One of the most common ways to ramp up your online business is to incorporate drop-shipping. This is when you list a supplier’s products on your website but you don’t physically carry their merchandise yourself. When you get an order for one of those products you send the order details to your supplier and they ship it to your customer as if you had shipped the item yourself. This allows you to offer a large variety of products without having to take the risk of investing money in purchasing those products. I’m not saying that this is a good or bad strategy for your business but if you are going to go this route then you should review the important factors I outline in this post in order to make sure that your drop-ship supplier is right for you.
The bottom line is that before you list a supplier’s products on your site you need to determine if their products are worth listing. Although you don’t have any inventory risk, there is a cost associated with managing these items. Remember, nothing is free and drop-shipping is no exception. For example, while you don’t actually purchase and store these items in your warehouse, you still need to spend time and money to post them on your website or in a marketplace like Amazon or eBay. Whether you do it yourself or have an employee post them for you, it will still cost you money. What’s more, you will incur additional costs to market these products so people know that you offer them for sale. These marketing costs may include pay-per-click or marketing expenses, listing fees on marketplaces such as eBay or any other type of advertising that you do.
Before you start drop-shipping, make sure to review the questions I outline below. I learned these the hard way so hopefully this will be helpful to you. Many suppliers are simply not equipped to handle small “onesie-twosie” orders because traditionally they were used to shipping pallets of merchandise to their suppliers and letting them handle all the logistics of shipping individual orders. However, in order to compete in today’s ecommerce landscape, many traditional suppliers are reluctantly agreeing to drop-ship without realizing the enormous effort and planning required to do it correctly. While some of them get it right, many fall way short and end up causing enormous heartache for ecommerce merchants.
If you want to learn more about drop-shipping, make sure to also read our other post entitled, “How to Start a Drop Ship Online Business.”
Top Questions to Ask Before Using a Drop-Shipper
1. Is there a drop-ship fee?
Many drop-ship suppliers charge a drop-ship fee and many don’t. If you’re not careful this fee can eat up all of your profits without you realizing it. If a drop-shipper charges a $3 drop-ship fee, how likely is it that you’re going to make a profit on that item after you pay marketplace fees, credit card fees and other commissions? Remember, the lower the selling price of the item, the higher the percentage of your profit that $3 will eat up. I don’t know how many times a sales person has told me, “but it’s only $3 man! It’s not that much…” Think again.
2. Can your potential supplier handle drop shipping?
One of the first things you need to evaluate is whether a particular company is well equipped to handle drop-shipping. I don’t know how many times I’ve had salespeople tell me that they offer drop-shipping just to get my business even though their company had never done that before. You don’t want to find out that some sales person decided to use you as their guinea pig in order to learn to drop-ship.
3. Will they ship out in one business day to satisfy the 24-hour shipping deadlines set by Amazon, eBay and other top marketplaces?
Many marketplaces are measuring how fast you uploading tracking numbers into their system. For example, in order to quality for Top Rated Seller status on eBay, you need to upload tracking numbers within 24 hours for 90% of your orders. If your drop-ship supplier takes four days to give you a tracking number then you will lose out big time. Many suppliers are simply not equipped to handle small “onesie-twosie” orders. In a world where customers are demanding same-day shipping, it becomes critical to find a supplier that can get your orders out the door as fast as possible.
4. Is tracking number retrieval automated or do you need to manually contact your supplier for each order to get a tracking number?
Ideally you will want to work with suppliers that have automated their tracking number retrieval system. That means that a human is not required to manually send you a tracking number.
5. Can they give you an inventory feed to load their products?
Can they give you reliable and clean data so you can upload their products or are they going to give you junk? Will it take you forever to massage the data? If your supplier has thousands of products there is no way you will be able to list each product one by one. You will need an inventory feed that you can use to bulk upload their products. In short, you will need to consider how you plan to load their products. You can tell that a drop-shipper is not right for you when they tell you to just grab all the info you need from their website. Or worse, they send you a bunch of PDFs and expect you to copy and paste everything like you have nothing else to do in this world.
6. If they do have an inventory feed are their products neatly categories into clear categories and sub-categories?
The best inventory feeds are the ones that clearly categorize their products so you can easily map their product categories to your own. This becomes super important when you want to list these products on your own website or if you want to list them on various marketplaces. Most of the time you can’t just blindly list your products without some category organization. You have to specify into which category or sub-category a specific product belongs to. It can become a nightmare to try to categories 5000 products from a data feed when you have nothing to go on.
7. Can they give you good pictures for their products?
You don’t know how many times I’ve heard a sales rep say, “Uhhh, just go and get the pictures from our website. They are all there. No problem…” What these knuckleheads don’t realize is that we don’t have time to copy and paste pictures all day long. Maybe this would work if you were listing a handful of products but if you are listing thousands of products there is no way to do it. The most effective suppliers are the ones that can give you a clean set of image URLs for each of their products. Even better are the ones that can give you multiple images for each product.
8. Are their products correctly listed?
Believe it or not this is a huge issue. You can’t believe how many suppliers I have come across who provide incorrect data in their product data feeds. I had one supplier who gave us the wrong pictures for each of their products. I’ve had others who had the wrong UPC codes for many of their products. In other cases, one supplier had a bunch of their products listed with incorrect specifications on Amazon’s item detail pages. This becomes a huge headache when a customer files a “not as described” case against you. In short, try to avoid suppliers with sloppy data management habits.
9. Do they have an IT team that can assist you with setting up the products?
A lot of times you’ll run into snags when you try to list products from a supplier. For example, key data is missing from a feed or their feed doesn’t work, etc. It is really helpful when a supplier an offer you assistance to fix these issues.
10. Can they give you a daily (or hourly) feed to update your inventory quantity?
Similar to the inventory feed to initially load their products, you need some automated way to update the quantity levels of their products once you go live. It is crucial that you have accurate inventory levels for your products at all times. You need to know very quickly if something goes out of stock so you don’t end up overselling a product. On many marketplaces if you sell something that you don’t have you can get into a lot of trouble. You need to avoid this at all costs.
11. Do they have enough inventory?
You need to do a little digging to see if this potential supplier is well stocked at all times. You want to avoid suppliers that are always sold out of everything. They are a complete waste of time and energy to try to manage.
12. Are they giving you a good price so you can compete?
I have come across a lot of suppliers who think that if they charge me a high price that somehow they are outsmarting me. They don’t realize that if they overcharge me then I will need to price their items higher, which results in us getting zero sales for their products. This ends up becoming a colossal waste of time and money because we spend all this time loading and marketing their products only to realize that our prices are not competitive so we never get a sale. Even worse, the most bone-headed suppliers are the ones that say that they will lower our prices once we start ordering in larger volumes with them. This is the classic chicken and egg scenario. A smart supplier is one that gives you good prices and manages your account well by giving you many opportunities to compete on the open market.
13. Will you be a small fish among a sea of drop-ship customers? If so, how will you differentiate yourself?
There are a lot of large and popular drop-ship suppliers that cater to literally every online merchant on the planet. You need to ask yourself how you plan to differentiate yourself and compete when you will be one in a sea of other online merchants carrying the same products. If you think that it will be hard to compete maybe it’s better to choose a different supplier. What’s the point if you and 45 other merchants are all going to sell the same product on Amazon? How likely is it that you will get an order?
14. How do you place orders with your suppliers? Is it efficient and automated or manual? Is it very time consuming?
Ideally, you want a drop-ship supplier that gives you an easy and quick way to place your orders with them. This is especially important when you have to place a lot of orders. Some allow you to integrate into their order management system while others offer an easy way to place blind, drop-ship orders on their websites. Alternatively, some suppliers tell you to email them a purchase order so they can manually enter your order into their system. How much volume do you think they will be able to handle if they are manually entering orders? Basically, the more automation they can offer you the less you’ll need to do in order to complete your orders.
If done right, drop-shipping can be a good way to expand your product offerings with very little risk. Before you begin, make sure to ask the right questions and do your due diligence before you begin doing business with a potential drop-ship supplier. You need to make sure that this new supplier is equipped to realistically offer you what you need to grow your business.
The best drop-ship suppliers are the ones that offer products that are worth selling. In a nutshell, this means that you have money left over in your pocket after you have calculated all the time, energy and money you were required to spend in order to sell their products. Basically, was this whole endeavor worthwhile?
Business Consulting Services: If you’re a small business owner looking to start or improve an online business then let me show you how to benefit from my experience. I have helped several online resellers grow their businesses by developing an online strategy to sell on Amazon, eBay or any other marketplace. Call me at 310-574-2541 or email me at Pez@Pezlogic.com for a complimentary business review.