Dropshippers and Dropshipping explained!
What is Dropshipping and what are the positives and negatives for DropShippers, also what to look for in a good Dropshipper?
In its simplest terms it is the process by which a supplier will deliver a retailers order directly to the customer, rather than sending it to the retailer. The retailer would supply the customer's delivery details to the supplier, they would then
handle the packing and shipping, the supplier would then charge the retailer for the delivery charge.
The process itself is very staright forward, but not all dropshippers operate the same dropshipping service, as there are different types and numerous options available. We will explain the different types and the most common options employed.
There are also many positives to using Dropshippers, but of course there are negatives and we will discuss those also.
- The retailer does not need to hold physical stock (other than display stock if they are a Bricks and Mortar retailer).
- Ability for online retailers to display an unlimited range of products.
- Supplier handles packing and despatch, so clear time saving.
- The supplier will generally be responsible for lost orders and orders arriving damaged, may also handle returns directly (depending on their Terms).
- Dropshippers will usually supply their products data in a data feed, the feeds are normally updated by them on a daily basis, making it easy to keep your website data accurate.
- The retailer does not have direct control over stock, they are reliant on the Dropshippers data feed being accurate, to avoid customers being able to order products that are no longer available.
- The retailer must ensure that their systems consume the Dropshippers data feeds at least daily, to avoid stock and reputation issues.
- Because the retailer is not holding the stock, any customer product queries need to forward to the Dropshipper, they will need to respond to you before you can reply to the customer query.
Blind Dropshipping is where the Dropshipper takes measures to hide the fact that they have despatched the order, the customer is not aware that the order came from a Dropshipper. Blind shipping is achieved using various methods:
- The Dropshipper does not include any documentation in the parcel that refers to them instead of the retailer.
- Any parcel return address does not refer to the Dropshipper, or the address is disguised with a PO Box or similar.
- Any documentation included in the parcel are customised with the retailer details (if that service is available), and not refer to the Dropshipper in any way.
The Dropshipper should have the facility for their systems to provide notifications to update you with the status of orders being processed.
Notifications are usually email updates, but can also be a data feed, the notifications will indicate some of the following:
- Orders have been received.
- Any stock issues relating to the placed order.
- Confirmation that the order has been despatched, including the tracking number if applicable.
- Regular updates for orders with stock issues.
- Product updates for lines that go in or out of stock.
Dropshippers should provide data feeds that are updated at least daily, most will update at least every few hours. The feeds can be in many formats but the most common are CSV (text file) or XML (portable data format). Most new websites will allow the importation from data feeds; some will also handle the regular updates of the feeds in an automated fashion.
Profit Margins and Affiliates
Because the Dropshipper is taking responsibility for despatching the orders, that may be reflected in an increased product cost, as opposed to normal wholesale bulk ordering, if there is an increased cost it will impact on the profit margin.
If the Dropshipper operates an affiliate program, you may not be ordering from them at one price and then selling at another, you may be given a fixed or percentage amount for each item sold, you will need to take that into account when setting your selling price.
Sale of Goods Act
When using a Dropshipper there are two separate transactions, there is a retail sale between you and your customer, and a trade sale between you and your supplier. The retail sale between you and your customer is covered by the Sale of Goods Act, the trade sale between you and the supplier is not, it is covered by the suppliers Drophip terms and conditions, the Sale of Goods Act does not apply to trade sales.
Therefore although the Dropshipper is delivering the order to the customer, the responsibility to that customer is not transferred to the Dropshipper, the retailer is still responsible for that customer, the Dropshipper is simply despatching on the retailer's behalf.