This article explains drop shipping's benefits and drawbacks. How to run a
successful drop-shipped online store, and why drop shipping isn't as simple as
you think. Subscribe before we begin. So you'll know when I release similar
content. Click the website's alert button. Let's begin. Dropshipping?
Dropshipping is an E-commerce Business model :
Dropshipping is an E-commerce business model where you can sell physical
products online without inventory or a warehouse. And without
shipping/handling. Basically, your supplier fulfills all your orders. And when
an order comes in, you notify your drop shipper, and they ship your products
directly to your customer. There's almost no upfront cost to start a dropship
online store because you don't need inventory. Start dropshipping for under $3
with an open-source shopping cart. All you need is a website with free credit
card processing to take orders. If you've been following me, you know that my 9
and 11-year-old kids launched their own dropship eCommerce store selling
entrepreneurship T-shirts for $2.95 a month. You can shop at kidincharge.com.
How much can dropship make? Well, dropshipping has a lower margin than a
traditional eCommerce store. Dropshipping margins range from 10 to 30% in my
experience. Obviously, this number depends on what you sell online. Friends of
mine make 50 to 60% margins drop shipping perfume, jewelry, and large oversized
items like stoves and outdoor grills.
Dropshipping Reviews
My
colleague dropships personalized funeral urns and caskets with high margins
because his niche is not price-sensitive. Overall, your margins will depend on
how competitive your market is, but a typical drop ship store should have a 10
to 30% margin. Your eCommerce business is infinitely scalable with drop
shipping. You can gain traction without carrying inventory or shipping orders.
Marketing and sales can be your focus. Now, how to start drop shipping.
Dropshipping may be a good business model for you. Here's what to do. You must
first set up a website or platform to take orders, then partner with a dropship
wholesaler or distributor to ship products directly to customers. As part of
your partnership, you and the dropship supplier will decide on a wholesale price.
Once you have a supplier agreement, dropshipping works like this: First, a
customer places an order on your online store. You collect the money, send the
order and shipping details to your dropship supplier, and pay the wholesale
price for the product. Your drop shipper supplier packages and ships the order
as if it came from your eCommerce store. You pocket the difference between
selling and wholesale price. Is that okay? Here's how to start in a few steps.
So set up your website first. And this is the easiest part of the process
because there are so many easy-to-use options today.
Overall, your eCommerce platform
decision will depend on your budget, features, and tech-savvy. Shopify,
Bigcommerce, and WooCommerce are my top picks. Kidd in charge.com uses
WooCommerce because it's free and easy to use. The hardest part is finding
dropship suppliers. Dropshipping is popular, but the internet is full of
scammers, so you must learn how to spot a fake wholesaler. First, a real
dropship wholesaler won't charge you a monthly fee to view their catalog. Real
dropship wholesalers are distributors whose goal is to sell in bulk, not run a
monthly membership site. Second, a real dropship supplier will never sell their
own products wholesale. Realize that a wholesaler's primary customer is a
retail shop, and it would be against their best interest to compete with their
own customers. So once you know what to look for, you can start looking for
real suppliers using the strategies I'll share. The easiest way to find a dropship
wholesaler is to call a manufacturer and ask for a list of distributors. When
you have this list, you can contact a distributor and ask if they dropship.
Now, most distributors carry a wide variety of products from different
manufacturers. If you can land a big distributor, you can access a large
catalog of items for your shop. A distributor partnership can be hit or miss,
so be ready. Legitimate suppliers usually only deal with legit retailers. You
must have everything in order before reaching out. As Bumblebee linens owners,
we're often asked to dropship. A distributor needs to know you're legit before
investing in you.
So you need a mock website to
show you're serious. And you must show your suppliers that you can move
product. If one of your competitors has a drop ship online store, you can find
out who their suppliers are by placing an order. When you receive the package,
check the label for a return address. Even if the shipping label doesn't have
the distributor's name, you can Google the address to find it. If you don't
want to do the work. Visit a trade show to find wholesale distributors. It's
often easier to find suppliers at a trade show because all the vendors are in
one place. And meeting in person isn't the only way to form a bond. But you can
also touch and handle the vendor's entire catalog. If you have a business
license, most trade shows in the US are free. You have nothing to lose by
going. And most major cities have wholesale trade shows in a variety of niches.
And to find dropship suppliers, use a directory. Your directory lists suppliers
by niche. And it's a quick way to find dropshipping products. A few companies
are worldwide brands. And they vet every company in their directory to make
sure they're legit. The downside to using a whole directory is that other
members can access the distributors and products. As a result, directory
products are more competitive. However, wholesale directories can help you find
vendors quickly. Worldwide brand membership for 10 years. While I don't use
them anymore, it was a convenient way to find wholesale suppliers in my niche.
When you find dropship wholesalers you want to work with, you must vet them
because your business depends on them. And here are some supplier attributes to
look for.
Dropshipping requires a
partnership between you and your distributor. And trust is key. Before using a
dropship vendor, place a test order to see how it will be handled. And I seek
this. I check how fast orders are to ship. And shipping time is crucial for an
eCommerce store. And orders must ship in one to two business days. How the
order is packed is another concern. Is it in a bad box with packing peanuts?
And is the box without a supplier's name? Customer service? Are they prompt? Do
they provide tracking and invoices and refund defective goods and returns?
Check these things before using a dropship vendor. Here are some questions to
ask depending on what you're selling. If they can customize their products,
ask. If you can add inserts and marketing materials, what are your pricing
terms? Exist bulk discounts? Price breaks are often best negotiated in advance
so you know what to expect as your store grows. After all, if you negotiate
after hitting a certain milestone, the dropship vendor will know you need them
and be less likely to negotiate. You should ask about their drop ship fee. Most
drop shippers charge a per-order fee to pack and ship orders. You should also
ask about returns. Even though drop shippers ship for you, returns are sent to
you. Understand the return policy to get your money back. You should also ask
if you can buy all these items wholesale for less. You may want to stock your
most popular products to boost your profit. In general, wholesale prices should
be lower than dropship prices. And here's a tough question. If the wholesaler
uses EDI, ask. EDI means Electronic Data Exchange. Dropship suppliers can
automatically upload their inventory to your website in real time. And EDI
keeps your store and supplier in sync, which simplifies customer support. It's
also important to ask for a single point of contact at your wholesale vendor to
handle customer support and product issues when you start selling your product.
A lot can go wrong, after all. How about when a product runs out? If a product
is discontinued, what happens? If shipping is late or misses a deadline, what
happens? You need someone to talk to A dropshipping store should be easier to
run than a traditional online store when it comes to problems. There are
specific dropshipping aspects to be aware of. Returns and refunds, as I said.
Even though you're not in charge
of product fulfillment, you're still responsible for returns and defective
product support. You are your business's face with drop shipping. The customer
is unaware of your drop shipping arrangement with the supplier. In the
customer's eyes, you're the supplier. As a result, you must handle returns
yourself and can't rely on your supplier for customer support. Here's how
dropship returns work. First, the customer called or emailed customer support
for a refund. Then you contact your supplier for an RMA number, and your
customer sends the product back with the number on the packaging. After
receiving the package, the supplier refunds the wholesale cost to your account.
Then you give the customer a refund. Now, this product sounds complex. In
addition, your supplier may charge a restocking fee, which you can pass on to
your customer or eat yourself. Returns are part of the business. If a customer
orders an out-of-stock item, you must let them know. And give the customer
three options. One, you can wait for the product to come back in stock and give
an ETA, offer an exchange, or refund their money. Things get complicated here.
You'll encounter multiple drop shippers in our store. When you use multiple
drop shippers, your customers can buy products from multiple suppliers. In this
case, the customer will receive multiple shipments. You'll also pay shipping
from each dropship supplier. And when this happens, you must inform the
customer so they aren't confused when they receive multiple packages. Because
shipping from multiple drop shippers is expensive, you can either charge extra
for shipping or absorb the cost. Now I've discussed the complications. Let's
talk pros and cons of drop shipping. If you can find a good dropship supplier,
drop shipping is attractive because you can run your business from anywhere
with a computer and the internet. If you're new to eCommerce and have a small
budget, you can use drop shipping to get started and then switch to a more
lucrative model when you're ready.
Besides convenience, dropshipping
has other benefits. Setup costs are practically zero. There are no upfront
inventory costs, warehouse costs, or overhead. I can't think of a cheaper
business model to start, and my kids' store was free. Next, dropship stores
have lower startup risks. There are no upfront costs with drop shipping. And
because you invest so little, there's little to lose. Your business is
inventory lists, so there's no pressure to make sales because you don't pay for
storage or shipping. You can carry a huge variety of items because you don't
have to store them. If you browse dropship directories or attend trade shows,
you'll find dropship suppliers for nearly every niche. You can sell one product
or 1,000, it doesn't matter. When you know what to sell, you can find a vendor.
Location independence is another perk of drop shipping. A drop shipping
business can be run from anywhere; no office, warehouse, or employees are
needed. This freedom lets you focus on growing your business instead of
inventory and overhead. Dropshipping is a scalable eCommerce business model
because your overhead doesn't grow linearly with sales. I have several
colleagues who run large dropship businesses with small staff. Sounds too good
to be true, right? If dropshipping sounds too good to be true, trust your gut.
As in life, every business model has downsides. Most people enter drop shipping
expecting quick riches, only to find that it's harder than they thought. Here are
the cons.
The price won't be the lowest.
Most people open a drop ship online store thinking they'll get wholesale
pricing on products. In reality, dropship distributors add fees to the
wholesale price. Put yourself in a distributor's shoes. Would you rather sell
in bulk to a store? Would you rather sell small quantities to individual
customers and ship and pack each item? The distributor does all the work, which
affects your wholesale price. Most dropship stores have 10 to 30% gross
margins, whereas traditional shops with inventory have 50% gross margins.
Because your wholesale prices are higher than a traditional store, you won't be
able to compete unless you cut your profit. But lower margins will hurt your
ability to advertise on Facebook and Google. In addition, less profit per sale
makes customer service more difficult. Online, our margins are 70 to 90%. When
a customer is angry, we give them a refund and tell them to keep the product.
We can afford the loss due to our high margins. Dropshipping's convenience of
not having to fill orders is costly. You must charge more for shipping. When
you run a dropshipping store, you may need to use multiple shippers. Using two
or more drop shippers means two or more companies will make separate shipments
to your customer, which means you'll pay for shipping twice. Now, if I'm a
customer and I buy products from your store from three different distributors,
you'll have to charge me more for shipping to break even. And the only way
around this is to use one dropship distributor, who may not carry enough
products for your store.
These extra costs will have to be
passed on to the consumer, reducing your price competitiveness. A dropshipping
store can be a logistical nightmare. Since dropship distributors do all the
work, you may think they can relax. But you have to deal with your customers,
answer all their questions, and apologize when an order is late, even if it's
not your fault. The main problem is that using multiple dropship distributors
can be a logistical nightmare. All distributors will have different shipping
times and locations. A customer who orders from three distributors will receive
three packages at different times. And if an order is time-sensitive, you must
make sure all of your distributors can deliver on time. In short, you're
staking your online store's reputation and linking yourself to all dropship
distributors in a single chain. If even one distributor is unreliable, your
online store will suffer. Most importantly, customer service and online reputation
can make or break your business. Customer service is out of your hands. A
botched transaction can spread quickly on the web, social media, and Twitter.
So keep your online store's image
clean. I always ask how people found our wedding linen store when we get a
call. And most people who find us were referred by a friend. Word spreads fast.
And our customer service is one reason we've grown 3x in three years. With drop
shipping, you have little customer service control. Since you don't handle
product fulfillment, you can't control when a customer receives their order.
And if a customer wants to return an item, it's a pain because you have to get
your money back before issuing a refund. There are many ways to fix this. But
the solution is always to raise prices or cut profits at the expense of
customer satisfaction. Lastly, Amazon makes dropshipping less appealing. Prior
to Amazon, it was harder for companies to sell to the masses. So distributors
relied on traditional retailers and drop shippers to move products. Today,
Amazon controls such a large portion of e-commerce that most companies can get
by selling as a third-party seller. Amazon handles sales, product fulfillment,
and customer service—everything a traditional retailer would. But the
distributor keeps any extras. If you sell the same products as Amazon, you
can't compete on price as a dropshipping store. You have little leverage as a
consumer. Would you rather buy from Amazon at a lower price? Or would you pay
more than a stranger? Amazon seems likely.
2023 Dropshipping Business model
So far, traditional dropshipping,
where you have a website and find a distributor to dropship on your behalf. But
there are other dropshipping business models I want to mention. Keep in mind
that the drop shipping methods I'm about to discuss are not recommended, so you
shouldn't pursue them. You may have heard of Amazon to eBay drop shipping,
which is popular because it requires no upfront costs. You don't need a website
and all sales are on eBay. Here's how. You list a product on eBay for more than
Amazon will pay. Then, when a customer orders on eBay, you buy an identical
item on Amazon and ship it to them. You pocket the price difference. eBay
dropshipping is no longer allowed, and eBay reserves the right to ban your account
if you're caught. Dropshipping is technically legal on eBay, but orders must be
fulfilled by a wholesaler. So you can't use Amazon, Walmart, or any other
marketplace. Avoid doing this. Another dropshipping model is AliExpress to
Amazon. Drop shipping is allowed on Amazon, but the order must be fulfilled by
a wholesaler. Amazon, unlike eBay, can ban your account if you try to fulfill
an order from a third party. Since a few years ago, a get-rich-quick
entrepreneur has been drop-shipping AliExpress junk to Amazon and pocketing the
difference. It was called Aliexpress drop shipping. Here's how. Your post on
Amazon to sell an ally Express product.
After a customer places an order,
you buy the same product on AliExpress and ship it to Amazon. You keep the
difference. Please don't try this business model because it relies on an E
packet, which will soon be obsolete. When to use drop shipping While I wouldn't
start a dropshipping store today, you can use it in many ways. Since you don't
need inventory, you can open an online store with hundreds of products quickly.
You can then use the shop to conduct market research and buy inventory for the
most successful products to enjoy higher margins. Drop shipping is best for
product validation or filling out an online store's sparse categories. Drop
shipping is best for product validation. If you're on a tight budget, new to
e-commerce, or want to carry a variety of products without buying inventory.
When to skip drop shipping Unless you're a new entrepreneur on a budget or an
online store owner exploring new products, drop shipping isn't for seasoned
shop owners. Selling other people's products makes it hard to build a brand.
You can't control many aspects of your supply chain as a customer.
So, you have no control over the
customer unboxing experience; if an order is late or never arrives, it's your
fault. And you have no stock. If your supplier is out of a hot product, you
won't make any money. In a nutshell, your dropship business depends on
suppliers. If they're unreliable, you'll fail. If you want to build a brand,
dropshipping isn't for you. So if any of the below describes your situation,
avoid dropshipping. If you want a brand, high margins, or exclusivity,
dropshipping isn't for you. Trying to build a brand? Avoid drop shipping. So,
is drop shipping less work? The time you save by not dealing with inventory
fulfillment may be spent on customers unless you have a reliable core of
dropship distributors. I forgot to mention that most vendors don't use EDI, so
if an item is out of stock, you'll have to tell the customer when they can get
it. If your shopping cart isn't linked to your drop shipper's database, it'll
be hard to keep an accurate inventory account. With drop shipping, you trade
not have to deal with fulfillment logistics for more customer service
headaches. And depending on your personality, this may or may not be a wise
trade-off. Dropshipping works well for small niche stores, so many people use
it. Avoid it if you can. If you've emailed me questions about drop shipping,
hopefully, this episode answers them all. Enjoyed the article? Those who liked
what they saw will find more. If you're interested in learning how to sell
physical products online, click here to take my free six-day mini-course. I'll
teach you everything you need to know to get started in E-commerce.
Many thanks!