No matter what scale of business you operate or what type of products you sell, you can find several ways to operate a retail dropshipping business. In this article we explore the benefits of drop shipping and as a retailer what you need to do, to make it work.
What is dropshipping?
Dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product, and passes on the sales order to a third-party supplier, who then ships the order to the customer.
From a business perspective, there are a number of benefits associated with dropshipping. You can effectively make money from selling another company’s products and they could complement the goods you already sell, but it’s not easy. Here are a few things you need to consider:
- Trial products in small quantities
One of the benefits of dropshipping is that you can test products using a trial period. More than just discovering if it sells or not, you’ll also have a better estimate of how much it sells for, giving you a more accurate number of what quantities to buy for your initial stock.
This is particularly important for trying out new product types, which always carry inherent risk.
That could be hit-or-miss, but you can always test the water by dropshipping a few products and see how it goes.
- Get a flexible order management system
Many Order Management Systems (OMS) can’t keep up the pace for dropshipping as they’re not flexible enough to handle company owned and third party stock. Inventory management in many OMS systems are below optimal and can’t handle the complexity that dropshipping introduces.
If you’re looking to use dropshipping to extend the range or availability of products for your business, look for an ecommerce platform or OMS that is designed to cater for the complexities of such a business model. One approach is to use a MACH architecture. MACH stands for Microservices-based, API-first, Cloud-native and Headless. Ultimately this means that retailers can respond to market changes quickly and meet changing customer needs.
- Choose established partners
You need to do your research here, to be as sure as you can be that yourvendor will deliver. Start small and make sure they can handle your order. Getting recommendations for dropship vendors can be hard, as chances are they’ll be used by competitors but try and get into early discussions with them.
Above all, you should always test samples of what your dropshipper provides. Are they as advertised? How do they handle returns or damaged products? How long does it take them to fulfill an order, from sale to delivery? How is their customer support? Feel free to test this yourself.
Do they insure orders? Do they offer fraud protection? Can you find reviews or references online?
4. Protection from overselling
Experienced ecommerce brands know that market fluctuations aren’t always predictable. Rather than raising inventory costs by overstocking to meet unlikely maximums, having a dropshipping supplier as a backup saves you money without losing those sales. This is especially useful for seasonal overflow.
You can cut costs by stocking up on only the inventory you know will sell, and if an unexpected demand for sales comes in, you can satisfy them with dropshipping.
It’s a great safeguard against the uncertainties all retailers face. Having dropshipping options in place also makes great insurance against extreme circumstances.
If something like a natural disaster happens to your warehouse, you can still fulfill orders by dropshipping the products from elsewhere.
5. High-maintenance products
Some products cost more to stock and ship than others. For example, if these products are large and take up too much space, are heavy, fragile or valuable and might need additional security, you might be better off dropshipping than storing them yourself.
Unless your entire company specialises in these types of products, it doesn’t make sense to pay additional storage and shipping fees for a small subsection of your business.
But you can keep your customers happy by offering these products through dropshipping.
Conclusion
Dropshipping can be a great strategy for businesses wanting to create an additional revenue stream from selling complementary items from other suppliers. However, choosing the right dropship partner and making sure you’ve got an ecommerce and OMS platform that can adapt and change quickly is critical to success.
Jamie Cairns is senior vice president for channel and alliances at Fluent Commerce.