurance and property taxes. Do you really want all of that headache? Drop shipping virtually eliminates all of these difficulties allowing you to concentrate on sales and building your store.

Unlimited opportunity – Drop shipping grants you the opportunity to sell many things and try new products. Because you are not holding the inventory yourself, you have the opportunity to “carry” lots of items. You never have to worry about not being able to stock the new hot item because you haven’t sold out of the old stuff yet. Plus it’s an excellent way to try out new items. Remember, there is no risk, so if you are considering selling an item, but are unsure if anyone will buy it, you can go ahead and put it up for sale and see how it does without any of the other costs or risks involved with stocking.

Unlimited flexibility – Without stock, you can make changes quickly without worry. If a product line isn’t working for you, it’s a quick process to take the items off your site and try something new. Plus, because you’ve not had all of the extra expenses, you can afford to take some lower margins on items. You can be flexible with pricing to see where you need to be to sell.

It’s not all good. Check out the Cons!

Drop Shipping, A Detailed View

Here is a detailed view of the process of drop shipping. While different vendors and retailers will have different ways of doing things, this process is a good general procession. Just remember that it will differ slightly here and there.

BEFORE THE SALE

We are going to assume that you already have an online store set up and ready to take orders. Store set up is a whole different issue that applies regardless if you drop ship or not. So we are going to skip that for now. We are also going to assume that you already have a vendor picked out. Finding drop ship vendors is a whole other issue, read more about that here.

The first step is to contact the vendor and set up an account. The vendor will most likely need some basic information including your SSN or EIN. If they don’t need one of these things, it should be a red flag as to why. Most will have a form for you to fill out or an email with all of the information they need. You’ll also need to set up payment terms. You may be able to get terms if your business has a credit history, and you provide it, or you may just pay by credit card.

The vendor should set you up with an account and then send you all the information to buy from them. This should include, but not limited to: rules, fees, price lists, directions to obtain product images, and a listing of their items that are available for drop ship.

From there it is your responsibility to get the items up on your site. Depending on the items and the information you are given, this could be a quick process, or a long time-consuming one. Be sure the time involved is worth the expected payout. Make sure everything is set in order to be ready to take orders.

THE SALE

A customer finds your site, likes your items and places an order. You will receive your order through your store’s back end system and collect payment. Be sure you are collecting your full “retail” price as well as shipping and tax if necessary. At what point you should actually collect is discussed here.

You then in turn place the same order with your drop ship vendor. Providing the customer’s shipping address and information.

AFTER THE SALE

The drop ship vendor will prepare your order and ship directly to your customer. Be sure to have clear expectations with your vendor as to how long this should take.

At the time of shipment, the vendor should charge you the wholesale price, plus shipping and drop ship fee, if any. The difference between this bill and the amount you collected from your customer is your gross profit. The supplier should provide you with a shipping confirmation number of the package.

The ball is now back in your court as you will notify the customer that the order has shipped in turn provide them the tracking number, so they can track the order themselves.

Finally, you pay the wholesale bill from your vendor.

CONCLUSION

Again, let me stress that this is a VERY simplified version of the drop ship process. There are lots of variables here as well as tons of things that can happen to throw things off. In a perfect world, the process would work like this every time, and it will often. Just always be ready for the unexpected. That’s what makes e-commerce fun!

What Exactly Is Drop Shipping?

May as well start at the beginning, aye? Drop shipping has two different definitions based on your point of view. As a merchant (i.e. you own the store), drop shipping is the practice of selling a product before you actually own it. In a traditional retail environment, a retailer buys a shipment of widgets, and then puts them up for sale. They leave his store one by one until he sells out or buys more. A drop shipper, on the other hand, puts items up for sale on his online store, sells one, and then purchases one from the wholesaler to fill the order.

From the supplier’s perspective, drop shipping is the practice of selling goods one at a time and shipping the product directly to the consumer. The traditional wholesaler deals in bulk sales. They usually have minimum order quantities in order to fill an order. They may require a minimum item amount (i.e. 100 units at a time) or a minimum dollar amount (i.e. $1,000 minimum order). These orders are usually shipped directly to the merchant’s warehouse.

For further reading, check out my post on how drop shipping works for much more detail on this process. Also read my posts on the pros and cons of drop shipping.

Welcome To Drop Ship Digest

Drop Shipping is one of the greatest ways to get your feet wet in business. It grants you the opportunity to experiment with your business model and learn what your real nitch is. It gives incredible flexibility. Drop Shippers range from one person part-time, all the way up to a full-scale operation. The possibilities are seemingly endless, and you are only limited to what you choose to do.

The major problem, however, is that while drop shipping is a starting place for lots of would-be business people, great ambition, coupled with inexperience is a breeding ground for mis-information. I believe that many entrepreneurs end up being at least mildly misled, some ripped off, due to the fact that information on the subject can be tough to gather.

Just do a search online for drop shipping. You’ll get tons of sites. Some promising wealth and riches; some promising that it’s easy, and they can take care of everything for you. My personal favorites are the big long web pages that go on and on, in vague terms of course, about the topic. They show nice graphs and maybe even have a video. Get to the bottom, and they’ve got the miracle “thing” available for only $19.99. Untold wealth and riches, work only 5 minutes a day, all for under 20 bucks. What a deal.

The purpose of Drop Ship Digest is to provide real straight answers about the drop shipping world. Now I know that many sites promise this same thing, but here is the difference: I HAVE ABSOLUTLEY NOTHING TO SELL YOU! I haven’t written the ultimate guide to making money. I don’t own some company that can sell you all kinds of things at wholesale prices. I can’t even build my own website. In fact, all of my thoughts and advice are completely free, no strings.

Honestly, I’m no one of the consequence. I’m not rich; I’m not even an expert. But I have built my own little company using drop shipping. I currently own two stores online that do 99.9% of their business through drop shipping. And I’ve done this without buying into any of those questionable online offers.

I want Drop Ship Digest to be a place where honest and open information is exchanged. A place where new folks can come to learn about the field. I also hope it will be a place for other experienced drop shippers to gather to exchange ideas and best practices. In fact, I’ll need the aid of you veterans out there because I don’t have all the answers.

If you are a wholesaler that drop ships, you are welcome too. I’m sure there is a lot to learn from the other side of the business.

This will also be a great place for a traditional wholesaler that is considering getting into the drop ship game. We’ll have lots of advice for you too.

So together, let’s cut through all the junk online and get to the honest truth. Who’s with me?