Is drop shipping right for your company?
Drop shipping can be a great way to expand your business without increasing cost. Most products can work in this model but there are some considerations. Price, inventory size, product type, and delivery cost need to be considered in this model. Below is a basic explanation of the elements that need to be considered.
If you are competing on price with your products and this is your primary method of competitive advantage, then drop shipping may not be the best choice for expanding your business. Many companies attempt to compete on price and this reduces the price to rock bottom levels. If there is not enough profit, then most drop shippers will not desire to sell your products. The determination of profitable pricing varies due to product differences. If you have a product that is common and in high demand than you can have a lower profit margin because your items can be sold in volume. More unique items or higher costing should have larger profit margins.
Companies of all sizes drop ship goods. This means that inventory sizes can vary considerably. Some companies have thousands of products and others may have only a handful. Inventory size matters in terms of the ability of the drop shipper to manage it. There is nothing more frustrating than to have a company with great products, and large numbers of them, but lack any system for integration or method to access inventories other than web pages. Imagine trying to update thousands of products manually and the impracticality of this situation. If you do not have a means of providing drop shippers with up to date inventory quantities or other product information than you will not be appealing to many drop shippers.
There are some products that do not lend themselves well to the drop ship model. Examples of these products include those products that have limited shelf life, highly specialized products that may require licensing or regulatory approval, and items that are age restricted or problematic due to legal issues, such as designer drugs or pornography. Products that are also extremely common such as paper towels may be problematic unless you can offer a large price appeal or really unique brand.
Another issue is delivery costs. Many small drop shippers do not have real-time shipping cost updates and this means that they must estimate shipping costs. This is not difficult to do in most instances, but if you are using multiple carriers or constantly changing your shipping costs, for one reason or another, then this can create issues with drop shipping.
Access to Pictures
Along with having the ability to update your sellers with inventory, can you provide the pictures or easy access to them? This is an important aspect to drop shipping because if you have thousands of products, then copying the pictures from the website can be daunting. This is also true of the descriptions for products.
Creating a Program
Drop shipping should be handled like an extension of your business. This means that you need to create a program in which you outline the benefits and restrictions for drop shipping. Ultimately, you need to approve the sellers so you need to define the restrictions and rules for your drop shipping. For instance, some manufacturers do not want to sell their products on Amazon or eBay. If you have restrictions such as this, then you will need to publish them and have drop shippers sign agreements. This is not a legal nightmare it just requires some simple agreements. Keep in mind, the more complicated or restrictive you make your program, the higher the profit margin will need to be in order to attract sellers.
Think drop shipping is right for you?
Ultimately, you want to make drop shipping as effortless as possible from the development end. Drop shippers wan to concentrate on marketing and selling not on updating products or spending time building the products. If you think that your business can benefit from drop shipping, then contact us and find out how we can build a turnkey business model that is designed to sell your products.