What Is Drop Shipping About? | Entrepreneur Smart

So do you know what drop shipping is about ? Got to be honest, until I recently watched a webinar about it, I had totally no idea.

According to Wikipedia………’Drop shipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers the customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.’

Drop shipping has become popular due to the low barrier of entry and the limited overheads in getting started. This is great for the startup online marketer but there is a certain amount of skill involved in the choice of products chosen to drop ship.

It is a marketing system that appeals to those with limited space to store stock, as you as the drop shipper will not need to hold much stock, if any. It solves any inventory management issues for trailing new stock without the overheads of stock that may not sell.


Introduction To Drop Shipping

Easiest way to show how drop shipping works is with the drawing below.

Your customer purchases the product from your online store. They pay you the price you have set in your store. You take your profit from that price then pay your drop shipper who posts the parcel to your customer. You never see the product and do not have to have any stock yourself.

Sounds perfect ! Win win situation!

What Are You Going To Sell?

I was going to continue the theme from the last sentence and move onto how you will charge for your products, but maybe first we need to work out what you are going to sell… Your niche industry will have a huge bearing on what you decide to go for. If you are at the very beginning of your new business, deciding on your niche comes before you work out your product.

Go read my article on Niches and follow the information there to find your niche.

The sort of product you are deciding to sell, depends on the kinds of marketing strategies, profits you are likely to achieve. You will have experience/skills/passions/hobbies that will start you out in deciding the types of products you are going to drop ship. Understanding what you are selling, the market for that product, what profits you can achieve from the product are questions you need to answer before you start the process of building your dropshipping website.

If I was going to drop ship, I have skills in various fields – elite sport (tennis), ice skating, triplets, travel… I have experience and skills in all these fields. Choose your drop shipping products carefully, use your skillset, you can branch out once you have your business network established and any issues ironed out.

How Is This Going To Work?

As there is no single pricing strategy, you need to consider how much it will cost to run your business, how much it will cost to buy the product from your wholesaler (there could be added costs here), how much returns will affect you, shipping costs etc.

Getting your pricing right is as important as choosing the right product. If you don’t get that right, the product you have researched will be irrelevant as your business will not be sustainable.

Price Discount Breakdown

This is the finance side of things…. So the way you make a profit is that you charge your customer more than your wholesaler supplies you. You take the profit.. easy!! Sounds straightforward but I will walk you through the main drop shipping pricing strategies you can implement in your business to increase your profits.

Fixed Markup On Cost (FMOC) is the standard pricing strategy for setting product prices. This is the way that preset profit margins are added to the cost of the products. Generally the FMOC is 10-20%. There is not actual set rule, but gauged by looking at your competitors in your market. You don’t want to be setting it too high, thinking high profits and pricing yourself out of the market completely.

So the pricing would work something like this as an example…..

Lets say you sell glass chess sets….

Your wholesale price is $100. With a FMOC of 20%, you would have a retail price of $120

Once you have the retail price, a little research on your competitors would be required to ensure that you have not overpriced your product and will have trouble selling.

As a start-up I would recommend being cautious about your FMOC. Get the traffic to your site with a steady stream of purchases before pushing your margins to the limit. Drop shipping has its limitations and one of them is the shipping.

Shipping

Shipping costs have to be factored into the price of your products so that needs to added onto the overall cost. Bear in mind also that if items are sold internationally, the shipping times will be dramatically increased. Some customers will not wait the increased shipping times, but this doesn’t mean that drop shipping is a dinosaur that should be buried, customers accept longer shipping times, if they are getting a good deal on price.

For this very reason, some drop shippers add the shipping cost to the product price and offer ‘free’ shipping. The shipping isn’t actually free as you have added it to the price, but as far as your customer is concerned, they feel that whilst they have to wait for their product, they are getting the shipping for free.

Another alternative is to try and source your products from drop shipping suppliers who charge no shipping costs. This would be the perfect scenario, no need for you to add it to the price of your product, no shipping costs, you can offer your products at much more competitive prices.

Returns

Think about your returns policy and ensure that this is prominent in your business so all customers know the policy before they purchase. This is an unknown cost to your business that you will have to factor into your calculations going forward, not something you will know, percentage wise at the outset of trading. Will returns be free? Does your drop shipper offer free returns? Once you have an idea on what percentage is returned, you can factor in a percentage onto your pricing to reduce the deficit.

One reasonable policy I would recommend, if at all possible, is to get a sample of your product, from your drop shipper so you can inspect the quality before you start promoting it. Clearly if its a large item, that would not be possible so do research into anyone else selling the same product, where they get it from and what their customer feedback is like.

How To Set Up Drop Shipping

These are the first steps that you need to have completed before starting to approach the drop shipping suppliers.

Decided on the products you are going to drop ship….

  • You have done your research.
  • Know your products well.
  • Have looked at competitors prices.
  • Confident that these products will bring you in a satisfactory profit.

Do these steps before looking for a drop shipping supplier that has your products, that ships to the countries you are selling, rather than the other way round. Its easy to get sucked into promoting products you see they have without the research that’s really necessary to make a success of your business.

Locate A Supplier Who Will Drop Ship For You

There are tons of suppliers out there and they all want your business ! So again research here is imperative. Some suppliers don’t charge a fee for joining, others may charge a one-time fee, a monthly fee or an annual fee. There are also agents that offer to find you a drop shipper and will charge a fee to give you a huge database of drop shippers – handy if you are struggling with deciding which to use.

Ive listed a few drop shippers here…. I have not tried them out, as I don’t do drop shipping, but they are the best known and some for you to start with. You can search for more drop shippers in your niche on Google, but these three are the top drop shippers. Decide what you want from the suppliers –

Do they ship to the country you’re promoting?
How long does shipping take?
What do they charge for shipping?

How reliable are they – search for reviews.
Do they have good reviews for their products? Are they good quality?
Do you want to send for samples of the products first?


Ali Express – One of the biggest ecommerce platforms in the world. Brings chinese manufacturers and buyers together from across the globe. Items are offered at low prices and platform allows customers to purchase single items. Free worldwide shipping with an express shipping and packet shipping times of 7-14 days/range of products/follows trends/no fees.

Salehoo – Supplier of Dropshipping Directory. They provide drop shippers details for your products. They offer access to their directory/access to their market research labs/members forum/email support. They charge $67/year for membership but support you with reliable drop shipping suppliers and take that strain away.

Doba – Will take you from having no products and no niche, all the way through to finding you niche products to promote. Offers as much support as you require including quick start training for $399. If you want to try them out for a month, its free, after that there are various plans you can choose, the most basic being $29/month. Would be good if you have no idea at all and dont have tons of free time, but can afford to pay that bit extra for the support they offer.

Once you have found a drop shipper who you are happy with and drop ship your products, set up an account with them.

Build Your Store Online

You can drop ship without an online store – you can use Ebay for starters, no store required, simply set up an account with Ebay and list your products. There is a disadvantage to this though, you will be in direct competition with others online selling a similar product and you are all listed together, one after another.

Building your own web store is not difficult. You could either join a drop shipper who offers the facility or choose a host that supports web stores.
You can also go to Wealth Affiliate – a platform that supports new businesses and offers tutorials, articles, webinars on the very job of setting up your own website, how to find and encourage traffic to your website (got to have customers ), making it SEO and Google friendly, basically all the ins and outs of running a successful online business (like this one!).

There is a fee involved but this is no more than you will pay anywhere for hosting of your website, so you get the added advantage of all the support for free.

Follow this link to know more about WEALTHY AFFILIATE.

Benefits of Your Own Drop Shipping Webstore

  • Greater income – shoppers prefer purchasing from an online store – builds trust so conversion rate increases.
  • Less competition – No other Ebay or Amazon listings in direct competition on the same platform.
  • You have full control so can offer good customer service and build a brand that is widely trusted.
  • Good returns service, with after sales so reducing the need for returns.
  • You can follow your own analytics and see which products sell the best.

What Do I Think Of Drop Shipping – Pros and Cons

Drop shipping is a easy, quick start for someone who is still working full time but wants to start a new business without taking up a lot of time and energy in the start up. Its low cost, so minimal outlay in the initial stages. Clearly as business starts to pick up you may want to pay for advertising or use Google Shopping Campaign to increase traffic. The website is easy to run from anywhere around the world. Its easy to expand and change products at any time, following trends within your niche, and gives you the time to think about where your business is going, how you want to grow it. Maybe that perfect drop ship product isnt there, maybe its one that you drop ship but you know has a flaw you can easily solve and you want to work with your drop shipper to develop the product that meets the demands of your customers – you have the scope to do this.

There are always negatives to anything. Drop shipping can be thankless, even with profits. You can see that if you’re selling travel adapters at $3, you’re not going to be making enough profit to go on that holiday. But if you are selling infra red grilles, then the profit margin will be higher.

So choosing the right niche products is key. The shipping time can be a problem today… 20 years ago we were all used to waiting a week or so for something to arrive but now, with Amazon’s next day delivery, everyone expects things to be immediate. That won’t happen with Drop Shipping… so the carrot is cost. You might not make so much profit but if you sell 10 with shipping at week, for a moderate profit rather than 1 at a higher profit, you can see its worth it.

People are prepared to wait for a bargain and if they’re not, then they’re not your ideal customer!

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