E commerce & Drop Shipping
There are many avenues to purchase your products through on line. How best to reach your products to clients is all the main concern. Two options come to our mind. First, opening a Retail Store from where your clients can get their products and the second one is through Drop Shipping Provider. The first option involves storing the inventory in the retail store, unpacking, stacking etc. as a wholesale distributor. But the second option involves only to the extent of instructing the Drop Ship Provider, who already have the products in their warehouse, waiting for your instructions to dispatch to clients. It saves lot of time and space. You can concentrate fully on sales. So drop ship business is more lucrative.
If you have already selected a known or good wholesale distributor or a reseller for your drop shipping business, the rest is not very difficult. Your client places an order through online phone outlet and email confirmation and payment is deposited phone outlet’s bank account and the order is placed with a representative at wholesale accessories.
Once you have decided to become a drop ship business, you must begin the process of selecting a reputable and trusted wholesale distributer. Making the wrong choice can impact your business in every facet. Many websites give false distribution information and make claims that are not correct, so you must chose only a reputable drop ship company that you can trust to ship your products without incident.
Once you have found a potential wholesale distribute, the real research begins. You must verify their information and services. It is important to be aware of the products that they make available for resell and research to ensure that the prices of the products leave room for a profit margin. Not only do you want to find a reputable wholesale distributor, but you also want to find a company that allows you to be as profitable as possible with the sales you generate.
Drop shipper doesn’t buy stock upfront, but the products are stored by the drop shipper who takes care of fulfilling individual orders on behalf of the reseller. The moment a reseller receives an order, it is forwarded to the drop shipper for fulfillment. The reseller never sees the product, which is shipped directly to the end user. In this fulfillment model, the reseller focuses on promoting the product through eBay, his own website or offline marketing, and in exchange the drop shipper benefits from an army of marketers all promoting his products.
And this is where the main issues with drop shipping arise. Drop shipping is not a new fulfillment model, however you will find that many scammers have boarded the drop shipping bandwagon hype and started setting up services asking for money to drop ship. Real drop shippers have NEVER asked for money to drop ship their goods, it is in their interests to recruit new resellers, and they would never dare to place an obstacle between themselves and resellers.
Now let us see how it works. You are having a place from where you will operate as a Drop shipper. Through website a visitor places an order on you along with the payment at a price labeled at a retail rate. After getting the payment, you forward the order to the manufacturer at a wholesale price which is a discounted price. The manufacturer after having got the payment of retail price from you, ships the goods directly to the consumer. The invoice will show your name and address as if you dispatched the goods. You as a Drop shipper get the discount without physically dispatching it from your place. Sounds pretty appealing business with a very low budget!
As said above, the procedure can be further explained as follows:-
Drop shipping is a very simple process and appealing for many people who want to try out a new product line or need to operate on a very low budget. The entire process can be outlined in a few steps:
A visitor wants to buy an item, say ‘X’ at a price of ‘Y’ through your e-commerce site and it is assumed that you are a drop shipper. Second step is after getting the payment you forward the order to the manufacturer for shipment. The manufacturer bills you at a mutually agreed discount price on ‘Y’ plus shipping charges. You pay the manufacturer the discounted price on receipt of which, the manufacturer directly ships the goods to the visitor. You will get the price difference as profit.
It’s a pretty unique shipping and fulfillment model. You might’ve experienced it with things you’ve bought online since packages are typically shipped to customers under the name of the store, not the company who does the fulfillment.
You can run your business with much less effort with fewer employees. Drop shipping simplifies your process by removing the need to keep an accurate count of inventory, resupply or restock, manage a warehouse, pack-and-ship orders, or handle returns.
The overhead charges will be less. Your expenses for each unit tend to be higher than buying inventory in bulk, but you only pay for inventory that you sell. Everything is included in your cost of goods sold, making it easier to plan and work out of your office.
You will be able to work with less range of products and expand your sales to include these other products with minimal extra costs.
Growing with Drop Shipping
One reason companies are turning to drop shipping is that they’ve identified a small area of growth for their business, which they want to offer without having to make a significant investment. Imagine a company that sells vacuum replacement parts. Their new website also offers some extremely high-end vacuums, hoping to capitalize on the customer trust they’ve built by selling reliable replacement parts.
Since only one or two people may be the high-end vacuum each quarter, there’s little incentive to carry a large stock. By using a drop shipper, the company can sell the vacuum and then have that fulfilled by the drop shipper.
Each sale isn’t as high-margin as it would be if the company outright owned the vacuum, but it avoids all of the extra space the product requires (not only storing each unit for long periods but also its unique packaging and boxing elements that likely wouldn’t fit its standard small-parts delivery).
Drop shipping is a top method for many online stores to test expansion options, so it is well suited for start-ups. However, it does have its disadvantages, and these grow more pronounced as your business begins to get larger.
Here are some of the chief disadvantages to consider for drop shipping:
- Low Margins. The margins for using a drop- shipper tend to be relatively small, averaging roughly 20%. Low margins can make it hard to grow when you’re paying for other expenses to manage your website, perform customer service, and market your business. You’ll also face plenty of competition from larger retail businesses or even the manufacturers themselves who can afford slimmer margins.
- Customer Experience Concerns. The customer’s experience is at the heart of your brand’s reputation. Using a drop shipper does little to differentiate your business and often they’ll ship generic packages without specific branding. If your partner doesn’t have a quality control guarantee, you could see significant harm to your brand due to returned items, incorrect shipments or damaged goods.
- Differentiation Is Difficult. If you can use that drop shipper, so can your competitors. You will typically have to compete as a commodity, which makes price your biggest differentiator. There’s only so much you can cut, meaning your pricing is likely to be along the same lines of your competition.
- Reduced Inventory Control. If you handle your own stock or maintain your inventory with a high-quality fulfillment partner, then you know what you have and when you need to reorder. When you work with a drop shipper, you typically won’t have visibility – and this becomes more of a concern when using multiple drop shippers. That means you may run into problems with inventory shortages that you didn’t see coming, causing backlogs and harming your business.
- Costs Can Increase. Shipping three items in one box to your customer comes with one cost. Sourcing three items from three different warehouses and shipping them in three different packages comes with three costs. You’re only charging your customer a single shipping fee, meaning that you have to absorb all of those extra charges. The more charges, the slimmer the margin becomes.
- Despite its critical role in the ordering and fulfillment process, the dropshipper is completely invisible to the end customer. When the package is received, only Phone Outlet’s return address and logo will be on the shipment. If Mr. Allen’s receives the wrong case, he would contact Phone Outlet, which would then coordinate behind the scenes with Wholesale Accessories to get the right item sent out.
- The dropshipping wholesaler doesn’t exist to the end customer. Its sole responsibility is to stock and ship products. Everything else – marketing, website development, customer service, etc. – is the responsibility of the merchant.
- Before searching for suppliers, it’s critical to know how to differentiate between legitimate wholesale suppliers and retail stores posing as wholesale suppliers. A true wholesaler buys directly from the manufacturer and will usually be able to offer you significantly better pricing.
Now we know the fulfillment strategy of retail selling of the manufacturer’s products directly by the manufacturer to consumers and the Drop shipper makes profit without having to maintain huge inventory.
The advantages are,
- a Drop shipper can engage a retailer who is having big inventory. Any merchant or consumer can contact the Drop shipper for the item which will be shipped by the retailer.
- The product comes to the market and/or reaches the consumer quickly.
- More variety of items caters to the demands of consumers through ecommerce.
- Ensures cost effectiveness and cash flow.
- Since all actions are initiated by the wholesalers or manufacturers, save lot of time.
- One of the main reasons the drop ship industry exists is to help retailers and suppliers combat inventory distortion. By tapping into inventory further up the supply chain, theoretically you can gain access to virtually unlimited inventory.
- Low startup costs.
- Flexibility for doing business from anywhere in the world.
- No maintenance cost of labour, vehicles, transportation etc.
- Since drop-shipping agreements generally do not require any upfront investment, a retailer can significantly reduce its investment in products.
To sum up Drop shipping concept is presently defining the existing scenario of how things are done while presenting new opportunities. Drop shipping is one such concept which has provided numerous aspiring entrepreneurs with a different approach to making money online. It frees the retailer from having to deal with shipping and storing goods for sale, in addition to cutting down on various overhead costs that come with running a traditional business.
Drop shipping is an order fulfillment strategy where products are shipped directly from a wholesaler or manufacturer to the customer; the retailer acts as a marketing and customer service organization. There are many more good reasons to consider using this technique, although drop shipping may work best when it is blended with other fulfillment strategies.
We must also consider the other side of the situation. One problem the drop shipper has to face is stock shortages. Falling short of a product, may be a fast moving item might cause the drop shipper in a tricky situation when you have got orders to fulfill.
Secondly, you may have to pay some extra money compared to sellers who purchased in bulk. It will be difficult to compete in eBay. Not necessarily you would be dropshipping unique items always.
If you do not have any product catalog or picture of the product you will not have any control over your inventory.
You might not have seen the goods at the time of shipping but at the receiving end the packing might have been shattered and you will be blamed for no fault.
Few more related concepts –
How do returns from customers work?
Most drop shipping companies will have restrictions on what can and can’t be returned. So you’ll need to make sure you clearly communicate (both before the purchase AND before accepting the return from the customer) that it meets these criteria.
Most suppliers will issue you a RA (Return Authorization) number. This unique number will identify the return in their system. Once received, simply pass along this RA number along with the address of the warehouse to your customer.
Once the supplier receives the return, they should send you a notification along with a credit invoice showing that they’ve credited you for the item. Then, you in turn refund the customer who purchased from your store.
If you are supplied with a defective product, you may have the risk of arguing with the shippers. As a drop shipper, it is always better to accept the customer’s complaint and replace them with a fresh one. It may cost the dropshipper a bit but will give the customer a satisfaction that they are dealing with the right people without having to return the defective one to be returned.
Consequently the drop shipper will make arrangements with the manufacturer for having sent a defective product which means you’ll only need to cover the cost of shipping from the customer to the warehouse.
For Non-Defective Items: If the customer decides to return an item due to incorrect selection – or because they simply changed their mind – they will usually be responsible for paying for return shipping fees. However, if the product was incorrectly advertised or presented on the website, the business should cover return fees if this was the cause of the problem or incompatibility.
International shipments can quickly get expensive, and getting accurate quotes regarding shipping fees, customs and duties for hundreds of countries is complex. It also takes a drop shipper significantly more time to process an international order as there is more paperwork involved. Some will charge an additional fee while others simply won’t bother.
Also, issues with returns and fraud get a bit more complicated with international shipments. If an international customer receives a defective product, getting them a replacement will be significantly more expensive. And the likelihood of fraud and abuse increase with international shipments.
Using Drop Shippers to send products directly to your EBiz Customers from the wholesale warehouses is an extremely popular way to sell online, since there’s virtually no cost to get started. However, there are three critical dangers in Drop Shipping that will ruin your business,
and you really need to know what you’re doing if you’re going to use Drop Shippers.
Some cautions –
- The wholesale price of Drop Shipped products is higher than buying them in bulk (several at a time). This is because the Drop Shipper does most of the work for you (packing, shipping, etc.) and charges for that extra work. You need to learn how to price Drop Shipped products competitively in the right markets; otherwise you won’t make any sales.
- You should only be using ONE Drop Shipper per web site. If you use multiple Drop Ship suppliers on your web site, you run the very real risk of your Customers ordering products from different Drop Shippers in the same order. The danger here is that since your Customer’s products are coming from different Drop Ship wholesalers, they (or YOU) will be charged for shipping several times over. If this happens, you WILL lose the sale.
- Drop Shipping is a low cost ENTRY POINT into a successful online business, but is not meant to be a permanent solution. Most people don’t realize this, and don’t use Drop Shipping correctly in order to advance their business to more profitable stages.
So, those are three of the Critical Dangers of using Drop Shipping.
Other disadvantages :
Processing your orders can become difficult
Many companies that use drop shipping as a sales strategy work with multiple wholesalers, each of who will come with different requirements for order processing, billing and shipping. This can make things very complicated. The gap between selling a product and then getting it shipped can also take longer, as there are many conversations and actions that will take place before it gets sent off.
Not having all of the product information is problematic
As you never actually handle the products that you are selling, you have no realistic idea of what they are like. Given the manufacturer doesn’t give enough product description that’s of adequate level, you can’t answer general customer enquiries about the products’ dimensions, weight, ease of use and so on, without constantly forwarding their questions to the supplier. Lack of information will leave noticeable gaps on your website and this isn’t good for any company.
You also never know about the availability of a product until a customer purchases it and you find out that it’s out of stock. This can be immensely frustrating for customers who are under the impression that they had purchased a product to find out that they actually didn’t. In order to eliminate this problem, an automated system which updates stock availability regularly throughout the day is preferable. You could also request an email or phone call from the supplier if stock has run out.
Customer service issues
Drop shipping removes the responsibility of shipping but it also removes a large part of the customer experience from your control. There’s no way to ensure that a product has arrived on time or as described. When a customer calls to either complain or enquire, the process of resolution is slowed as you often don’t have the necessary information at hand and the query or complaint will have to go through a third party supplier before it can be solved.
A vast amount of competition is everywhere, so finding great drop shipping products mean they generally will come with competition from other retailers in your sector. The margins of drop shipping products can be quite low as many manufacturers charge for the fulfilment service so you have little amount of room to manoeuvre your prices in order to beat your competitors.
As you can see from the benefits and potential problems, choosing drop shipping is an option that shouldn’t be chosen without major consideration. The problems that arise can often be solved just by careful planning and implementation of contact between the seller and the supplier. With enough thought the disadvantages can be avoided.