7 tips to make sure you add the right dropshipper to your back-end
The beauty of dropshipping is that lets you sell products online with very little investment or risk. For businesses that are looking to expand their offerings on their current storefront, open a new one, or test new products outside of those currently handled by their 3PL or warehouse, adding a dropshipper to their fulfillment ecosystem is a commonstrategy. The retailer does not keep goods in stock but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer.
While dropshipping is a great way to do business, finding the right dropshipper to add to your mix can be challenging. There are plenty of middlemen and brokers who claim to be genuine but can end up negatively impacting your margins and seller performance. To avoid being exploited, retailers must do their own research to short-list legitimate dropshippers.
Being focused on eCommerce back-end automation and the connections between online storefronts and their fulfillment partners, Hublogix has worked with thousands of dropshippers in many different industries. To assist you, we’ve developed our own short list of important considerations in selecting a dropshipper, plus a more detailed worksheet to help you compare the performance of various dropshippers, once you have begun your search.
#1 Start with the manufacturer.
The more successfully you remove the middlemen from your supply chain, the more success you will have. Figure out who manufactures the items you want to sell on your store and contact them directly to ask them if they can dropship their items. Even e-tailers with large inventories and a variety of products should directly contact the manufacturers of the items they want to sell. They’ll usually have the best prices if they do dropship, and if they don’t, they’ll likely have leads on reputable distributors, who may carry a selection of similar products from different manufacturers you can considering add to your inventory.
#2 Put them to the test.
Ensure your dropshippers are reliable by placing a few test orders with them. Take note of the average shipping time and quality of the items received. Remember – your customers’ experience will reflect on your brand, not the dropshippers.
Keep in mind you no longer have strict control over the look and feel of the package being shipped. While the dropshipper should use the label provided by you, they may not agree to adhere to other packing requirements which are preferable to your brand or which minimize the potential of damage.
If you sell in a marketplace (Amazon, eBay, etc.) make sure that the dropshipper will deliver within the marketplace’s required timeframes. If your product is delivered by the dropshipper outside of the required delivery time, this can result in negative feedback on both eBay and Amazon as well as penalties against your seller accounts.
#3 Ensure they have a competent support staff.
Contact dropshippers who fit your criteria for products offered. If you are not able to quickly connect with a representative on email or the telephone, it can be indicative of the type of customer service you will receive if you use them. Ask if your company will be assigned a representative or if you will be dealing with a different person every time you need assistance. Either type of system can work if the dropshipper’s service is acceptable.
#4 Make sure you are paying true wholesale prices.
Are the product and shipping costs within a profitable range? Many product suppliers claim to do this when in reality their prices are retail or just below retail; which means that you would not be able to have a desirable profit margin.
Legitimate dropshippers rarely require account set up fees or monthly account maintenance fees.
As you identify products that sell well for you, you can invest your profits into purchasing those products in larger volumes to leverage volume price breaks your dropshipper should offer.
#5 Plan for returns and other issues.
Backorders, lost shipments and returns are all part of retailing. These are issues retailers can plan for but when using a drop shipper, some of these issues are beyond your control. Be prepared for these instances by discussing policies and expectations with the dropshipper ahead of time.
Because your customers expect their products to be of a pretty high standard, your dropshipper will need to guarantee you a certain standard of product quality, and be willing to replace any defective products. Be wary of dropshippers that do not offer these guarantees.
#6 Pay attention to the metrics
Be sure to research and compare your potential dropshippers objectively against the metrics that matter most to your business (here’s a worksheet that is popular with our clients that can help). Common questions to be sure to answer include:How many sites have used this dropshipper for at least 1 order in the past 30 days? This is an indication of the dropshippers’ competency/size. How accurate is their inventory feed? How often is it updated? What is their backorder rate? At any given time, what % of their inventory in stock – by SKU and across their total SKU volume? Do they support the partial shipping of orders? Do they allow backorders? What are their shipping methods & costs? What is their average shipment time after an order is processed?
#7 Favor dropshippers who embrace technology.
The more partners you add to your supply chain, the greater the complexity in your order management processes and decision making. If a dropshipper isn’t up to speed with the latest technologies and isn’t willing to be compatible with your technology stack, move on to one that is. Manual handling of issues such as order routing and purchase order generation are simply too subject to manual errors, lost orders, and shipping mistakes, all of which can cost you customers. Automate as much as possible. Remove the manual labor from the equation so you can focus on growing your business. Dropshippers that can make use of emailed or FTP order fulfillment, and provide their inventory in a highly compatible format like CSV can make managing your store and integrating with other eCommerce technology providers much, much easier.
Any online retailer accounts for the typical costs of working with drop-shippers or distribution centers – shipping costs, cost of goods, etc. Likewise, every site owner is aware of their marketing expenses to get shoppers to click “purchase” on their carts.
But what about the hidden costs? The ones in between the purchase and the fulfillment of the order?
For most eCommerce sites, there are often overlooked hard costs in managing your order lifecycle – real costs that affect your margins and your ability to scale.
Download The Hidden Costs of Processing an Order Infographic
Every time an order is entered into your shopping cart,you must…
1. Double-check the SKUs inside the inventory file. If it’s out of stock, you have to email the disappointed customer, issue a refund or backorder.
2. Route the order. Choose the appropriate distribution vendor – dropshipper, fulfillment enter, etc. – to fulfill the order. Manually enter info into a spreadsheet or flat file in their preferred format. Then send them an email or FTP.
3. Update Inventory. Later, you receive shipped order(s) information from your vendors. Update the inventory in your shopping cart. Copy and paste the tracking number back into shopping cart, and mark it shipped.
4. Communicate with the customer. Send the customer an email telling him that the product has shipped.
What’s All This Cost?
Let’s assume you pay somebody – or yourself (your time is money, right?) – $19 per hour to handle these functions*. Data from our customers suggest each manually processed order can take about 12-15 minutes to complete.
That’s over $4 per order. Not on marketing expenses or shipping. Just to manage your order lifecycle.
So if you’re doing 1,000 orders a month, that’s up to 250 man hours or $4,000 per month!
The order lifecycle process is complex enough with one online storefront and one vendor. When you are using five marketplaces and multiple distribution vendors, these manual processes don’t scale, but your costs do.
Automating your order lifecycle –inventory management, order routing and shipment tracking processes – can significantly reduce your time and labor costs. Orders are routed and systems updated in near real time (vs. up to 15 minutes), giving you valuable time and money to reinvest in your growth elsewhere. Plus, the right automation platforms will allow you to scale going forward, simplifying the addition of new storefronts and distribution vendors to your supply chain ecosystem.
*based on $50K salary (261 days x 10 working hours per day)
Photo Credit: martins.nunomiguel via Compfight cc
So you’ve decided to start an online business, and start reading up on everything there is to know about ecommerce. You look up all the best practices and strategies, and you decide that drop shipping is right down your alley. Not only will you avoid sinking lot of money into a physical inventory, you won’t even have to handle fulfillment, letting you focus on marketing and business development. Everything’s starting to look up!
Until, that is, you realize you still need a supplier to partner with to make your store a reality. All e-tailers that rely on drop shipping or third party fulfillment run into this problem at some point. In fact, one of the most common questions we get at HubLogix goes something like this:
How can I find a real supplier that drop ships my product reliably?
Drop shipping and Fulfillment and Manufacturers, Oh My!
Finding a good supplier can be a very time-consuming task, and rightly so. For most of our customers, having suppliers that they can count on is one of the cornerstones of their online business. If you drop ship or use third party fulfillment, you can’t partner with an inconsistent or unreliable vendor and expect to stay in business for very long, and our customers intuitively realize this.
Since HubLogix happens to be in the business of boosting your business, we thought that we’d go all-out and gather up all our experience and knowledge about this very important issue and compile it into an easy-to-follow, friendly guide. We hope it will help you find a supplier that works for you.
Get Your Ship Together
Before you can begin searching for your dream supplier, you’ll need to make sure you have a few things taken care of. Wholesalers often need proof that you’re an actual retailer and not just a consumer before they even consider partnering with you.
Address this issue before it occurs and make sure you have your business’ EIN number on hand already, as well as a copy of your resale certificate.
Also, be familiar with basic drop shipping terminology and common practices before you call. Take a look at the general advice section and helpful links at the bottom of this guide for a basic overview of these, and advice on how to avoid illegitimate suppliers.
1) Know Your Industry
Different industries can have different supply chains. Understanding where you fit into this picture can help you find suppliers that will cater to your needs.
For example, if you’re going to be running a small boutique store that sells a very specialized kind of item, you’re not going to run into much success if you look for large distributors – you’ll probably need to partner with a manufacturer or local supplier directly. If you’re going to be running a large electronics accessories store, it’ll make a lot more sense to partner with a bigger distributor with a wide selection of products to sell.
2) Try Manufacturers First
Try to figure out who manufactures the items you want to sell on your store and contact them directly to ask them if they can drop ship their items. You can email them, but I recommend just calling them over the phone. You’ll get more information quicker and hopefully now have a contact within the manufacturer itself, which is especially useful if you’re filling a new or smaller niche.
As you contact vendors, you’ll find they fall into one of three categories. Here’s what each one means for you:
They drop ship – That’s great news, because you just found a perfect vendor! Make sure to ask about what they require from their partners, and their minimum order requirements.
They don’t drop ship – Unfortunate, but not the end of the world. It just means a little more searching. Ask them about what distributors they supply their products to and take note of them.
They don’t offer their products for resale – Oh well, at least you know now. Time to try someone else.
Even e-tailers with large inventories and a variety of products should directly contact the manufacturers of the items they want to sell. There are a couple of reasons why this is always the smartest initial move – they’ll usually have the best prices if they do drop ship, and if they don’t, they’ll at least have leads on more distributors. These distributors will usually be reputable, and carry a selection of similar products from different manufacturers you can then add to your inventory.
3) Be Old-Fashioned
It’s almost common knowledge that most suppliers don’t prioritize SEO. To add to this, many of their sites look like they’ve time-traveled straight from the 90’s. This means that although a little targeted Google-fu might still net you results, being old-fashioned can be a more effective use of your time.
Trade magazines or newsletters for your particular industry can be an invaluable resource, as they’re usually filled with ads from suppliers specifically looking for people like you. Most of these publications have websites with past issues and even more resources, and you may be able to find print versions at your local library.
Drop shipping or industry forums and online groups can be another useful resource, if their members are willing to share the suppliers they use.
Finally, look into attending a trade show or conference relevant to your niche, where you can directly interact with reps from potential suppliers. You can use a site like TSNN.com to find relevant conferences near you.
4) Dive Into the Depths (of Gooooooooogle)
Finding actual, reliable suppliers on the internet can be a frustrating, time-consuming process. For every actual wholesaler you find, you might find two that no longer exist, three that are scams, and four that have terrible terms.
Fortunately, there are a few simple techniques you can use to increase your chances of success when looking for vendors online.
First of all, as we mentioned before, many decent suppliers have awful online presences. You’re going to have to delve deep into your search results to find them – think page 10 and onwards. Search for as many different identifiers as you can to make sure you’ve covered all your bases.
When you’re searching for products, here’s are a few terms you’ll want to try searching with: “wholesale”, “dropship”, “manufacturer”, “supplier”, “distributor”, “reseller”, “ecommerce”, and “fulfillment”. Also consider searching for specific terms like “wholesale only,” “retailer wanted,” or “become a reseller.”
Another way to tailor your searches is by location – add in a physical location to find vendors near your customers or use the Google site search feature to search for ones based in a specific country (for example, to find sites in China, add “site:.cn” to your search).
Don’t necessarily rule out a vendor because it has a dated webpage – remember that many suppliers don’t bother creating a top-of-the-line online experience. Instead, focus on their contact page and make sure the information is up to date and accurate. Make sure to actually get in touch with them if you are considering partnering with them, and look to see if there are any reviews or testimonials that mention them online.
This may seem like a bit much, as it can be easy to find a seemingly large vendor with a slick, well-maintained site on the first page of your results, but it’s often worth it to dig deeper to find suppliers with better prices and terms than those you find at first glance. You’ll also have less competition at your price point, as it’s likely many of your competitors will have quickly chosen the large site instead of taking the time to find alternatives.
5) Try What’s Left
By now, you should have compiled at least a modest list of potential suppliers for your store. If not, or if you want even more options, here are a few additional resources you can try to take advantage of:
There are a couple of curated lists online that you can pay to access. Some of these have outdated and obsolete entries, however, so be careful and make sure you research the list to make sure it’s useful and recent.
Finally, to find suppliers from all over the world (especially China), you can use a site like Alibaba to compile a list of drop shippers for particular products. This works for a lot of people, but there are potential downsides – the products can be of questionable quality and any issues with products or shipping will be your fault in your customers’ minds. Make sure you always start out small and don’t risk too much – do not make your first order for 1000 items and wire transfer your payment. Let them earn your trust, as some suppliers in China are notorious for taking money and never sending items. If they accept PayPal or another form of secure payment, always opt for that. Keep these factors in mind when dealing with international drop shippers, and always test them thoroughly.
Wrapping it Up and Shipping it Out
By now you should have a solid list of potential suppliers, or at least a good grip on how to begin looking for them. Drop shipping is an exciting and fast-growing industry, and even large and established retailers are implementing drop shipping into their ecommerce arsenals.
All that’s left is to get out there and get started!
> Avoid suppliers that charge an ongoing monthly fee to do business with them. It’s important to note that some suppliers WILL charge an initial setup fee that can be up to $300 or more, and may charge a per-order drop shipping fee, but these are legitimate charges to dissuade non-retailers and to cover packaging and shipping fees. It’s the recurring fees independent of orders you should be wary of.
> Consider where your supplier is located. It will simplify your shipping logistics greatly if they are located at a location near potential customers, or a central location with consistent shipping times.
> Ensure your suppliers are reliable by placing a few test orders with them. Take note of the average shipping time and quality of the items received.
> Favor suppliers that understand and use efficient technology. It may be worth it to pay a slightly higher price per item if it simplifies your logistics, especially as you scale up. Suppliers that can make use of emailed or FTP order fulfillment, and provide their inventory in a highly compatible format like CSV can make managing your store much, much easier, especially with an automation tool like HubLogix.
> Make certain that they have a responsive and competent support staff available to address any questions or concerns you may have.
> Shopify’s Ecommerce University has an excellent, thorough guide on setting up your own drop shipping business.
> Andrew Youderian’s blog is a goldmine of useful drop shipping and general ecommerce information.
> Alibaba.com is a useful site which lists a variety of drop shippers across the globe.
> Worldwide Brands is one of the more trusted and up-to-date drop shipping/supplier directories, although it is somewhat expensive to access.
> This article on our support database has a brief overview of the process, as well as a few other useful links.
> Kurt Heinrich, HubLogix’s founder, posted a top-rated answer on Quora explaining how he got into drop shipping back in high school and some strategies he used to find suppliers and make $17,500 during one holiday season.
> Also be sure to check out our upcoming vendors page, which we will be updating with our own list of partnered and trusted suppliers!
We love feedback, so make sure to comment below! What strategies do you use to find suppliers?
Setting the shipping rates for your online store can be difficult, especially if you’re drop shipping from multiple suppliers or different warehouse locations. How can you figure out the exact shipping cost of your drop ship supplier? What happens if an order gets routed to 2 different suppliers, in effect doubling the shipping cost?
Working Around the Limitations of Your Shopping Cart Platform
The reality is that most shopping cart platforms like Shopify, BigCommerce, and others are not set up to calculate shipping costs from multiple locations. Though you can calculate real-time shipping using UPS, USPS, Fedex and other carriers, this method only takes a single location into account. It does not factor in extra handling or drop shipping fees.
For example, if both of your warehouses are using the same carrier (e.g. UPS), then the rates may still differ because each warehouse has a different shipping origin, resulting in different shipping rates. Not to mention the warehouses might give lower rates or may charge different handling fees. Furthermore, things get even more complex when a customer places an order for multiple items, with those items coming from multiple vendors. So what should you do?
In our experience, most drop-ship customers handle shipping by simply using flat-rate methods. For instance, a store may charge a simple flat-rate of $5 for shipping, even though its vendors have their own flat-rate shipping costs. You may actually pay more or less for shipping on each order, but the idea is that it averages out.
To keep things simple, a common scenario is to add a flat-rate for Standard Shipping (say $5.00) and another for Expedited Shipping (say $10.00). That way your customers have the option to get their orders quicker if they want.
If you want to give the illusion that your shipping rates are calculated, you could use more specific amounts that look random like “$4.92” for Standard Shipping and “$9.96” for Expedited Shipping.
In Shopify (and other carts), you can also set multiple flat-rate prices based on either price or weight. Overall, this can be a pretty powerful work around if you want to offer different flat-rates for different products or categories. You would just give each product a nominal weight like “1” or “2”. Then, you could set a flat-rate for items with a weight of “1” and a different flat-rate for items with a weight of “2”. You could even use this method to segment your products that go to different vendors; that way, you could always charge a higher flat-rate if you know one of your vendors charges a higher flat-rate.
Carrier Calculated Shipping
Most shopping carts also offer carrier calculated shipping, as a way to get real-time shipping rates from USPS, UPS, Fedex, and other major carriers. If you have just one vendor and you know that vendor uses UPS, then you could offer UPS calculated shipping. Be aware, however, that the actual shipping cost from your vendor may differ slightly. Your vendor may have a different origin shipping address or may get bulk shipping shipping rates (which is typically a good thing, since it means lower costs).
Just Offer Free Shipping
Another approach would be to factor in the vendor’s shipping cost to your cost and markup accordingly. More and more stores are offering free shipping, so this is another common workaround. However, be aware that this will bump up your prices. For example, if you sell commodity items and rely heavily on pricing comparison sites, this may not bode well against competitors that split their prices.
Don’t Sweat It, Focus on the Important Things
At the end of the day, it’s important not to get overwhelmed trying to offer 100% accurate shipping rates. That’s an optimization issue, and if you’re just getting started with drop shipping, you will have bigger issues to handle, such as marketing and getting your first customers. Down the road, if you are getting hundreds of orders per day, then it may be worth looking at optimizing your shipping rates.
Still want real-time, calculated shipping rates through multiple drop ship locations?
We’ve explained the most common ways drop ship merchants handle shipping settings above. In the future though, we are looking to offer real-time calculated shipping rates through HubLogix, provided that the shopping cart platforms will make this possible for us. If you are interested in this feature, please submit a feature request so that we can note and use it as leverage to make this possible with the shopping carts.
Drop Shipping. You may have heard of it, but what does it actually mean? How is it used in today’s e-commerce world and who is doing it? Before we talk about drop shipping though, let’s take a step back to see how a traditional e-commerce fulfillment model works.
The Traditional E-Commerce Model
In the old days (10-15 years ago), opening a retail store required lots of capital. You needed funding to:Buy inventory in bulk from a supplier Physical warehouse space to store the inventory A storefront to sell the merchandise, whether it is online or brick-and-mortar
Then hopefully you had enough cash left over for marketing.
While cash heavy, buying inventory in bulk led to higher margins. However, the risks involved with this traditional model are high – if inventory goes unsold, it can lead to high loss and wasted space. Yet, this process has been the bread-and-butter of the retail world for quite some time.
Today, it’s easier than ever to start an online store
Nowadays, more and more stores are moving online. Shopping cart platforms like Magento and Shopify make it simple to do what was once unheard of: you can open an online store in a single day and maintain it for as low as $20 a month.
Cost and technology are no longer barriers to entry when starting an online store. However, e-commerce newcomers do not have the same resources as established big-box retailers, so you must find other ways to compete besides price alone. Instead, your focus should be on brand and quality products. It’s about customer experience and curation.
Enter Drop Shipping, the Perfect Fulfillment Model for E-Commerce
This is where drop shipping comes in. Instead of holding inventory themselves, these sellers simply route orders directly to the supplier, and their supplier sends the products straight to the customer. Even though margins are slimmer, it virtually eliminates inventory risk, which is a quite a feat to most retailers just starting out.
Drop shipping is also a smart way for retailers to test the waters with new products. Instead of buying inventory upfront in bulk, you can list items on your site and see what sells, which is worth it even with you break even or lose a little This shifts the competitive advantage from back-office logistics (who can compete with a fulfillment powerhouses like Amazon anyway) to customer experience and marketing – the fun part that most think starting a store is all about.
Drop Shipping Is Nothing New, Is It?
Make no mistake, drop shipping is not just a fad! It has been around for longer than you think. Items sold through TV and radio ads used an early form of drop shipping, and even a few brick-and-mortar stores used this form of fulfillment, especially for larger items (like furniture or equipment) that cost a lot to transport. However, drop shipping has really come into its own over the past decade, especially with the rapid emergence and growth of e-commerce. The fear of customers entering credit card numbers online has been replaced by the fear of not having an online presence quickly enough.
Even the big players in e-commerce are beginning to take advantage of drop shipping, or did in their early days:Zappos actually began as a drop shipping company. Wayfair.com, the second largest online retailer behind Amazon, has built their whole business around drop shipping. Fab and Gilt also rely on drop shipping as a core part of their business.
Drop Shipping Shaping the Future of E-Commerce
Drop shipping is a growing trend because it perfectly fits the e-commerce world. It is here to stay and will continue to shape the way retailers interact with their customers. In the next five or ten years, we can expect traditional retail stores to become showrooms while the real fulfillment happens online, behind the scenes.
Imagine going to a local shop and browsing through the items at your leisure before making your selection. Then you drive home and your purchase will be waiting for you, having been drop shipped to your doorstep before you even got back.
That’s the future that dropshipping is helping make a reality. A world where e-commerce and in-store retail coexist in harmony.
Interested in learning more about drop shipping? We’ll be posting a series of drop shipping guides over the coming weeks. Stay tuned here to learn more.
Leave any of your drop shipping related questions in the comments below!