*The following is the second in a two part series by Tiana Byers from ecomdash.
In Part One of Dropshipping School, we discussed the benefits of Dropshipping, and how this ecommerce business model can mitigate the risk of bad investments and allow you to scale and compete online. However, as it is with any new strategy you may implement, there are risks and concessions involved that you must weigh and consider. If you follow these steps and investigate your potential dropship partner thoroughly, you can enter the Dropshipping model safely and profitably.
Figure Out the Profit Margins
Since you are not the manufacturer and are working with a dropshipper, you will pay some fees to whoever you source the products from. Because of this, you need to determine ahead of time your profit margins in order to calculate how much you should charge for each product, and what you will make from the transaction.
- Research a niche market extensively. For any supplier, manufacturer or dropshipper, there are at least a dozen other ecommerce businesses using them. You will have stiff competition, and the more saturated your product market is, the less you can get away with up-charging items, resulting in lower profit margins. Find a niche that you have genuine interest in (will help with marketing and building a brand if you actually care about the market). A smaller competitive market will allow for higher price markups and better margins.
- Work with the highest tiered dropshipper. For every supplier, warehouse and dropshipper you must go through in order to get a single product to your customer, you will have to pay a fee. If you can work directly with the supplier or manufacturer that dropships the items they produce, aka is the highest tier in the fulfillment process, you will only pay fees to one organization, and will have more room to adjust your retail price to increase profit margins.
Questions to Ask Your Dropshipper
The entire fulfillment process of your business is in the hands of your dropshipper – that’s a responsibility neither you nor they should take lightly. Here are a couple of basic questions every ecommerce retailer should inquire of their potential dropshipper.
- How do they handle returns? Returns, refunds and exchanges are inevitable in any retail business. No retailer is thrilled when a return request comes in, but an easy and hassle-free return policy can actually encourage repeat purchases. Of the 60% of online shoppers who make at least one return or exchange per year, 95% of them will make another purchase from an online shop if the return experience was positive. If the return process was easy on their end, a reported 64% of shoppers will refer their friends to that store. It’s worth doing the research to find a dropshipper that is willing to cooperate in the event of a return request.
- What kind of product details will they provide? You’re going to want as much detail as possible when listing a dropshipper’s items to your site. Make sure you can get good images (which they often will let you use), detailed sizing charts, product materials, measurements, shipping weights, etc. You can make your product pages more fun, personable or branded. These details provide a necessary foundation.
- Will they include your branded materials in their product packaging? Remember, you aren’t the only company using this dropshipper. To help strengthen your brand, differentiate from competitors and establish a firm community of repeat customers, it’s important to include branded materials in your packaging, like custom packing slips, shipping labels, etc. Not all dropshippers will be game for this, but the best ones are.
- How long does it take to ship orders? As in, how long is the fulfillment process for them to pick, package and ship the item to your customer? If their fulfillment process takes an average of five days, forget it. Find a dropshipper who has items prepared for shipment within one day, two maximum.
Enlist a Software to Facilitate Communication
An inventory and sales order software can automate the transfer of data between you and your dropshippers. If you have multiple sales channels and dropshippers, and each dropshipper wants the sales order information in a format custom to their corporation, communication will become complicated and time consuming very quickly. Find an inventory and sales order management software that will automate data transfers between your marketplaces, websites, and the various dropshippers you work with. A good inventory and sales order software will be able to remember the custom format each dropshipper prefers, and adjust the sales order information automatically.
At the end of the day, Dropshipping is a fantastic option for new businesses to start their ecommerce stores without spending a great deal of money investing in products, storage and warehouse fees. Established sellers can capitalize on Dropshipping to scale their business or introduce new product lines without risking a big investment on a bad product. You will have to weigh the pros and cons against your own ecommerce goals, financial limitations and current business model. Whether or not your dropship, forging success in the ecommerce industry and competing online is possible. Running an online business takes skill and guts, but if you have the will, you will absolutely find the way.
About the Author
Tiana Byers is the Lead Content Creator for ecomdash, an award-winning multichannel inventory software for ecommerce retailers. Ecomdash offers sellers an end-to-end ecommerce software to complete workflow, including inventory and sales order management, product listing, Dropshipping and fulfillment management, reporting and more. Ecomdash helps customers save time and money, while they grow, scale and compete online.