June 18, 2018

A pocket guide to drop-shipping

Drop-shipping – where you provide a storefront while a wholesale partner fulfills the orders – is a low-cost way to start a business. But is it right for you?

What exactly is drop-shipping?

With a drop-shipping business model, you run an online store. But unlike a typical ecommerce retailer, you never deal with stock or deliveries, and you don’t have to spend any money on inventory.

Instead, you work with a wholesale partner (or partners) who ship the goods directly to your customers. You only pay for the items when they sell, and your markup on the wholesaler’s price provides your profits.

Who are the wholesalers?

In the last few years, we’ve seen increased connections between global businesses. (Thanks, digital revolution!) Wholesale marketplaces like Alibaba or the smaller, more start-up accessible Aliexpress make it simple to do business with low-cost manufacturers from China, Taiwan, India and beyond. They’re a go-to choice for many drop-ship newbies, though by no means the only option.

You can work with wholesalers just about anywhere, selling just about anything. One option is to sign up to a wholesaler directory like Doba, Worldwide Brands or Salehoo, or you could search Google for wholesalers of the items you’d like to sell.

What’s the catch?

Drop-shipping sounds like a dream – all the opportunity of starting up a business with far fewer risks. But there are pros and cons to working in this way…

Drop-shipping pros

  • There’s a low barrier to entry – you don’t need to invest a lot of money in products and inventory storage before you begin
  • It’s a really simple business model. You sell, the wholesaler fulfills, job done.
  • Your risk is relatively low. If things don’t sell, you’re not out of pocket or left with a lot of stock to get rid of at a discount. 

Drop-shipping cons

  • It’s a very competitive niche (due to that low barrier to entry) and you may have to accept very low margins to keep up with other companies on pricing.
  • You don’t have a lot of control of the customer experience in terms of delivery, packaging or product quality. (There’s no opportunity to create a beautiful unboxing experience or even drop in a Flyer or Postcard.
  • You may have to set customer expectations around long shipping times, especially if you’re dealing with long-distance deliveries.
  • Keeping track of stock availability can be tricky. And especially tricky when you’re dealing with more than one wholesale partner.
  • Some wholesalers charge fees, either per order or per month. There may also be minimum order requirements, with charges to pay if you sell less than expected.

Wonderful use of stickers and postcards in packaging from Belinda Carter Art.

Tips for drop-shipping success

Automation is your friend

Hurrah for data! There are plenty of digital tools that can ease the burden of keeping up with your wholesaler, sharing stock availability data and even product descriptions automatically with your site. Some of these, such as Inventory Source, do double duty as wholesaler directories. Others, like Spark Shipping, can automatically handle order processing and tracking.

Choose suppliers wisely

It almost goes without saying, but choosing reputable, reliable wholesalers to work with can make the difference between happy and unhappy customers. Make sure you’ve thoroughly inspected the products and have service level agreements in place for shipping times and methods.

Factor in returns and shipping costs

If there’s one defining factor of the modern online consumer, it’s the expectation of free shipping and returns. If you’re going to offer free or subsidized shipping, make sure you factor this into your profit margins, especially if you work with multiple wholesalers.

After all, if the customer selects items from different providers, they won’t impressed to receive two shipping charges from what they perceive as a single source.

Your returns policy also needs to be carefully thought out. Consider if you’re able to offer free returns, and if not, what you’ll do about faulty or damaged items customers may have the right to return. Having a good relationship with your wholesaler is key here.

Your stock might be remote, but your marketing doesn’t have to be. Build your brand and your network with a set of MOO Business Cards, or brand your workspace and stationery with custom Stickers.

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