The next weeks we are writing a special about drop shipping. In 5 posts you will learn a lot about drop shipping. This can be especially useful when you want to start a web shop or want to create extra revenue streams within your existing webshop.

In 5 posts we will tell you all about the concept, strategy, best practices and more! The best combination of theory and hands-on experience on doing drop shipping with for example China. Also you will get exclusive access to some great free and premium templates, forms and tools that will enable you to do drop shipping instantly and help you to do drop shipping successful.

In this part 1 of  “What is drop shipping? The concept."

Enjoy reading,

Team AllBusinessTemplates.com

PS: If you don't want to miss the other posts, subscribe to the drop shipping series newsletter:

The Concept

Drop shipping is a retail fulfillment method in which the retailer does not keep goods in stock but instead directly transfers customer orders and shipment details to either the manufacturer, another retailer or a wholesaler who then ships the goods directly to the customer.
In the retail businesses, the majority of retailers make their profit on the difference between the wholesale and retail price, but some retailers earn an agreed percentage of the sales in commission, paid by the wholesaler to the retailer.

1. The drop shipping concept

So how this works? 

from Mark Jonas.

So what is the difference with your existing sales process?
The biggest difference between drop shipping and the standard retail model, is that the selling merchant doesn't stock or own any inventory. Instead, the merchant purchases inventory as needed from a third party,  this can be a wholesaler or manufacturer,  to fulfill orders. So:

  • No warehouse: inventory is at the supplier.
  • Not owning a logistic process: supplier takes care of the logistic process.
  • A broad product offering: instantly able to offer a wide variety of products on your webshop.
  • Quick time to market: be able to instantly start selling drop shipping products.
  • Reduce investments: No need to invest 1000's of dollars before able to start selling.
There are many companies offering drop shipping solutions. It is important that you select a partner that fits to your business model and geographical location. We will have a close look at some of those drop shipping companies in our next post. If you already want to know some of the best drop shipping services have a look at http://www.toptenreviews.com/business/internet/best-dropship-services/ and https://www.comparakeet.com/best-drop-shipping-companies/ .

2. Aligning your strategy for drop shipping

Before even thinking about drop shipping you should verify whether drop shipping fits within your existing business strategy. What needs to be done to be able to implement it?
  • Activities: Key activities/processes need to be implemented?
  • Partners: Which drop shipping partners?
  • Value: How to create (extra) customer value from drop shipping?
  • Customers: In which way drop shipping will influence customer experience?
  • Market: Do I want to broaden my current market or stick to a certain niche?
  • Channels: Which channels to use to enable drop shipping?
  • Costs & revenue: How drop shipping is going to create extra revenue and influence your costs? Is it financially healthy to do drop shipping?
It is best to start brainstorming about it before initiating drop shipping so that you are clear if and in which way drop shipping is going add extra value to your business. The "A3 drop shipping strategy model" can help you to cover all the topics. This template is ready to be printed on A3 paper, so it is easy to use during a project brainstorming session. You can download this premium drop shipping template using the link below.


drop shipping strategy

3. How to create revenue with drop shipping

First of all, it is not that easy to generate revenue with drop shipping. When you run an online store that only offers drop shipped products, indeed you don’t have to worry about any inventory or product fulfillment. All you have to do is sell the products, take orders and make a decent profit. Sound to good be true? Yes it is. They're some things to keep in mind:

  • Are you getting the real wholesale price?
    "No", by default you are not getting a real wholesale price. Often dropship distributors charge extra fees and/or tack these fees onto the quoted wholesale price. Is that reasonable? Yes sometimes it is because the distributor is doing all of the work here and this will be certainly be reflected in your wholesale price. Make sure you know the prices and fees. For sure it helps when you compare multiple distributors to determine if the price given is fair. Negotiate with your suppliers and set up a WIN-WIN situation.

  • Shipping costs.
    When you are working with several distributors and a customer orders multiple products at one time, that are from multiple distributors, this will have a negative effect on the total shipping case. Why? This is caused by the fact the products will not be shipped within one shipment. Instead multiple distributors are shipping from different warehouses to the customer. The result is that you may have to pass these extra shipping costs onto the consumer which reduces your price competitiveness. (Also don't forget that is can be confusing for the customer.)

  • Keeping track of the shipping logistic
    Logistics can become a hell for you and your customer. The bullet above already gives you an answer why. A fully automated logistic solution with clear tracking can reduce this burden. Any human intervention is this process can cause extra administration costs. Keeping track of tracking, will be very important because you have multiple shipments that maybe arrive at different moments.

  • Who is responsible for customer service (CS)?
    Having as awesome CS is very important when you want your customers to trust you. But how this works when doing drop shipping. In the case of drop shipping your are not responsible for the fulfillment. So CS is partly out of your control. 

  • Is it more or less work?
    This really depends how you set it up. For sure no more logistics or inventory but what if your dropship warehouse or supplier is not reliable? What if they create a mess? Having clear & transparent contracts with them will be top priority. Also you need to automate as much as possible. Look for partners that do also.

So yes by adding drop shipping products you can increase revenue if you are able to market it to your consumers against a good price but you should keep close track of the extra costs and hassles. Ensure you make  include drop shipping into your financial plan/overview.

In our next post we will be talking more about partners, contracts and type of products. We will also have a look at some best practices.

Related free & premium drop shipping templates:

  1. Drop Shipping Expert Guide Blueprint
  2. Drop Shipping Strategy Blueprint
  3. Drop Shipping Agreement Template
  4. Drop Shipping Financial Planning