Understanding the Shipping in Dropshipping
This guide is intended for those who want to learn more about how shipping works with the dropshipping business model and how to choose what will work best for you.
It’s no surprise that figuring out your shipping policies with dropship products can get a little confusing. Since you are not warehousing and shipping out your own products, you have to figure out the best plan of action to determine available shipping methods for your store based on supplier policies. We’re here to help guide you through this process and to help you make sense of it all!
With dropshipping, the amount you are going to be charged for shipping every product is determined by the supplier, and every supplier is different, which makes it even more of a cluster. One of the first things you should do before opening your online dropshipping store is to review your suppliers’ shipping policies. It’s easiest to come up with your game plan if you only have one supplier, but if you have multiple, it’s going to be a little more complicated.
With multiple suppliers, you are going to want to gather information about their policies, such as the carrier they use, how they charge (weight, quantity, etc.) and their estimated fulfillment times. When coming up with a shipping policy of your own, you have a few options to choose from:
Free Shipping
As you browse the web, you will notice a vast number of ecommerce stores advertising free shipping. In order to recoup the costs to offer free shipping, a lot of store owners will bump up their product prices to compensate. When you’re just starting out, you want to be competitive with your pricing, but you also want to be competitive with your deals. A great compromise to this would be to offer free shipping with a total purchase price. For example, offering free shipping for orders over $100. That way, the margin off the order volume is enough to cover the shipping costs while still giving you profit.
Flat Rate Shipping
Flat rate shipping is when you offer base prices for all your shipping no matter the weight of the product. This is appealing to customers because they know what to expect for shipping costs every time they get to the checkout, but at the same time it’s a large risk for the online store owner. That’s because with flat rate shipping, if a customer purchases a heavy product, you are going to take a loss on your profit. One way to help make that risk as minimal as possible is to be very careful about your inventory selection. Try to keep the weight of your products as low as possible, and with dropship inventory management tools like Inventory Source, you can filter out heavy products with ease.
Match Your Supplier’s Costs
Matching your supplier’s costs for shipping is probably the safest option for yourself as a business owner, but the downside is, it’s hard to compete with other stores in your same niche that offer free shipping or other incentives and low shipping costs. So, if you’re going to provide lower shipping costs, then you need to differentiate yourself in a separate way from those in your same market to get customers to shop with you instead.
Once you decide on your shipping policy, you will need to consider how you want to ship your products. Most suppliers offer their own carrier accounts with FedEx, UPS or USPS to ship out your products with. However, a large majority of them also will let you use your own carrier account upon request. So, what do you choose? Well, by using the supplier’s account, they often have pre-negotiated lower rates, so it may be cheaper to ship with them. On the other hand, by using a supplier’s carrier account, you have less insight into the shipping costs to ensure you’re remaining profitable as opposed to using your own carrier account.
Some things you will want to keep in mind when making this decision about your supplier’s carrier account includes:
- Most expensive shipping cost
- Average shipping expense per order
- Numerous warehouse’s effect on shipping costs
If you want to stay competitive with shipping costs, it is important to know what shipping cost could give you the biggest hit. So, knowing their most expensive products to ship is crucial to you not losing profit, and you probably want to just keep that product off your website. Usually, the most expensive products to ship are the heaviest, so you can also decide not to include products over a certain weight on your site (ex. no products over 10 lbs).
Knowing the average shipping cost per order will help give you an idea on where to set your prices so that you’re going to be making a reasonable profit. You can base your whole shipping policy around the average shipping cost and expect that’s what you will be charged the majority of the time.
Also, by being aware of multiple warehouses the supplier has can help you know what to expect when it comes to different shipping costs based on location. For example, when you have a split order (an order coming in with products from different warehouses), the shipping costs will be much more expensive than if it were only coming from one. There’s not much you can do about this to keep it from happening, but a preventative measure is only including products from one warehouse into your website when possible.
Using a dropship automation tool makes it easy to include or exclude products based on certain criteria such as what warehouse they are stored.
Additionally, when first initially choosing a supplier, do some research into their average shipping times. That way, you can make your customer aware of how long shipping will take, which will help their purchasing experience and increase their chance of returning to buy from you again.
A great tool to estimate shipping costs is shipping calculators. Each large carrier has one, so it’s a handy way to gain further insight into what shipping your products might cost allowing you to make the best decision on a shipping strategy. These calculators also give you an estimated shipping time, which is beneficial if you’re trying to decide where to open a carrier account since you can compare costs and times to help make a decision.
It is absolutely no surprise that product fulfillment with dropshipping can get a little confusing. Especially when you’re still trying to figure out how much shipping is going to cost with your products so that you are still making a profit. Not only that, but there’s a lot of decisions you’re going to have to make as an ecommerce store owner, such as determining your shipping policy and the method you want to ship. But, by outlining some pros and cons of the aforementioned, I hope I made things a little more clear for you.
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