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Pro Tips for How to Succeed at Drop-shipping

  • Jul 16, 2015 | Lee Polevoi

With the proper care and research, drop-shipping can be an online retailer's best friend. As opposed to more conventional retail that require carrying inventory in the hopes it will sell, drop-shipping lets the online seller avoid having to maintain stock. Great if you don't have a storage facility or warehouse access.

With drop-shipping, when a customer places an order, the seller transfers that order to a pre-selected shipper, who then fulfills the order, packages it, and ships it to the customer. Drop-shipping has great advantages, but also comes with some important issues to be alert to. Read on to learn more.

Benefits of Drop-shipping

The clearest benefit of this approach is not having to buy and store physical inventory. With the expenses saved by choosing to drop-ship, online sellers have the opportunity to expand their product catalogs--and with more merchandise to choose from, you're likely to attract more customers.

This might include a variety of specialty or niche products that a larger competitor would hesitate to sell, since they can lose money keeping those items in stock. With virtual inventory, the online seller doesn't have to worry about this.

Also, the merchandise a certified drop-ship supplier delivers to customers comes with your branding on the box and packing slip. As far as the customer is concerned, the product arrived directly from you.

Other drop-ship advantages include:

  • Not having to locate, manage, and pay for the costs of a warehouse
  • Not having to package and ship orders yourself
  • Not being responsible for handling returns

"Not having to worry about fulfillment is incredibly convenient and frees up your time to concentrate on marketing, customer service, and operations," notes ecommerce entrepreneur Andrew Youderian. 

Here are four tips from several experts on effective drop-shipping practices.

1. Do your research

It's fairly easy to get the drop-shipping element of your business up and running, says ecommerce blogger Rebecca Kaelin. She recommends checking out platforms like Worldwide Brands, that offer a directory of certified drop-shippers and bulk wholesalers.

"It's in your own best interests to identify suppliers who are reliable and trustworthy," she says.

Research like this is also helpful in weeding out scammers who charge hidden fees or suppliers with less-than-ideal business practices, Kaelin adds.

"A supplier who requires a minimum order value or yearly membership fee might not be a legitimate drop-shipper," she says. "Another red flag is problems with communications. If a supplier fails to notify the retailer that they don't have a particular item in inventory, that can make the retailer look bad in the customer's eyes--when, in fact, it was that supplier who failed to fulfill the order."

2. Be honest about costs 

Eli Williams, founder of the online store Foundry35, reminds online sellers to pay close attention to costs.

"Be honest with yourself about costs and don't be afraid of losing a sale," he says. "It's better to lose the sale and focus on your profitable items than to lose money on a bunch of sales and dig yourself into a hole."

Drop shipping can be a cost-saving measure as long as you stick to a viable pricing strategy, Williams adds. "If each sale doesn't soak up the wholesale cost and shipping, advertising, drop-ship, and payment processing fees with a healthy margin on top, you need to re-think your strategy around that item."

3. Examine the vendor agreement

An agreement between an online retailer and a drop-ship supplier typically involves a vendor agreement. Katie DeCicco, founder of Celebration Saunas, says a product liability insurance requirement should be included in this vendor agreement, which protects you and your customers from damages caused by defective products.

"Take note of what the big guys do," DeCicco notes. "They address every part of the drop shipping process, starting with inventory management, purchase orders, shipping and distribution, accounting, price change policies, parts and support, training, supplies and product samples."

Although many suppliers may have this documentation in place, she adds, "it is wise to draft a vendor agreement defining what your company needs to ensure customers receive a quality product. In most cases, consulting a contract attorney is a sensible step towards guaranteeing the agreement covers this vital point."

4. Explore drop-ship automation

Rebecca Kaelin advises looking into automated drop-shipping as an option for fulfillment and delivery.

"Automated drop shipping means that once an order is received, it's automatically routed to a supplier based on price, special deals, etc.," she says. "If a supplier doesn't have the product in stock, the order is automatically routed to a second supplier."

With automation, communications are streamlined, she adds. "You can, among other things, schedule regular inventory updates, so there's less chance of being surprised by a supplier that doesn't have a particular item in stock."

For online retailers who lack the funds or physical space to carry their own inventory, drop-shipping is a great solution. Just follow the experts' advise and make wise use of this resource. 

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Avalara Author
Lee Polevoi
Avalara Author Lee Polevoi