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Steps to DropShipping Success Section III

Section III

Welcome to the third part of this 5-part course

on dropshipping and how to use it to your advantage.

In Step 3, you need to select a supplier or suppliers

for your products.

As we illustrated in the Basics discussion,

the best supplier may be the manufacturer because

you will not need to pay the mark-ups of wholesalers

and distributors. However, manufacturers may be focused

on production and not interested in or capable of taking

on the fulfilment function. The wholesaler or distributor

may be considered a "middle man" but they play an

important and useful role in connecting manufacturers

to buyers.  If the manufacturer of your product does

not work with individual buyers, ask which of their

wholesalers or distributors offer dropshipping.

Locate possible suppliers

There are many ways to locate possible suppliers for

your products. We'll describe a variety of options

then give you our recommendation for the most effective

method of finding suppliers.

If you know the products you want to sell, find out

the name of the company that manufactures the product

and inquire about their willingness to sell to you on

a dropship basis. If the company does not operate that

way, ask if they have a wholesaler or distributor who

might strike this type of relationship with you.

If you know the type of product you want to sell, but

do not have a specific manufacturer in mind, you can

try Googling the "product + drop shipping". This method

should yield some possible candidates for a dropshipping

relationship. However, it's a real challenge to make

individual contacts and evaluate all of those suppliers,

plus you are much more likely to run into middlemen.

You can buy dropship distributor lists, sometimes very

inexpensively. However, in our experience, you get what

you pay for when it comes to cheap lists. These lists

are often not updated regularly so you may find that

contact or other information is not accurate.

Our advice - simple lists and directories aren’t usually

worth the money or the effort to use them.

Go to trade shows or scan trade publications.

Dropshippers want your business. They are looking for

you through matching services, directories, ads in trade

publications and exhibits at trade shows. You'll never

find each other if you're not looking in the right places.

You can use a matching service such as eSources.co.uk.

ESources offers buyers an opportunity to announce their

need for a drop shipped product and for sellers to describe

their products and their terms of sale.

Our advice is to use matching services such as ESources

(there are also good alternatives available, however

watch out for cheap wholesale lists, they are not worth

much at all). Here's why you should choose a matching

service such as eSources.co.uk:

Suppliers are vetted; information is constantly updated

and monitored.

You will find suppliers who may not be savvy enough to

get their websites noticed by search engines but who have

indicated they are looking for new business.

You can view dropshippers by accessing specific categories,

such as our UK dropshippers and International Dropshippers

categories. This way you can deal directly with those

suppliers that are prepared to deal with you on a dropship 

basis.

You can announce your needs so that suppliers who can meet

your needs will solicit you, creating a highly targeted group

of supplier candidates to explore.

Once you have created a short list of candidates, begin

the evaluation process.

Supplier Selection

Explore these issues as you go through your selection

process.

Supplier Location

Although it would make sense to say that it should make

no difference where the shipper is located, there are

some issues to consider. 

If your target market is in Canada, you may want to

locate your suppliers in Canada since many shippers

do not want to deal with the hassle of customs processing.

(If your goods are low cost, they won't meet the threshold

for customs declaration so this may not be an issue.

However, it pays to sort out international delivery issues

upfront.) 

If you are having products shipped into the U.S. or any

European Union country (and many others countries as well),

those products must meet stringent standards for safety,

etc. Be sure you know the rules that apply to your product.

(You can learn all about importing by selecting one of our

country-specific importing courses or our course on

importing strategies.)

Company History, Reputation and Service

Ask about the history of the company. How long have they

been in business? Google the business name plus complaints

or reviews and see if there are any negative reports about

them floating around on the Internet. If so, either move

or at least ask the company to explain their side of the

story.

Consider the professionalism of this staff. Are your

questions answered in an informed and straightforward way?

Product quality

This is absolutely critical! Do you know that there are

many ecommerce resellers who have never seen the product

they sell? Don't rely on a picture or a description.

Order a sample and be sure that the quality is up to your

standards.

Price

What price will you pay for the item? Are there other

charges that apply? Beware of suppliers that ask for a

monthly "membership" or "participation" fee. These are

often scammers. Legitimate drop shippers make their

money on a per piece basis.

There are a few exceptions to this rule, however

generally you should stay away from dropshippers that

charge a fee to join their dropshipping service.

Payment

Drop shippers work in one of two ways. Either they

will bill your company credit card for each individual

purchase or, in some cases; they will bill you on a

monthly basis. If you can arrange monthly billing, you

may be required to supply a letter of credit. In general,

payment should not be an issue because you will collect

payment from your customer before you place the order

with the shipper.

Volume

Ask your supplier if they require a minimum volume of

monthly sales to maintain an account. The minimum monthly

quota should be a nominal amount; it should cover the

administrative cost of carrying your account; nothing more.

Be sure that you will be able to meet the quota. 

Inventory

Ask about inventory levels and arrange for  real-time

inventory reporting so you can quickly advise your

customers of any stock-outs or back order situations.

Shipping

Be sure that:

The supplier uses a reputable transport firm such as

UPS, DHL, FedEx or the postal service.

Your shipments to your customers will always have a

tracking number so they can be traced.

The shipper will include the tracking number in their

order confirmation.

Ask about the option of placing your name on

merchandise or at least on the shipping package.

There's great value in keeping the source of your

products a secret from consumers; you don't want

them to bypass you and go directly to the source

if that's possible). One of the hazards of tracking

numbers is that the tracking number reveals the source

of the product. You can handle this problem by referring

to the shipping origin address as your remote warehouse

location. 

Refunds

Be sure you understand and can live with the dropshipper's

refund policy. You will need to make this policy clear to

your customers. If you don't and there's a problem, you may

find yourself underwriting refunds.

Avoid Scammers

We've touched on several of the red flags that may

indicate a situation to avoid. They are worth repeating

along with a few other cautions.

Avoid companies that want to sell you a list or

directory of distributors at a low price; they're

usually not worth it. Plus, everyone else will be

buying those lists and accessing the same deals.

There are a number of legitimate, large scale dropship

companies that advertise a huge inventory of items to

choose from.  However, some of these mega dealers may

simply represents products, essentially the same way

you do. When you transmit your drop ship order, this

middle man company transmits the order to the true supplier.

The result? One more fee to increase the final selling price

of your product. Ask your supplier candidate if they

actually stock the products you will be purchasing in

their own warehouses;

Beware of companies that offer you package deals with web

presence, payment system, distributor lists, etc.

These deals can be so costly that you will be hampered

in making a profit.

How many distributors are too many?

The fewer suppliers you use, the better. More suppliers’

means more differences in shipping charges and return

policies as well as more management responsibilities for

you. Every business is different. Try to use the fewest

suppliers possible to support your business needs.

What have you learned?

By the end of this section, you should know:

How to locate possible suppliers for your products,

with the recommendation to use a matching service.

How to evaluate suppliers.

How to recognize red flags that can mean a problem

supplier.

That your best strategy is to work with fewer suppliers,

if possible.

Terrific! In part 4 we will look at how to establish a

relationship with the dropshipper and incorporate their

products into your business.

To our success working together.

Section II - Introduction to DropShipping

Section II

Welcome to the second part of this 5-part
course on dropshipping and how to use it
to your advantage. In Step 2, we discuss
how you need to analyse your market and
select products that you can successfully
sell.


If you are already in the retail business,
you may be thinking, "My product selection
is done. I can skip this section." Well,
you are right that you have already made
your decisions but, every business owner
should, on a regular basis, step back and
look at how well they are doing, how they
can improve or expand and how well their
overall business strategy is working.
This section is all about matching products
to market and pursuing a successful business
strategy.

Let's focus first on those who are just starting
out and trying to figure out how to get into
business or how to expand their Internet business.



Product Selection


The task of figuring out which products to sell, on a
drop ship basis is difficult to separate from the task
of selecting a drop ship supplier; the two tasks operate
together. For the moment, however, we'll focus on the
product side of the equation.


Narrow the choices

If you truly do not know what you want to sell, you
have a big universe of products to select from. It is,
of course, possible, to search for any available product
at the right price that you can resell. There are
certainly plenty of people on the
Internet using that strategy right now, but it's
not a very good strategy for success. Here's why.


Some wholesalers, distributors and scammers advise
you to select items from their enormous catalogues,
advertise the items at a marked up price on your
website, take orders and payment then transmit to
them for fulfilment. (You'll find some of these operators
lurking in the "Make $20,000 a month working from
home..." ads found throughout the internet.)


And ... there are many, many get-rich-quick wannabe
entrepreneurs doing just that. If you follow that strategy,
you will be competing with hundreds or thousands of
others being supplied with the same products at the
same wholesale price. That's an uphill battle. Plus, if
you are choosing products based only on the possible
mark-up available, you may not know enough about
your marketplace to sell that product effectively.


If you are just entering ecommerce, take the smarter
approach and narrow your choices a bit more. For example,
you may prefer to focus on medical products because you
have a medical background or you have an excellent
on-line market niche through your participation in
disease-specific chat rooms. Or you may want to sell
sporting equipment because you're a former athlete
and now a coach and you can write terrific articles on
sports that will draw people to your site to buy products.


Think about your market

Think about a market niche that you believe you can
sell to (because you understand the market, you have
access to the market, etc.), e.g., soccer moms, the elderly,
people who travel internationally, high income pet owners,
people with arthritis.
Then think about that market's needs and how you
might be able to meet those needs with a product or
products. For example, high income pet owners tend
to treat their pets like substitute children by purchasing
clothing, accessories, toys, gourmet foods, etc.
You understand what these consumers want to buy
because you used to work for an exclusive pet boutique.


Speaking of markets, it is usually wisest to begin your
business by appealing to a defined market niche.
It can be difficult to put up the resources to appeal
to the general public in the beginning.


Now you know something about the products you
want to sell. Next, you need to find those products,
available through drop shipping, at a wholesale
price that can be marked up and sold successfully
at a profit.



Determine wholesale price opportunities


Get a feel for how much you will pay for the product
you wish to sell. You will have to contact suppliers
and negotiate price. We'll talk more about developing
that relationship in Section II.


Do the competitive analysis!!!


This is where the rubber hits the road. In order to
perform a competitive analysis, you need to figure out:


How much it will cost you to sell the product


How you will need to price the product to cover costs
and enjoy a profit


How your price compares with others selling the
same or similar products


Who else is selling and how they are doing


How you are going to sell this product more effectively
than your competitors



If, at the end of your analysis, you believe you can sell
this product to your targeted market at the right price
and the right quantity to meet your business goals,
you're ready to establish a relationship with a supplier!



What have you learned?


By the end of this section, you should know:


How to decide which products to sell with the
recommendation that you select products for
a market you know how to access


How to analyze the business case, for your product.
In part 3 we will look at the supplier side of dropshipping.

To our success working together.

Section I - Introduction to DropShipping

Step 1 involves understanding dropshipping as

a business strategy and determining if it will work

for you. Let's begin by quickly reviewing the

distribution chain as a way to understand how

dropshipping fits into the model.

Traditional Distribution Chain

In a traditional distribution chain, you as the

seller (sometimes known as the reseller) purchase

an inventory of products from manufacturers, 

wholesalers or distributors.

Manufacturer - the creator of the product

Wholesaler - usually provides products to

distributors; may sell directly to retail buyers

Distributor - works to distribute products to as

widely as possible. Purchases from manufacturers 

and wholesalers

If you purchase from the manufacturer, you pay

the manufacturer's wholesale price (MWP). If you

purchase from a wholesaler or distributor, you pay

the MWP plus the mark-up charged by anyone else

in the distribution chain. For example, let's say you

purchase from a distributor who purchases from a

wholesaler, and that the original manufacturer's

wholesale price (MWP) was £10.00 per unit. Below

is what you would pay in this example:

£10.00 (MWP) + the wholesaler's mark-up of 10% (£1.00)

+ distributor mark-up of 10% (£1.10) + handling/shipping

(£.50/unit) = £12.60/unit.

You maintain an inventory of the product, market and 

sell it to your customers at a marked up price that will

cover your costs of marketing, inventory and so on, for

example, £20.00/unit. (£5.00 to cover your costs and

£2.40 profit/unit).

You package and ship the product to your customer,

charging your retail price plus the cost of shipping

and handling. £20.00 + £3.00 shipping/handling.

Your profit is £2.40/unit.

DropShipping Model

In the dropship model, you arrange to sell products

offered by selected manufacturers, wholesalers

and/or distributors.

You do not purchase inventory. Instead, you

promote the products through photos and information

provided by the supplier and/or by showing sample

products.

When the customer orders the product, you collect

payment then transfer the order and payment to

the supplier who then packages and ships the product

directly to the customer, often with your shipping

label or other branding.

In this model:

You transfer shipping costs to the customer.

(You will save £.50/unit; your customer will

pay more for single order shipping.)

You may be able to reduce your £5.00 overhead

costs because you don't need to purchase in bulk,

store and handle the merchandise. Say that

saves you £1.00/unit.

Now you have two choices. You can either:

Sell the product for $20.00/unit and increase your

profit to $3.90/unit ($2.40 profit + $1.00 saved on

overhead + $.50 saved on shipping) or Pass on some

of the savings to your customers in order to be more

competitive and sell a greater volume of products.

Sounds perfect, doesn't it? Well, you're absolutely

right; drop shipping can be a wonderful way to build

or expand a business for many reasons. Of course,

there are some drawbacks as well. Let's take a look

at the advantages and disadvantages of dropshipping

next.

Advantages of DropShipping

Dropshipping truly offers exciting opportunities, especially

for new and small businesses (though many major retailers

use dropshipping as well).

You don't need to purchase and manage inventory. In a

traditional retail or reseller setting, you purchase enough

inventory to be able to fill customer orders as they come

in, most of the time. If you are just starting out in business,

the inventory costs can be huge. Even if you are established,

it may be difficult to afford expansion into a new line or

stocking up in anticipation of the holiday buying season or

the spring growing season.

You don't need to store inventory. Unless your inventory

is paper clips, tacks and staples, you will need to have

some sort of storage capability. (Even small items can

be difficult because they need to be stored so that they

are accessible for the "picking and packing" process.)

Storage is one more overhead cost that needs to be

considered in your pricing.

You don't have to deal with unsold stock.

Most companies try to have enough stock

on hand to meet demand. If demand falls short,

you have product sitting on your shelves that you

need to move in order to either get some return or

simply free up cash for the business. Companies often

resort to "inventory" or "warehouse" sales, selling at

very low prices, sometimes under cost, to move

inventory remainders.

You don't need to handle the product. Shipping product

requires manpower to do the picking and packing.

You don't need to manage relationships with shipping

firms (UPS, US postal, etc.)

You can try out new products with almost no investment.

If you are a web retailer, you just put up the new products

on your website and if they sell, you make money.

If not, you only lose the time you spent putting up new

information.

Your customers never have to know that there is a

third party involved. Most dropshippers will place your

shipping label on the merchandise.

Disadvantages of DropShipping

Okay, so what's the catch?

Sometimes your supplier will mark up your products

to cover their costs of dropshipping so the MWP price

may be higher than the price for a bulk shipment.

Usually the savings in your overhead costs more than

covers the mark up.

You are not in complete charge of the customer

relationship. If your drop shipper makes a mistake,

the error will reflect poorly on your company.

You can become more vulnerable to rationing.

For example, if you resell gaming electronics and

ABC's newest version is selling like hotcakes, your

orders may not be filled and you can't do anything

about it.

You won't know about quality problems until you

hear about them from your customer.

When you handle and ship product yourself, you can

be certain that the ceramic piece is not chipped or

the model includes all of the accessories.

You could lose your customers to the manufacturer

who decides to go retail. For example, if a manufacturer

who dropships cosmetics for you decides that, now

that it has the name and address of your customers,

it can send a reminder to replenish supplies by reordering

on their website, you have been cut out of the loop.

However, in reality, if a manufacturer chose to do that,

they would quickly lose their distribution network and

could be in breach of contract with their resellers. So,

while customer encroachment is a possibility, it's not

likely to happen. And, you will place restrictions in your

agreement with the supplier to prevent this problem.

(See Section III on Authorized Dealer Agreements.)

Is dropshipping a good strategy for you?

Every business situation is different but there are

some general considerations that apply.

Dropshipping is an excellent approach to get into 

business. This approach allows you to start up with

very little capital investment and very little risk.

If you are starting out, this may be a great way to

test the market.

If your company offers or intends to offer a wide

variety of products, wholesalers or distributors are in

a much better position to manage many different

products; that's their expertise.

If your product demand is highly variable or apt to

change quickly with fast-moving trends, you may

be better off letting the supplier manage the ups and

downs of the marketplace by keeping the inventory

on his shelves, not yours.

Is your strength marketing and customer relations?

It needs to be; you have essentially outsourced the

fulfilment function and your business now depends on

your ability to promote products and manage a relationship

through third parties.

Does your industry offer dropship opportunities?

More and more industries do.

What have you learned?

By the end of this section, you should know that:

Dropshipping differs from the traditional supply chain.

Dropshipping offers many advantages such as low

costs of entry, reduction of risk and elimination of many

overhead costs and elimination of inventory management.

There are some risks associated with drop shipping such as

loss of control of the complete customer relationship.

You should analyse your business situation to be sure

dropshipping is the right solution for you.

Now that you understand the business of dropshipping and,

if you believe it's a workable solution for you, let's talk about

overall business strategy.

To our success working together

www.IrishBuyNSell.com

Steps to DropShipping Success

·         Determine whether or not dropshipping can

work for your business.

·         Select a product or products that you

can successfully sell.

·         Locate and select a dropshipper for

your product(s).

·         Organize the logistics and incorporate

the products into your business.

·         Establish policies that keep you in

charge of the customer relationship; anticipate

and avoid problems.

This course is designed to help you launch the drop ship

aspect of your business.

Section I explains the business of dropshipping and

discusses the pros and cons to help you make the best

decision for your business.

Section II explains how to select products that

will sell successfully.

Section III discusses how to select the best 

dropshipper for your business.

Section IV explains how to set up the logistics of

dropshipping.

Section V explains how to maintain control of your

customer relationship.

By the end of this course, you will have
the information you need to build or
expand your business through the
use of dropshipping.