Dropshipping 101Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to wholesalers or suppliers, who then ship the goods directly to the customer on the retailers behalf. The retailers make their profit on the difference between the wholesale and retail price.
Already highly advanced and successful in the US (you only need to look at Amazon.com) , drop shipping is now becoming increasingly popular in Australia. Whether its a means to populating an already established product range with a few more lines or a way to you manage your entire inventory, dropshipping is something every online store owner should investigate.
Having said this though, running a drop ship business model is not easy if you do not have 3 things:
- Tech savy suppliers who understand and practice drop shipping
- An e-commerce platform that seamlessly manages your drop ship suppliers, inventory and orders
Tech savy suppliers who understand and practice drop shipping
You are wasting your time if your suppliers cannot provide you with accurate inventory levels, detailed product descriptions and a guarantee on delivery times and practices. Time and money wasted on trying to manually manage stock levels, collect product descriptions and follow up on undelivered goods will leave you out of
pocket and could ultimately damage your business reputation.
Ask your suppliers these three questions when investigating the drop ship model:
- Can they provide an inventory or data feed with accurate stock availability
- Can they provide product descriptions and images in a format that can be imported into your e-commerce system
- Do they offer a delivery time guarantee and can they provide you with shipping tracking numbers once orders have been dispatched
- Will they sign a confidentiality agreement stating that they will not use your customers details for any reason other than to deliver your orders to your customers
An e-commerce platform that seamlessly manages your drop ship suppliers, inventory and orders
This to me is critically important. Margins in drop shipping are typically low due to the nature of the service being offered. It is therefore imperative that you have systems in place to automate the majority of the daily tasks associated with managing your drop ship business. This includes software that can:
- Accept inventory or data feeds from suppliers for adding and updating inventory and stock levels
- Automatically split and assign orders to the relevant drop shippers
- Distribute drop ship orders directly to drop ship suppliers in the required format (ftp, email etc)
- Accept consignment or order update feeds from suppliers to update the status of drop ship orders as they are shipping, cancelled or changed
It is impossible to say what kind of margin you should be making in your drop ship business as it varies greatly from industry to industry. One thing is for sure though, always negotiate with your suppliers for the best possible price. No matter how big or small you are, every order represents a profit to their business. If your supplier is not willing to budge on price try negotiate better payment terms or even a discount for paying early.