We get asked a lot about drop shipping, so we decided to write a post answering a few of the most common questions.
To make the information easier to understand, we created this step-by-step guide.
Step 1: Understand the characteristics of your product
It is critical to understand the characteristics that are unique to your product. These characteristics can change how you go to the market and how the product gets to your customers. Consider the following when understanding the impact your product may have on shipping:
1) Does your product have unconventional dimensions? Some couriers and/or drop ship companies will only accept certain dimensions when shipping product.
2) Does your product have an unconventional weight? Weight restrictions by couriers and drop ship companies are common. This characteristic can lead to higher costs through specialized courier services.
3) Are your products fragile? Some couriers and drop ship companies will have restrictions on what they will ship, or, how certain products must be packaged. There may also be mandatory insurance fees attached to certain types of products.
4) Are you shipping products that may be regulated? Couriers and drop ship companies have restrictions on what they are allowed to transport and what they are willing to transport. This concern is heightened for shipments that are crossing borders. This can lead to increased costs and additional time in transit to your customer.
5) Does your product have a shelf life? If your products do have a shelf life that is short, consideration must be taken on disposing of this inventory by the drop ship company if necessary. This usually involves a fee and in some cases, the product will be shipped back to you at your cost.
Step 2: Do you need a drop shipper?
Many times companies find themselves in a position where their growth forces them into looking for better ways to deliver their products at a cheaper cost. Many times it is an all or nothing strategy. Ask yourself the following questions:
1). Does your growth projection require the use of a drop shipper? If so when and what is the cost of the transition?
2). Can you use a hybrid solution where some of your products use a drop shipping arrangement while others are shipped from your warehouse?
3). Are there cost savings from drop shipping (you would be surprised that sometimes this is not the case)?
4). If there are cost savings from using a drop shipping company, does it outweigh the loss of visibility and control over your product, inventory, and overall operations?
5). Have you considered all available tools, such as shipping comparison sites (ShipGooder.com) that could reduce your shipping costs without the need for a drop shipping relationship?
Step 3: Locate a supplier who will drop ship for you
There are many options for drop shippers online. A simple search will lead to a list for you to consider.
The best way to select a drop shipper is to contact the drop shipper directly and ask for a list of references. A few phone calls or even face-to-face meetings may not give you a complete picture. Placing a few small test orders can give you an overall sense of how they operate.
One of the most important aspects of a drop ship business is to deliver products on time, without error. You want to make sure that your drop shipper will:
1). Be available when you need them. You can often vet this by viewing their website and understanding if there is a 24/7 customer service line or if they are using online customer service mechanisms. You can also check their online reviews and sites like the better business bureau to see if there are complaints filed against them.
2). Guarantee to process your order within a specific timeframe. This is usually an important element in any agreement you sign with a drop shipping entity. Ensure that the performance stipulations in the agreement meet your business needs.
3). Use fast shipping methods with full online tracking. Some drop ship companies allow for system-wide integration with their TMS (Transportation Management System). Other drop shippers will have online tools that allow you to track shipments and monitor inventory.
4). Understand the importance of handling your product with care, customer service, and error resolution.
5). Keep you informed of product supply before you run out of stock.
6). Give you acceptable terms for payment when the relationship is established. Try to structure your payment for fulfillment to coincide with payment received by your customer or through your online payment gateway. Often payments made online are instant. However, the gateway provider (Stripe, PayPal, etc.) will hold the funds for anywhere from 4-10 business days.
7). Ensure that the cost you are charged for shipping is competitive. Often times, drop shippers are a convenient way to warehouse, fulfill and ship your product to a wider range of customers. For small to medium sized businesses, the convenience factors may not be out way the costs. Use shipping comparison sites like shipgooder.com to compare shipping rates to ensure you are getting the lowest costs possible.
Step 4: Set up an account with the drop-shipper
At the starting point, your drop shipper may require you to have a credit card on file to pay for orders. Once you have established a relationship with your drop shipper, you will be given more flexible options such as paying by check within 15/30/90 days. There are some drop shippers that will give you terms from the start depending on the volumes you are doing. Be cautious of volume guarantees on your part as some agreements will try to build those guarantees in.
Your drop shipper will usually pay for the shipping to your customers, but they will pass along the cost to you when billing you. It is up to you to decide how much to pass on to your customers. The best policy here is to charge your customers exactly what it costs you to ship unless your margins can take the hit. Drop shippers can give you an estimate based on your product dimension, weight, and destination for you to use in your planning.
Step 5: Selling platform
There are some big marketplaces where you can upload your products and start selling them right away. To survive in e-commerce, having a strong brand and a point of differentiation will be crucial. E-commerce solutions such as Shopify, BigCommerce, or Wix E-commerce can help you create your own e-commerce website quickly and cost effectively. They also have a host of plug-ins that can help you in your online presence, inventory management and other marketing initiatives such as SEO. They all offer free trials. Try them and pick the one that works best for your product and business needs.
Good luck in your business venture. If you have any questions, please let us know in the comments section below.