As a B2B wholesaler, your typical goal when selling products to your retail partners is to move as many units in a single deal as you possibly can.
While this isn’t a bad plan at all (it’s essentially a wholesaler’s M.O., after all), you may be missing out on a ton of extra value by focusing solely on those who purchase in bulk from your company.
Tell me if the following sounds familiar:
- You’ve hit your monthly
quota,but stillhave some inventory leftover.
- You haven’t hit your monthly
quota,and have run out of retailers to sell to.
In either case, you’ve run into a problem:
You don’t have enough inventory left to sell in bulk to a retailer (or, you don’t even have anyone left to sell to).
Now, you obviously could just hang onto your excess inventory and hope to unload it next month. But, of course, you’ll probably end up facing the same issue once again later on in the year.
So, instead of letting your excess units clog up your storage space (and cost you money in the process), why not unload it piece by piece to a drop shipping client?
In this article, we’ll explain just what drop shipping is, and how partnering with a drop shipping seller can allow you to make the most out of your spare inventory. We’ll then discuss the basic things to know and consider when working with drop shippers.
Let’s get started.
What Is Drop Shipping, and How Can It Benefit Your Wholesale Business?
As we said earlier, the typical wholesaler-retailer relationship looks like this:
- The wholesaler sells products in bulk to the retailer
- The retailer sells individual units of the product to the “on-the-ground” consumer
In other words, the wholesaler rarely - if ever - comes into contact with the individual who actually ends up using the product in question.
The process of drop shipping is a bit different, though:
- The consumer contacts the store owner to order a product
- The store owner contacts the wholesaler to purchase the product on behalf of the consumer
- The wholesaler sends the product directly to the consumer
In this instance, the wholesaler does technically come into direct contact with the consumer - and the product never enters the store owner’s hands at all.
At first, the process might sound a bit...well...odd. You might be wondering why the wholesaler doesn’t just cut out the middleman and sell directly to consumers, or why the drop shipper should get any piece of the pie (considering they never actually came into contact with the product in question).
Well, the answer to both of these questions is rather similar:
While not exactly a retailer, the middleman is more of a “finder,” in that he does all the legwork (marketing, SEO, etc.) to build visibility for the wholesaler’s products - the wholesaler simply has to take in the order and deliver as needed.
To clarify the benefits of working with a drop shipper:
- You’ll be able to offload excess inventory and save money on storage space
- You’ll simply need to process orders as they come in, without needing to do any outreach or marketing
- You’ll have opened up a new channel of distribution for your products to supplement the ones you currently use
Now that you see how valuable working with a drop shipping client can be, let’s dig into some of the things you need to consider when doing so.
Things to Consider When Working With Drop Shippers
As you may have gathered, working with drop shippers is similar to working with retailers in some ways - and completely different in others.
That being said, some of the following information may seem familiar (with regard to how it applies to working with retailers).
However, it’s worth approaching this section with fresh eyes and a fresh mind. In other words, we don’t necessarily want to look at the process of working with a drop shipper through the lens of the typical wholesaler-retailer relationship; we want to look at it as it’s own entity.
What Value Do They Bring Your Company (and Vice-Versa)?
As with any business partnership, your main concern should be whether or not the partnership will be beneficial to your organization.
And, as we said earlier, the main benefit of working with drop shippers is that you’ll all but ensure your excess inventory gets scooped up by individual consumers - meaning it won’t end up collecting dust in your storage space.
Of course, this is only if the drop shippers you partner with are actually able to market and sell your products in the first place.
The thing with drop shipping is that it’s a much more attractive business venture than traditional retailing is. What this means is that a lot of people give it a shot - but only a small percentage of them actually take the venture seriously.
On your end, this means you need to be extra selective when partnering with drop shippers. If they’re not serious about their business, they won’t be serious about getting your product noticed. If this is the case, you’ll essentially be wasting any amount of time you invest in the partnership.
(Contrast that with doing business with a less-than-stellar retailer; in those cases, you’ve already sold your products for a profit - it doesn’t matter to you whether or not your partner can actually sell them.)
You also want to consider whether or not you have the capacity to fulfill the smaller, individual orders that will soon be coming in. Though your partner will be taking care of the cost of doing so (i.e., shipping and other fees, which we’ll talk about in a bit), you’ll still have to consider the additional man hours and other logistics that go into the process before you give a potential partner a definitive “yes.”
Once you’ve determined that partnering with a drop shipper will be a fruitful business venture for your organization, you’re ready to talk about these logistics.
Prices, Fees, Delivery, and Other Logistics
As we just mentioned, there are a number of added costs inherent to the process of drop shipping which
Whereas wholesalers typically sell products to retailers for 2-2.5x the amount they paid the manufacturer for them, they’ll usually work with their drop shipping partner to determine an acceptable price-per-unit that likely falls below the 200% mark. Obviously, though, you still want to make as much profit as you can from each sale, so you don’t want to set the price too low.
On top of the agreed-upon sale, most drop shippers accept that they’ll also need to pay their wholesalers a small fee per transaction. For smaller items, this fee is generally less than $5; for larger or more expensive items, you’d certainly be able to charge more.
(Note: Understand, of course, that your partner will typically then pass this cost over to their customers. If the price they advertise your products at is too high, they might not make as many sales; meaning you’ll need to do some cost-benefit analysis to figure out the best pricing and fee rate to charge your drop shipping partners).
You’ll also want to discuss a minimum monthly purchase amount with your partner before moving forward. Going back to what we said earlier about working only with serious drop shippers, setting a quota for your new partners is a good way to weed out those who simply won’t be worth your time.
Some wholesalers require new drop shipping partners to front an amount of money equal to the agreed-upon minimum revenue (i.e., the price per product - including fee - times the minimum monthly order amount). After the first month, both parties will then reconvene to discuss how to proceed from there.
Finally, as your company will be responsible for physically delivering products, you’ll want to know where you’ll typically be sending packages off to. Is your partner targeting a specific area of the country, or are they looking to market your product throughout the US? Do they eventually hope to expand to other countries? While, again, you’ll be able to pass the cost of shipping on to your partner (who may or may not pass this cost on to their customers), it’s still something to think about before diving into a partnership.
A Note on In-House Logistics
We touched on this before, but it’s worth revisiting:
Is your company currently in a good enough position to take on this new venture?
Are you going to designate some of your team members specifically to fulfilling drop shipped orders? Or will doing so take away from your main operations?
Do you have a liaison to work with your drop shipping partner(s)? Or will you be spreading some of your personnel thin?
How will you handle problems, issues, or other contingencies (such as delivery and return inquiries)? Even though your drop shipping partner is responsible for all things customer service, they’ll still eventually come to you for answers if the problem occurred on your end.
The more prepared you are for this new venture, the more fruitful it will be for your company. As long as you’re ready to handle the nuances and intricacies of working with a drop shipper, your new partnerships can open up a world of opportunities for your business.