Drop Ship Versus Wholesale

I’m partial to drop shipping, I always try to find a company that will drop ship a particular product. Drop shipping usually fits my business model better than wholesale stocking, for a few key reasons;

1. I have several eCommerce stores that, in total, carry thousands of different products. If I purchased those products wholesale, I’d need a very large and expensive warehouse for all of those boxes to live.

2. With that vast of a product line, inventory management would become a fulltime position along with shipping and receiving.

Keep in mind that the above situation is not true for all eCommerce storeowners. I happen to own many stores with many products per store – not everyone does.

Also, many eCommerce storeowners don’t sell products that occupy the same amount of space as a suit of armor, medieval shield, or wall-sized tapestry – I do. The products you sell may not take up a huge volume of floor space.

The bottom line is, your decision to warehouse inventory or find a drop shipper to do it for you must be based on factors specific to your business situation, like:

1. Do you have the room in your home to store goods?
2. If you don’t, do you have the means to rent a small public storage facility or share warehouse space with a local business?
3. Do you have the operating capital to purchase a quantity or products in bulk from a wholesaler?
4. Are you prepared to deal with yourself or hire someone to do your shipping and handling?

Those are pretty obvious. But what might be surprising to you is that when you purchase bulk wholesale from a company, you may be able to do so at a substantial savings over drop shipping. In fact, when I do purchase goods in volume, I often realize a savings between 10% and 40% over a drop shipped product.

If you’re in a very competitively priced market, having those extra margins may mean the difference between competing effectively, or not competing at all.

However, I want to share with you a concept that I believe can make a huge difference in your ability to grow your business. That concept is called “Effective Time Management”. What I’m talking about is not being able to schedule your business work time effectively – even though that’s important, it’s not what this is about.

I’m talking about being able to make a judgment between low value work and high value work. Here is what I mean…

The most effective use of your time online, or in any business environment for that matter, is growing your business’s sales volume. That means getting more traffic, turning that traffic into customers, and turning those customers into repeat buyers.

You turn your traffic into customers by having an effective sales presentation on your site, offering incentives to buy, and merchandising products in a unique way. You turn customers into repeat buyers by following up with them, communicating information that they are interested in, and offering a pleasant buying experience. And you spend time refining and enhancing all of the above by testing different methods.

I’d like to think that I have some experience in these areas, and it’s been that experience that all other considerations for your business, other than the above, are secondary. Sure, you need to manage your books, your Internet connection, your vendors, your credit card merchant, and your cash flow, etc. But what makes a business successful is the amount of sales volume that it generates.

And that’s what I’m talking about. low value work is the sort of work that doesn’t do anything to increase your sales volume. While it might be necessary in order to operate your business, it doesn’t do anything to grow it.

High value work, by my definition in eCommerce, consists of the following procedures:

1) Site Conversion testing and tweaking
2) Search Engine Optimization
3) Paid Advertising
4) Customer Follow-Up
5) Unique Product Offerings in the form of packages or special value purchases.

Hey, I’m a business owner. I realize that you have to do both. But your priority should always be growing your sales volume. That’s why I drop ship.

I know that is a long-winded explanation for the reason I drop ship. But consider this – when I get an order from one of the stores, all I have to do to fill that order is take the incoming email that I got from my shopping cart, and turn that into an order for our drop shipper.

That means having 2 windows open and copying information from my email into the order form on my vendor’s website. Total time to complete? 60 seconds.

Sure, as a drop shipper, I make less money per sale than I would if I were an inventory stocking eCommerce storeowner, but I spend far less time completing the transaction of the sale. No picking, sorting, packing, labeling, or shipping. In a sense, all I’m really doing it turning around an email. And that’s why I try to drop ship whenever I can.

Having said that, there are times when I can’t find a drop shipper for a product that I want to sell. When that happens, I here’s what I do:

I find a source for that product and ask the wholesaler for some samples. I then create the product listing, drive some traffic to it with some paid ads, and measure the results. I figure out exactly how much money it cost me to generate a sale for that product, then figure out if I can make a profit selling it like that.

If I can, I’ll purchase a minimum quantity from the wholesaler, ship it all to a fulfillment center or ask the manufacturer to warehouse it for me (they will sometimes do this), and start optimizing those product pages for the free search engines while I’m driving traffic to that page with paid ads.

See what I’m doing here? I’m taking a very small financial risk to determine if that product sells at a profit for my company. I’m using paid traffic to determine if I can sell that product. Testing the water before I dive in. Only after I’m able to judge that product’s effectiveness by testing will I make a financial commitment to it and buy a quantity of it from the wholesaler. Then, in order to keep the sales fulfillment cycle short and easy, I send that inventory to a fulfillment center that picks it, packs it, and ships it for me.

The best of both worlds. The key to this method is testing testing testing!

I need to find out if I can make a profit selling that product by using the most expensive method of online advertising available (at least when you compare it to free search engine Traffic) – paid ads. If I can generate a profit from a sale from this traffic, then I’m pretty confident that my profit margins can only improve once I start to optimize that product page for the natural search.

In my opinion, this is the lowest risk method of determining a product’s potential for your store, short of finding a drop shipper right off the bat.

eCommerce Drop Shipping

All right, let’s say that you fall in to the 80th percentile of people whom do not have a product or service of his or her own to sell. You are in good company! And you have a lot of decisions to make. But these decisions are a little bit more fun than some of the others.

The first decision is, if you have your wish what would you sell?

I chose to sell something that I had some knowledge about.  This a key concept.  It wasn’t because it was a matter of convenience. Heck NO!  If anything, if you go to Google and type in “Sword” in the search engine there, you have about 1000 different ones to choose from.  So there was already a ton of competition.

But I have become quite the collector over the years and have learned what makes one sword different from the other. So when a potential customer comes looking for a sword, and they want to educate themselves about the different type, brands, metals, etc., I am there for them, ready with all the information that they need.

So when it comes time to buy a sword, I hope they choose me over the dude who is selling swords along with the AB-Roller and decorative soap.

It’s about being the expert in your field. Short of that, it’s having killer customer service, great prices and knowing how to reach your audience.

Lets get the most difficult part out of the way.  You need real products to sell, so let me give you a few ways to find them.

The ideal online store where you are selling a product is one where you do not have any inventory.

Most of us don’t have thousands of dollars to shell out on a pallet of products that we are not even sure are in demand.  Even if you do have that kind of money, I would caution you to not start by having a physical inventory of anything. It’s just far too risky. Until you have identified a viable marketplace and a product that the market responds to with regularity and predictability, tying up your cash by owning inventory is not smart thinking.  There is a better way.

DROP SHIPPING!

A Drop Shipper is a wholesale company or manufacturer of real products that only sell to real-legitimate business. (I.e. business that is registered with a Tax ID. Cost? About $65 depending on which state you live in). What I mean when I say “ sell to legitimate business” is this:

You take an order from your online store for a nice set of wind chimes, or maybe a power drill.  You sell your product for $70.00 plus shipping and handling.  You then contact your Drop Shipper or Drop Shippers (you can have as many as you want covering a wide range of product types).  You buy the product that you just sold online for $70.00 from your Drop Shipper for $40.00 and then the real magic happens.

The Drop Shipper sends the product directly to your customer with your company name on the packaging!

Magic.

Drop Shipping is truly wonderful.  There are literally thousands of Drop Shippers out there.  You can find just about any name brand, just about any category at just about any price point.

The Specifics:

First, you need to become a real business in order to work with a Drop Shipper.  That means you go to your local courthouse and register a business name. Then go to your local IRS office and get a Tax ID number.  This is, of course, for a sole proprietorship or partnership.  If you want to incorporate or form a LLC (Limited liability corporation) check out this site The Company Corporation. There are lots of advantages to being incorporated, including liability and asset protection, but it costs a bit more and takes more time to get started.

Once you have the all of the requisite certificates, you then contact a Drop Shipper and create a relationship with them.  They have you fill out an application, sign you up, and send you a catalog of their products from which you then sell on your website.  Some Drop Shippers may also have a website where you can go and download their images and sales material directly and put it right on your website.

The Drop Shipper sets the price that you pay….

You set the price that your customers pay…

The difference is your profit!

It’s really a great way to start an online business quickly.  You can even do it inside of a week or two if everything slips into place.

Having a relationship with a Drop Shipper is FREE! And if you look more than casually you can find some really unique products (meaning less competition for your store).

What in blazes do I sell?

The $64,000 question. When I first evaluated the vast amount of products available for me to Drop Ship, I was overwhelmed.  Visions of huge virtual shopping malls with my name on the marquee swirled around in my head. And me, swaying in my hammock counting my money…

WRONG!

Even though you will be tempted to sell absolutely everything – don’t! Know this now, you cannot compete with Amazon.com

Maybe you will someday, if the fates have blessed you and you have unlimited cash.  But if you don’t get blessed and have a fixed income – don’t worry! You will not need to compete with Amazon in order to be successful! The key for those of you that want to succeed in online retail is to specialize!  Have a boutique mentality. Not boutique as in knick-knack crap. But boutique as in niche Market.

If you have a personal passion for your Harley – Sell Harley Stuff!

Like NASCAR – SELL NASCAR STUFF!

Why? Not just because you like it, but also because you can TALK ABOUT IT!

For Example; Let’s say your hobby is Astronomy.  You know all about the Heavens and Star Gazing in particular.  USE that knowledge to help your customers make informed buying decisions.  Show them how a Refractor telescope is superior for Astrophotography than a Reflector scope.  Organize a subcategory of your telescopes into a section called “Astrophotography Ready”.

I can’t say this enough – Specialize!

Sell what you know. Especially if it’s a product that you have researched and found it to be “In Demand”.  In addition to making your store stand out vs. the competition, it also helps you zero in on your target market!  And remember, the more focused your audience is, the better conversion rate you will have when it comes time for the shopper to become a buyer.

Stay with me on this – NICHE MARKETS!