As a wholesale distributor, one of the best ways to acquire online retail customers is to offer to drop-ship for them. Drop shipping lets online retailers list a lot of products without the risk of carrying any inventory. What’s more, online retailers only order and ship what they sell without worrying about items that don’t sell. You as the wholesale drop-ship supplier is the one taking all the risk because you will have to carry the inventory, store it and pay for it. So why would you as a supplier agree to do business this way, especially when you are the one assuming all the risk?
The answer is because in today’s competitive landscape, many online retailers have the upper hand and are demanding that wholesale distributors offer drop-shipping. As more wholesalers offer drop-shipping, it makes it more difficult not to offer this service. Even so, agreeing to offer drop-shipping and doing a good job at it are two different things. As you will easily find out, many wholesalers are simply not equipped to handle small orders but 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 short in their quest to become drop shipping wholesalers, causing countless headaches for their online retail customers.
The goal of this post is to go over some of the most important things to consider if you are thinking about becoming a wholesale dropship supplier. Just like any other business model, drop shipping has its benefits and its disadvantages. If you want to become a dropship distributor, review the information listed in this post to determine if this model is right for you. This post will help you gain insight on how to become a successful dropshipper.
Before we begin, I want to make it clear that I will use some terms interchangeably. For example, I may refer to a dropship supplier as a wholesaler, wholesale dropship supplier, dropship distributor or dropship reseller. I will also refer to online retailers as drop-ship customers.
If you want to learn more about drop-shipping from an online retailer’s point of view, please check out my other blog posts on this subject:
Here are eight important business activities to consider when you decide to become a drop-ship supplier. In this section I have broken these down and listed them into categories to make it easier to follow. In the next section I describe each business activity in much greater detail.
Overview of Drop-Shipping Business Activities
1. Customer Management: Managing New or Existing Drop-Ship Customers
- What are your policies and requirements for accepting new drop-ship customers?
- Will you treat your drop-ship customers like small fish in a large pond of other drop-shippers?
- Will you provide programs, rebates and other incentives that savvy online retailers will be able to utilize to differentiate themselves and compete?
2. Product Creation: How to Upload and List Your Products for Sale
- Can you give an inventory feed so your products can be easily uploaded?
- If you do have an inventory feed are your products neatly categorized into clear categories and sub-categories?
- Can you provide high quality images for your products?
- Are your products correctly listed?
- Will you have an IT team that can assist online retailers with setting up your products?
3. Pricing Policy: How to Price Your Drop-Ship Products
- Will you charge a drop-ship fee?
- Are you providing competitive prices so your drop-ship customers will be able to compete on price?
- How will you structure your pricing policy? Will you have a MAP policy or will you allow online retailers to price your products themselves?
- If you have MAP pricing, how will you police it online?
4. Inventory Maintenance: Managing Product Quantities
- Do You have enough inventory?
- Can you provide a daily (or hourly) feed to update inventory quantity?
5. Order Management: Receiving Drop-Ship Orders
- How will online retailers place their drop-ship orders with you? Will it be automated or manual? Is it very time-consuming?
- Will you allow drop-ship customers to pay with credit cards (or other payment methods)?
6. Order Fulfillment: Blind Drop-Ship Order Fulfillment
- Will you be able to ship out in one business day to satisfy the 24-hour shipping deadlines set by Amazon, eBay and other top marketplaces?
- Will you offer to include custom packing slips (with customer logos)?
7. Order Notification: Order Fulfillment and Tracking Number Notifications
- Are your tracking number notifications automated or do you need to manually send each Tracking Number?
8. Managing Returns: Return Policies for Drop-Shipped Goods
- How will you treat customer returns?
Wholesale Drop-Ship Supplier Business Activities in Detail
1. Customer Management: Managing New or Existing Drop-Ship Customers
1.1 What are your policies and requirements for accepting new drop-ship customers?
Will you only limit your drop-ship customers to large and established companies only or will you be willing to work with smaller online retailers that are just starting out? In other words, will you be willing to work with so-called “solo-entrepreneurs” or small businesses? At a minimum, you should only work with companies that have a valid Tax ID or Reseller Certificate.
In addition to small businesses, will you be willing to work with international drop-ship customers outside of your home country? For customers outside the US, the documents you need might be different from just requiring a Tax ID or Reseller Certificate so you will need to be informed before you decide to do business with companies outside of your home country.
1.2 Will you treat your drop-ship customers like small fish in a large pond of other drop-shippers?
There are a lot of large and popular wholesale drop-ship suppliers that cater to literally every online merchant on the planet. You need to ask yourself how you plan to manage and treat your small and large drop-ship customers when all of them will be carrying the same products. Maybe you need to limit your customer list or provide some exclusivity. In other words, you need to create an environment or program where online retailers will have a way to differentiate themselves and compete. After all, what’s the point if 45 merchants are all going to sell the same product on Amazon? How likely is it that all of them will get an order?
1.3 Will you provide programs, rebates and other incentives that savvy retailers can utilize to differentiate themselves so they can compete?
Like the previous point, you want to make it profitable for online retailers to do business with you. Don’t create an environment where your drop-ship customers become just another seller among a sea of sellers with no way for them to differentiate themselves. Try to provide special programs and incentives so retailers will be able to stand out and compete in an online marketplace. Get creative and work with each retailer so you can tailor special programs for them. If you become a reliable source of profit, online retailers will become encouraged to devote more time and resources in your products. If they get lost in a sea of other sellers then they will focus their efforts on a different drop-ship supplier that will give them a better return.
2. Product Creation: How to Upload and List Your Products for Sale
2.1 Can you give an inventory feed so your products can be easily uploaded?
As a wholesale drop-ship supplier, It’s important to give clean and organized specifications so online retailers can upload your products to their online shopping carts. Make sure your products are neatly organized in a spreadsheet (or some sort of inventory feed) so it is easy for your drop-ship customers to upload your products. Don’t force drop-ship customers to massage your data or to do a lot of work to make the information you provide usable.
If you have thousands of products there will be no way your drop-ship customer will be able to list each product one by one. You will need an inventory feed that online retailers will be able to use to bulk upload your products. You don’t want to be one of those drop-ship suppliers that tells their customers to “just grab all the info you need from our website.” Or worse, you don’t want to be that guy who sends a bunch of PDFs and expects your drop-ship customer to copy and paste everything like they have nothing else to do in this world.
If you don’t have a good system in-house, you can also utilize companies like Inventory Source (www.InventorySource.com) and they will provide an inventory feed services for you. They will basically automate the inventory feed process so you won’t have to deal with the technical issues involved in creating a feed.
2.2 If you do have an inventory feed are your products neatly categorized into clear categories and sub-categories?
The best inventory feeds are the ones that clearly categorize the listed products so online retailers will be able to easily map your product categories to your own categories. This becomes super important when a drop-ship customer wants to list your products on their own website or if they want to list them on various marketplaces. Most of the time you can’t just blindly list your products without some category organization. You should specify which category or sub-category a specific product belongs to. It can become a nightmare to try to categorize five thousand products from a data feed when your drop-ship customers have nothing to go on.
2.3 Can you provide high quality images for your 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 man…” What these knuckleheads don’t realize is that nobody has 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 their drop-ship customers 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. Providing image URLs is much better than providing a large folder with a bunch of images in them and expecting your drop-ship customers to upload all the images.
2.4 Are your 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 for online retailers when they get a bunch of customers filing a “not as described” case against them because the information you gave them was all wrong. You can be sure that they will hold you responsible for giving them bad data. In short, try to avoid sloppy data management habits.
2.5 Will you have an IT team that can assist online retailers with setting up your products?
A lot of times your drop-ship customers may run into snags when they try to list your products. For example, key data is missing from a feed or their feed doesn’t work, etc. It is helpful when you can help fix these issues and assist them with any questions or technical difficulties they may have.
3. Pricing Policy: How to Price Your Drop-Ship Products
3.1 Will you charge a drop-ship fee?
Many drop-ship suppliers charge a drop-ship fee but many don’t. If you’re not careful this fee can eat up all your drop-ship customer’s profits. For example, if you plan to charge a $3 drop-ship fee, how likely is it that an online retailer is going to make a profit on that item after they pay marketplace fees, credit card fees and other commissions? Remember, the lower the selling price, the higher the percentage of the profit your $3 drop-ship fee will eat up. If your drop-ship fees are not realistic you risk losing drop-ship customers because you’re not making it profitable for them.
3.2 Are you providing competitive prices so your drop-ship customers will be able to compete on price?
I have come across a lot of suppliers who think that if they charge a high price, that somehow, they are outsmarting their drop-ship customers. They don’t realize that if they overcharge a drop-ship customer then that online retailer will need to price their items higher to make a profit, which will result in zero sales. This ends up becoming a colossal waste of time and money because online retailers will spend a lot of time loading and marketing your products only to realize that their prices are not competitive.
Even worse, the most bone-headed suppliers are the ones that say that they will lower their prices once a retailer starts ordering in larger volumes from them. This is the classic chicken and egg scenario. A smart supplier is one that offers good prices from the beginning of the relationship and gives their drop-ship customers ample opportunities to compete in the open market.
3.3 How will you structure your pricing policy? Will you have MAP prices or allow online retailers to price your products themselves?
You will need to decide on a pricing policy so you can protect your brand image. If you allow drop-ship customers to set their own prices then you may spark a race to the bottom mentality. Many companies require a MAP policy so they create an even playing field for everyone when it comes to price. In a MAP scenario, online retailers no longer compete on price because they are required to all sell at the same price. Instead, they compete on other factors such as customer service, etc.
3.4 If you have MAP pricing, how will you police it online?
Once you decide to implement a MAP policy, you will then need to police it. Otherwise, many online retailers will break your MAP policy and begin to undercut their competition. You can either police it yourself or acquire the services of special MAP police services to do it for you.
4. Inventory Maintenance: Managing Product Quantities
4.1 Do you have enough inventory?
Will you have the capability to be well stocked all the time? You want to avoid being one of those suppliers that is always sold out of everything. No online retailer wants to spend the time to upload and manage your products and then find that you don’t have adequate inventory to support their sales. This becomes a complete waste of time and energy for your drop-ship customers.
4.2 Can you provide a daily (or hourly) feed to update inventory quantity?
Like the inventory feed to initially load your products, you need some automated way to update the quantity levels of your products once they go live on an online retailer’s site. It is crucial that you always provide accurate inventory levels for your products. Your drop-ship customers need to know very quickly if something goes out of stock so they don’t oversell 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 because online retailers will be exposed to significant risks if you provide them with inaccurate inventory levels.
5. Order Management: Receiving Drop-Ship Orders
5.1 How will online retailers place their drop-ship orders with you? Will it be efficient and automated or will it be manual? Will it be very time-consuming?
Ideally, you want to provide an easy and quick way for online retailers to place their drop-ship orders, especially when the order volume starts to become very large. To facilitate this process, will you allow online retailers to integrate into your order management system? Alternatively, will you provide an easy way to place blind, drop-ship orders on your website? You don’t want to be one of those suppliers that tell their drop-ship customers to email a purchase order to you. This will require you to manually enter an order into your system, making things very inefficient and potentially error prone. How much volume do you think you will be able to handle if you are manually entering orders? Basically, the more automation you can offer the less you’ll need to do to efficiently fulfill your drop-ship orders.
5.2 Will you allow online retailers to pay with credit cards (or other payment methods)?
If you don’t extend credit terms, then you should allow online retailers to pay with a credit card. In general, you will want to allow for a variety of payment methods to prevent delays in the shipping process. No online retailer wants their orders held up because they are waiting on you to process their payment.
6. Order Fulfillment: Blind Drop-Ship Order Fulfillment
6.1 Will you be able to 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 upload tracking numbers into their system. For example, to qualify for Top Rated Seller status on eBay, a merchant needs to upload tracking numbers within 24 hours for 90% of their orders. If you take more than 24 hours to give a tracking number then you will risk losing customers. Your service will not be adequate in today’s ecommerce landscape. Drop-ship customers demand tracking numbers within 24 to 48 hours because that is what is demanded from them. In a world where customers expect same-day shipping, it’s critical to ship orders and provide tracking numbers as soon as possible.
6.2 Will you offer to include custom packing slips (with customer logos)?
Many online retailers will expect you to include custom packing slips when you fulfill their blind drop-ship order. This can become a very time-consuming and error-prone activity if you are not careful. The last thing you want to do is to put the wrong packing slip on an order. Some large online retailers have strict rules and charge penalties if you make a mistakes. Therefore, you want to make sure this process is automated so human errors cannot take place.
7. Order Notification: Order Fulfillment and Tracking Number Notifications
7.1 Are your tracking number notifications automated or do you need to manually send each tracking number?
Ideally you will want to automate your tracking number notifications. This means that a human is not the one who is sending a tracking number. This process should be automated because it’s simply not feasible to send out tracking numbers individually to each online retailer. Most shipping management software packages have this feature built-in so it makes the process much easier to manage. If you are still manually sending tracking numbers then you need to reevaluate your processes immediately.
8. Managing Returns: Return Policies for Drop-Shipped Goods
8.1 How will you treat customer returns?
You will need to develop a return policy to dictate how to manage returns. One method is to require all your drop-ship customers to instruct their customers to send returns directly to you. However, if you don’t manage this correctly, matching a return to an order becomes difficult. Make sure you have strong processes in place so you’re able to match a return to a drop-ship order.
Alternatively, you can require drop-ship customers to aggregate their returns before sending those products to you in bulk. This is easier to manage but forces your drop-ship customer to potentially incur double return shipping costs. This is because the item will travel from the consumer to the online retailer before it reaches your warehouse.
Conclusion
We reviewed important business activities a wholesale distributor should consider if they want to become a wholesale drop-ship supplier. Offering to drop-ship your products is a great way to get online retailers as new customers. In fact, as more wholesale distributors begin to offer this service, drop-shipping will become the rule rather than the exception. Therefore, it behooves a wholesaler to consider offering drop-shipping and to do it well. Since the wholesaler bears most of the risk, performing these business activities in the most efficient way possible becomes important. You need to become very good at shipping small orders in large volumes. Hopefully the information presented in this post will help you become a successful wholesale drop-ship supplier.
We reviewed the most important business activities involved in creating a drop-ship model for your wholesale business. These business activities included: Customer Management, Product Creation, Pricing Policy, Inventory Maintenance, Order Management, Order Fulfillment, Order Notification and Managing Returns. It is important that you create a detailed plan for each business activity before you implement each phase.
I have helped many wholesale distributors implement a successful drop-ship program. If you would like additional assistance with this process, please feel free to contact me for a comprehensive review. I will be happy to assist you in this endeavor.
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.
