What Is Drop Shipping?
Drop shipping is a retail method in which you don't keep
products in stock. Instead, you partner with a wholesale supplier that stocks
its own inventory - you transfer customer orders and shipment details
to them, and they ship the goods directly to the customer. The biggest benefit
of drop shipping is you don't have to worry about fulfillment or inventory
issues.
Also, most customers don't know you're drop shipping,
since "private label shipping" lets you ship from the wholesaler
with a return address and invoice customized to your ecommerce store.
The Benefits of Drop Shipping
There are a number of reasons you should consider drop
shipping:
1. You Don't Need Buckets of Money: Drop
shipping makes it amazingly easy to get started selling online. You don't need
to invest heavily in inventory, yet you can still offer thousands of items to
your customers.
2. Convenience & Efficiency: Successfully launching and growing an
ecommerce business takes a lot of work, especially if you have limited
resources. Not having to worry about fulfillment is incredibly convenient and
frees up your time to concentrate on your marketing plan, customer
service, and operations
3. Mobility: With all the physical fulfillment
issues handled, you're free to operate your business anywhere you can get an
internet connection.
4. It's a Trusted Model: You
might be thinking that this sounds like some sketchy, fly-by-night model – but
it's not. Plenty of Shopify online stores, even major retailers like Sears, use drop shipping to offer a wider selection of
products to their customers without having to deal with increased inventory
hassles.
How Do I Find Drop Shipping
Wholesalers?
Before contacting
suppliers, you'll want to make sure your legal ducks are in a row. In the
United States, most suppliers will ask for your business EIN number and
a copy of your state sales tax and/or resale certificate. Once you're properly
established, you can start contacting drop shipping suppliers.
3 Ways to Use Google to
Find Wholesalers
1. Search Extensively: Wholesalers and drop shippers are
notoriously bad at SEO and marketing, and usually aren't going to pop up on the
first page of Google for a term like “handbag wholesaler.” Instead, you'll need
to dig deep into the search results, often going through 10 or 20 pages of
listings.
2. Don't Judge by the Cover: Suppliers also tend to have
outdated, late ‘90s-era websites. So don't be scared away by abysmal design and
layout. While a sleek, modern site could signal a great supplier, a low-quality
one doesn't necessarily indicate a bad one.
3. Use Lots of Modifiers: As you hunt for suppliers, don’t stop
with a search for “wholesale” - make sure to use other modifier terms,
including “distributor” , “reseller” , “bulk” , “warehouse” and “supplier.”
4 Common Problems With Drop Shipping
Despite
my glowing recommendation, drop shipping isn't ecommerce nirvana. Like all
models, it has its weaknesses and downsides. With some planning and awareness,
these issues can be managed and need not prevent you from running a successful
drop shipping business.
1. There will be loads of
competition and awful margins.
Solution: It's
true. Products that can be drop shipped will spawn a lot of competition.
Usually this will lead to cutthroat pricing and diminishing profit margins,
making it hard to build a viable business.
To be successful, you
typically can't compete on price. Instead, you'll need to offer value in a
different way, usually through top-notch product education, service or
selection. For more information on how to pick a profitable niche and add
value, see these posts on finding a
product to sell andthe anatomy of a
profitable niche.
2. Syncing inventory is difficult &
leads to out-of-stock items.
Solution: The
best way to mitigate this problem is to work with multiple suppliers with
overlapping product lines. It's inherently dangerous to rely on a single
supplier. Having two suppliers doubles the likelihood that an item will be in
stock and available for shipment.
Many sophisticated
suppliers offer a real-time product feed, and you can use a service likeeCommHub to easily sync your Shopify website
with the warehouse.
Eventually,
you’ll sell a customer an out-of-stock item. Instead of canceling the order,
give the customer an upgraded product for free! You might not make much – if
any – money on the order, but you'll likely build a loyal brand advocate.
3. It's hard to sell products that you
never see.
Solution: In
today's world, it's possible to become an expert in just about everything
through information online. Selling products from manufacturers with detailed
websites will allow you to become intimately familiar with a product line
without ever having touched a physical item. And when you do need to answer
specific question about a product, a quick call to your supplier or
manufacturer will give you the answer you need.
You can also buy your most
popular items to get acquainted with them, and then resell them as “used” or
“refurbished,” often recouping most of your investment.
4. Involving a third party will
result in more fulfillment errors, mistakes, and logistical problems.
Solution: Even
the best drop shippers make occasional mistakes, and mediocre ones make a lot
of them. Suppliers are fairly good about paying to remedy problems, but when
they're not, you need to be willing to spend what's necessary to resolve the
issue for your customer.
If you try to blame your
supplier for a fulfillment problem, you're going to come off as amateurish and
unprofessional. Similarly, if you're unwilling to ship out a cheap replacement
part to a customer because your supplier won't cover the cost, your reputation
is going to suffer.
One
of the costs of drop shipping convenience is the expense of remedying
logistical problems. If you accept it as cost of doing business – and always
make sure to put your customer first – it shouldn't be a long-term issue.
The
Final Word on Drop Shipping
Is
drop shipping the path to overnight ecommerce success? Of course not. As with
any successful online store, you'll need to invest over time in a quality
website, marketing, and customer service.
But drop shipping does
provide an easy way to get started and the ability to leverage other people's
capital without having to invest thousands of your own. When managed correctly,
it can form the foundation of your own successful online store.
5 Examples of Companies That Use Drop Shipping
Drop shipping: when the store does not have inventory or handle shipping, but istead transfers orders to the manufacturers or suppliers after a customer places an order with the storefront. There are countless examples of ecommerce stores that use drop shipping but here are five examples of successful web companies who started with or currently use the technique of drop shipping to fulfill their product orders.
1. Amazon
Amazon is a hybrid of drop shipping and fulfilling its own product shipments. If you see that an order is coming from a third party supplier and not Amazon.com, then they are utilizing the drop shipping technique.
2. Fab
Design based flash sale website that drop ships orders to design oriented suppliers.
3. MyWhiteWalls
Uses various art suppliers and main marketing technique of SEO to get targeted visitors to their storefront.
4. Gilt Groupe
Makes deals with big brand names in order to carry out the product shipping fulfillment once someone orders a discounted product from this flash sale website.
Makes deals with big brand names in order to carry out the product shipping fulfillment once someone orders a discounted product from this flash sale website.
5. Zappos
Zappos is an example of a company that started as a drop shipping company then transitioned to handle their own inventory once they wanted more control over their business.
Commission Merchants
( Originally Published 1918 )
A Commission Merchant is one to whom goods are sent for sale, and who charges a certain per cent on the price of the goods sold for his service, which is called commission.
Farmers and manufacturers who have large quantities of goods to sell send them to the cities to the commission merchant, who sells them for them.
Commission merchants are, therefore, agents to sell, and the owners of the goods are their principals. These duties and responsibilities are in general like those of other agents.
Duties.—The whole business is one of contract for personal services. The merchant's chief aim is to sell the goods for the best price he can get, and pay over the money when collected, after he has deducted his commission. He must obey the orders of his principal, conduct the business skillfully and carefully, and render true accounts when called upon. He must not make his own interests adverse to those of his principal.
Authority.—This is as conferred upon him by special agreement, but often the commission merchant is left to conduct the business according to his own judgment and in the way such business is usually conducted.
Responsibility to Principal: If he violates in any way the agreement, disobeys instructions, or is negligent, then he is responsible to his principal for any loss that may result from it.
When left to exercise his own judgment, he is not responsible for any loss that may result from making a mistake.
If he be given authority to sell on credit, and the Buyer fails to pay, the owner must lose, not the commission merchant.
The Commission.—To this he is entitled when he has performed his service. When selling on credit, he is entitled to his commission when the sale is effected, whether the principal gets his pay or not.
But if in any way he breaks his contract, he loses his claim to any commission on that trans-action.
Guaranty Commission.—Sometimes the commission is, by agreement, made to guarantee payment by the party to whom the goods are sold. In such cases he is responsible to the owner if the buyer does not pay.
Advances.—Frequently the commission merchant advances to the owner, before he has made any sales, some portion of what he thinks the goods are worth.
When the sale is made he deducts this amount, with his commission, from what he realizes from the sale.
Lien Upon Goods.—His principal can revoke his authority and take his goods away at any time, but if the merchant has in the meantime incurred any expense he can hold the goods until his expenses or outlays are made good.
The rule in law is : A commission merchant has a right to keep any goods of his principal's which are in his hand until he has been paid all commission, advances and expenses due him from the owner.
By this general lien he can keep any goods, whether the debt arose in connection with them or with others.
Relation to the Buyer.—If the owner of the goods is made known to the buyer, then the commission merchant assumes in general no responsibility himself, but if he says nothing about who owns the goods, or sells them as his own, acting as principal, he assumes all the responsibility of the principal.
Selling by Sample.—Recent years have witnessed the growth of a type of commission merchants who do not carry. their principals' goods in stock, but who sell entirely by sample. These are the larger commission houses representing a large number of different manufacturers, and obviously, no commission house, irrespective of its size, would have facilities for carrying such an extended array of stock.
Carry Own Accounts.—Like the commission merchant who guarantees payment by the purchaser, these houses carry their own accounts, thus assuming themselves all risk of bad debts.
Sell in Own Name.—They do not sell in the name of the manufacturer, but in their own, and bill all merchandise sold and collect for the same, just as though they were the owners of the goods.
Direct Factory Shipments.—The orders they take are sent to the factories making the goods sold, from which shipments are made direct to the customers of the commission houses, and usually in the name of the commission house as shipper.
Manufacturer Fixes Selling Prices.—Unlike the commission merchant to whom goods are consigned for sale upon the best terms the market affords, these houses sell only at the sale prices fixed by the manufacturers. In this respect the commission houses are in reality sales organizations for a group of manufacturers, selling on commission at fixed prices, only they carry their own accounts.
Paying the Manufacturer.—Under the sales agreement between the manufacturer and the commission house, it is usually provided that the manufacturer shall bill the commission house for all goods shipped on its order at the respective selling prices less the agreed commissions for making the sales, and that the commission house shall pay the manufacturer for all such goods so shipped at such net price, less such discount for cash as may be agreed upon within a specified time, usually ten days from date of the invoice to the commission house.
Credits.—In dealing with this class of commission houses, the manufacturer is not concerned with the credit rating of the customers to whom the commission house sells his goods. He looks solely to the commission house for his payment. Hence it is of vital importance to the manufacturer that the commission house is sufficiently strong financially to promptly meet all invoices of the manufacturer for the sold goods, as the manufacturer has no claim or recourse against the customers of the commission house in case the goods are not paid for by the commission house itself.
Contracting for Output: Sometimes the commission house will contract to sell the entire out-put of the manufacturer, or up to a fixed amount, in which latter event the manufacturer may either sell the balance himself or arrange with some other commission house to undertake its sale.
Advantages to Manufacturer.—Where the manufacturer is able to dispose of his products in this manner, assuming that the commission house is sufficiently strong financially, he is relieved of all detail and expense of maintaining his own selling force and the carrying of a large number of individual accounts, with the attendant risk of bad debts, and at the same time assured of the continual presentation of his goods to the buyers in all parts of the country.
Abridged Form of Sales Agreement
AGREEMENT, made this .... day of ----1921, between Johnson Manufacturing Company, a corporation of Illinois, of Chicago, in said State, hereinafter called the Company, and William H. Duval & Co., a corporation of New York, of the City, County and State of New York, hereinafter called the Distributor, witnesseth:
WHEREAS, the Company is the manufacturer of the Matchless line of (here state class of goods manufactured), for which the Distributor desires to act as selling agents upon the terms and conditions hereinafter set forth.
NOW THEREFORE, This Agreement further witnesseth that the parties hereto, in consideration of the premises, do mutually covenant and agree to and with each other as follows:
(1) That the Company agrees to manufacture in quantities sufficient to fill any and all orders secured by the Distributor therefor, the following numbers, as constituting its said Matchless line of (name products).
(2) That the Distributor agrees to act as sales agents for the sale of the said numbers to the jobbing and department store trade, and to sell the same at the respective following list prices and subject only to the respective following discounts, all sales to be f. o. b. Chicago, Ill.:
(Here list items in the line with retail prices and discounts to the trade.)
(3) That the various goods shall until further notice be packed in the following manner:
(Here insert method of packing.)
(4) That the Distributor shall pass upon all questions of credits and terms.
(5) That the Company shall make all shipments of orders sold by the Distributor direct to the Distributor's customers as above provided.
(6) That the Company shall bill the Distributor for all goods shipped at prices, agreed upon. (Continue to write out the different points agreed upon. Your agreement should be specific and comprehensive.)
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