The first step to becoming a dropship supplier is to first find out if you can, well, dropship. Which is why I started this guide focusing on the ability to fulfill dropship orders. When it comes to determining whether or not to start a dropshipping program, wholesale suppliers should first be looking at two major areas of consideration: profitability and capacity.
Profitability and Capacity
If you are currently operating under business-to-business transactions and shipping large freight orders in bulk to your retailers, you will want to identify if you are able to stay profitable sending products individually. Not only that, but think about if you would be able to handle sending out these orders on a rapid and regular basis.
When starting a dropship program, it opens a whole new door for retailers to build a relationship with you, their supplier. With this comes a large influx of new dealers and orders. Orders will not just be coming from a select few brick and mortar retailers anymore, but from numerous ecommerce shops, which leads to a “new normal” for logistics, and a steady flow of orders. You will want to make sure you have a team that is efficient enough to be able to support this. If you are not able to fulfill orders in a timely manner, you will not be able to keep those customers for long. The average turnaround time to ship out for U.S.-based suppliers is 1-2 days. And now in the age of Amazon Prime, shipping times are becoming more and more important to consumers (and businesses).
A great way to help determine if your business has the capacity to handle these orders in a timely and profitable manner before starting a dropship program is to open a direct-to-consumer online store. This will help your business get accustomed to taking these types of individual orders and is an excellent way to gauge staff capacity as well as to garner data to determine if your business can stay profitable fulfilling those orders. It is commons for wholesalers and distributors to test this “direct to consumer” sales channel under a different brand name and website to reduce channel conflict with your business partners and confusion in the market.
Shipping Your Dropship Orders
Once you have determined you feel confident in your ability to fulfill orders for dropship retailers, you will have to make decisions on how you want to go about actually shipping those orders in a way that makes sense for your business.
One of these decisions you as the supplier are going to have to make is determining which shipping account to use: yours or the dropship retailer’s. Most commonly brands, wholesalers, distributors, and therefore “dropship suppliers” have their own shipping accounts with FedEx, UPS or USPS, which they can use to ship out the dropship orders. However, a lot of dropship suppliers also allow their retailers the ability to add their own shipping carrier account to their dealer account upon request.
Using Your Own Carrier Account
By using your own account, you often can negotiate lower shipping costs for your retailers, which is a bonus to them because shipping costs can make or break their businesses. Using your own carrier account also allows you to start building profitable shipping margins for your business. However, retailers often want transparent, predictable shipping that they can then relay back to their own customers. It can be hard to do that when they only have the ability to utilize your account since it negates the retailer’s capabilities to obtain further insight into their own shipping costs and remain profitable with their orders.
Also, if you choose to use your business’s own account, you will have to create more complex shipping policies since you will be handling that portion of the dropshipping order process. This can be time consuming and complicated depending on how you want to charge for shipping. There are different options such as flat-rate, weight-tiered and price-tiered shipping. Often times, you will want to provide your shipping cost policies upfront to your retailers, which as you can see, can take time and a lot of effort to create.
If the retailer is already accustomed to shipping and has their own carrier accounts, it is often preferred by retailers to use their own account since they can conveniently integrate it into their checkout process on their ecommerce store and control their shipping costs. However it’s worth noting, “startup retailers” who are new to selling online may find value in not having to setup their own shipping carrier accounts.
Allowing Retailers to Use Their Carrier Account
Allowing retailers the option to connect their own shipping carrier accounts help in keeping a trusting and flexible relationship with your business. Also by doing so, retailers have a lessened shipping cost risk by being fully aware about the costs carriers are charging them. As mentioned before, this is vital in today’s ecommerce industry as shipping cost is one of the most important strategies an online business can use to stay competitive with other stores in the same product niche. So, knowing these exact costs can help retailers build a strategic shipping policy in which they have all the information needed to establish profitability.
So really, as with anything business related, there are pros and cons of using your own shipping carrier account or allowing retailers to use their business’s. When beginning a dropship program, you will get requests for both of these options. So, you will just have to determined which methods are easiest and worth managing from your perspective, if not both.