Working With Drop Shippers

Selecting a reliable drop shipper is a very crucial element in your drop shipping business. If the drop shipper you work with is honest and reputable, you can consider yourself to have won half the battle in the order fulfillment process. Although this may not be true in some circumstances, the direct manufacturers and the upper level distributors are usually more reliable than the smaller distributors. Manufacturers usually produce their products in large quantities, and require higher capital to finance their companies. More often than not, these businesses are reliable companies, because only businesses with a strong track record have the ability to secure such high capital to finance their manufacturing process. Also, first and second tier distributors are usually reputable as they are bigger and more established, since their distribution spans a wider region. This is in contrast with lower tier distributors or middlemen, who make their profit simply by marking up the prices. Some low-tier distributors may be fly-by-night organizations or businesses that may shut down easily due to their small size. Hence, whenever possible, you should look for the direct manufacturers or distributors of the products and ask if they offer drop shipping services, due to their reliability. Direct manufacturers or distributors should also be your first choice because their prices have not been marked-up by any middlemen, and thus the higher your profits can go.

(This is not to say that smaller distributors are unreliable, there are also numerous honest distributors out there with established track records.)

Simply phrased, the drop shipping process is as such: You set up a website catalogue selling the goods that you want to sell. After a customer has placed an order on your website, you can call or email your drop shipper to deliver the specific quantity of products to your customer. Your drop shipper will then ship the products to the mailing address as specified on the order form.

When selecting the products you want to sell, you have to also consider the shipping costs involved. If your drop shipper and your customer base are located in different countries, you should definitely sell products which cost in the price range of hundreds or thousands of dollars, so that the higher international shipping fee would account for a smaller proportion of the retail price of the product. If your drop shipper and your customer base are located in the same country, it would then be feasible to sell products that are cheaper as the shipping costs are much lower.

So how should you go about looking for your product suppliers? The first approach you can take is through the search engines. You can start off by searching for ‘Manufacturers directory’, ‘Wholesalers Directory’, or ‘Drop Shippers Directory’, and look through the websites containing the lists of such manufacturers. Alternatively, you can type your product keyword together with the word ‘wholesale’. For example, if you want to sell wooden carvings, you may want to try the term ‘wholesale wooden carvings’ and take note of the websites offering wooden carvings at a wholesale price. After which, you can email or call the manufacturer and check if they offer drop shipping arrangements. Or, if they offer the function to sign up for their drop shipping service on their website, you can immediately sign up for it, but only after verifying that they have a record of excellent and ethical service. (You can do this the easy way by browsing their website. Most of them will display the awards or commendations they achieved for excellence and reliability.) A good example of a wholesaler that offers drop shipping registration on their website is http://www.artinternationalwholesale.com. The drop shipping service can be found on the left navigation bar under ‘Wholesalers’.

Remember to target manufacturers as your first choice. You can find a directory of manufacturers and distributors at http://www.thomasregister.com. If you cannot find any manufacturer offering drop shipping services, you should then target the direct distributors one level below the manufacturers. Their prices would have only been marked-up once, and hence the lower your cost. You can locate these distributors by getting the manufacturer to recommend some of the more reliable ones. If none of these first-tier distributors offer drop shipping, you then move on to the second-tier, and so on. However, it is not advisable to go on to the lower tiers, as your profits will decrease.

Although manufacturers or direct distributors are large companies, some of them may not have an established website. You can still contact them by calling them or sending them a mail. I would recommend that you call them personally so that there is more room for negotiations, and also a warmer ‘touch’ to the business relationship.

Before calling your drop shipper directly, you will need to establish your business as a legal entity before starting any business trading. Registering your business with the government involves getting your Tax ID number, and also your official business name. You can contact your state’s administration and find out how to register your business. U.S. citizens can get a lot of resources and information on registering a business at http://www.sba.gov.

After your business registration is done, you can start contacting your drop shipper and negotiating with them. There are several important issues that you have to discuss with them:

1) Shipping. Most of the companies outsource the delivery of their products to a delivery service like FedEx or UPS. Once you email a customer order to your drop shipper, you will need to be able to keep track of the status of the delivery. If any customer were to query you on when the goods are to arrive, you will then be able to account for them fully. Established delivery services like FedEx offer online real-time tracking services. With the tracking numbers issued by the services, you can log on to the internet to track the delivery status of the goods. Alternatively, you can choose to include the tracking number in the email autoresponders sent to your customers, so that they can log on to the FedEx or UPS website to track the shipment.

You would also need to find out what is the delivery service that your drop shipper uses, and calculate the shipping costs. Shipping costs within a country should be significantly lower than international shipping, thus it is advisable to select a drop shipper based in the country where most of your customers are. This not only cuts down a lot on shipping costs, it will also reduce the hassles of international shipping like customs security and slow delivery time. Additionally, lower shipping costs would encourage more purchases from your customers, as compared to cases of international shipping where the high shipping costs can sometimes account for up to half the price of the goods, deterring them from making purchases.

Usually, the logistics department of the drop shipper is willing to label their products with your company name and logo, so that it will appear as if you were the one who shipped the products to your customers.

2) The wholesale price of their products. Although this would not vary much among manufacturers of the same products, some manufacturers do offer a slightly lower wholesale price than other suppliers for the same product quality. It would pay off much in the long run if you scout around for wholesalers with lower price, as you would make a bigger profit on each sale. You can also negotiate among several wholesalers first because some wholesalers allow greater room for negotiation than others. If your online businesses can have a guarantee of selling a large quantity of products, you should be able to get a lower price for them, similar to the discount given for bulk purchases.

3) Credit and Billing. You would have to make clear with your drop shipper how you are going to pay them, whether it is by credit cards or by checks. Will the payment be made immediately after each purchase of goods, or will it be paid after a certain minimum quantity of goods is purchased, or will it be paid at the end of each month? These details may appear trivial, but it is important to clarify all this at the start to prevent disputes later.

4) Product Return Requests. Because your customers expect their products to be of a pretty high standard, your drop shipper will need to guarantee you a certain standard of product quality, and be willing to replace any defective products. Be wary of drop shippers that do not offer these guarantees! If it turns out that many of their products are defective, then your reputation is at stake, and you would end up with many useless defective products. Clarify the process of returning defective products. You may want your customers to return the products directly to your drop shipper, instead of sending the products first to you, then from you to the drop shipper.

An agreement with your drop shipper on their refund policy should be finalized. If they do, you need to determine whether the funds are to be transferred first to you or directly to the drop shipper.

In conclusion, the process of establishing a business relationship with a drop shipper can be quite complicated. However, if many of the details are clarified right before any transactions are made, your online business should be able to handle all the hassles smoothly.

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