Getting your products into your customers’ hands is the largest component of ecommerce. You have to have access to inventory, whether the inventory sits in your warehouse or at your vendors/suppliers. Fulfillment can be challenging especially if your infrastructure is not set up or not set up properly. This part of running a business can determine whether you live in ecommerce heaven or ecommerce hell.
Here are some issues that you need to address when warehousing your own products:
- You need a warehouse where your items can be stocked.
- You run the risk of losing money due to unsold stocks/inventory.
- You have holding cost, which means that it costs you money to stock inventory.
- Your product offering may be limited to the size of your warehouse facility.
There are other concerns to tackle, but it can be summed up in simple words: it’s costly, and it makes scaling difficult.
You have another option; drop shipping is a viable solution to grow your business. When your customer places an order, you contact the supplier/wholesaler and ask them to deliver the product straight to your customer. It saves time and reduces your risk of holding on to inventory that may or may not sell. More importantly, it allows you stay flexible to the ever-changing wants of online customers.
Advantages of drop shipping:
- Scalable – Test more products and offer them in your website instantly. Use your vendor’s warehouse as your warehouse.
- Profitable – Maximize your income with only a minimal investment. You only pay for Cost of Goods once the product is sold.
- Get started now – It’s easy to venture into this type of online business. Most Vendors/Wholesalers are now caught up and on board with the drop shipping model and have efficient processes to make this easier for online retailers.
- Lower overhead – Since you don’t have to have a warehouse, you reduce your overhead expense and don’t have warehouse staffing to contend with.
Best drop shipping strategies:
- Find great suppliers – Legitimate suppliers offer a dedicated support team and they invest heavily in technology; this makes them wonderful partners to grow your business.
- Carefully pick products to dropship –Consider the product’s marketing potential. Customers prefer to shop online for items that are hard to find in local stores.
- Stay alert for fraudsters and scammers – Avoid fake suppliers by doing research before dealing with one. Choose wholesalers/suppliers with a good reputation in the industry you are in.
- Build strong relationship with multiple suppliers – Having only one supplier can be problematic. If something went wrong, your business operation might be put on hold or worse.
- Learn to manage “messy” situations – Out-of-stock problems may arise every now and then; accept that it happens. You will need a good return policy to handle such situations. You need to understand how your vendors’ operations work and how you can work with them on problem issues, like damaged or defective goods.
Drop shipping may sound super easy, but it is not. Some entrepreneurs get into drop shipping with the mindset that they can put the business on auto-pilot, just because they have the fulfillment piece outsourced to their suppliers. This mindset is flawed. No business can be on auto-pilot, not if you are serious, want to make serious profit and actually build a business and not just to have a hobby.
Drop Shipping has its challenges as well.
Here are some challenges that we and our clients have experienced over the years.
- Your supplier also has a retail online presence, not just a website, and they compete with you on different channels like Amazon, Ebay and other marketplaces.
- Your vendor doesn’t understand how to operate their drop shipping model and you become a casualty of their incompetence. When they fail to deliver, you can’t exactly blame them to your customers. At the end of the day, you are ultimately responsible to get the goods into your customer’s hands.
- If they are drop shipping for you, they are likely to be drop shipping for lots of other online retailers, which means that the product line becomes a commodity, resulting to the product category becoming too competitive, which can translate to shrinking margin just to stay competitive or to grab market share or compete for customer orders.
- With most vendors, they charge you per order, it make sense to do it this way just for keeping it all organized. This can also result to a nightmare of paper work to keep track and organized on your end. Reconciling against credit card billings and matching it up against your purchase orders and customer orders can be daunting and I urge you to make sure you establish a process for this otherwise you’ll be living in ecom hell.
- Less flexibility – if your customers want rush orders, you may not be able to accommodate special requests, as your vendors have their processes and cannot make exceptions.
Now that you have knowledge of some of the benefits and challenges of the drop shipping model, be sure to have a plan to mitigate your risks against these issues.
While it’s ideal to outsource the fulfillment, it doesn’t make running an ecommerce business that much easier. You still have to be persistent and consistent with your marketing efforts, your customer service, and fine tuning your overall business operations.
Written by: Shirley Tan