Topic: Member Workshop: What is a Drop Ship Fee, and How does it Relate to your Shipping and Handling Fee?
Host: worldwidebrandsinc Date: Thursday 06/12 Time: 12:00 p.m. to 1:00 p.m. Pacific time Location:Workshop Board
Description: Working with wholesale drop shippers is one of the most popular product sourcing methods around. It’s an easy entry-point into eBay selling, but it also presents some unique challenges. Join product sourcing expert Colette Marshall, of WorldwideBrands.com, as she explains one of the biggest challenges – the dreaded ‘drop ship fee’ – and presents techniques for overcoming it. This instructive workshop will teach you the best way to use drop shipping in your own eBay business.
Today's workshop is written in a style of questions and answers. We often get several of the same questions about dropshipping so we decided to put those questions out there and give you the answers directly.
The workshop content is directly below. After you’ve read through today’s workshop, I’m here to answer your questions about how to deal with drop shipping fees and where drop shipping fits into your overall product sourcing strategy.
I look forward to talking with you over the next hour!
Colette Marshall WorldwideBrands.com
Question 1: (For those who aren’t familiar…) What is drop shipping, and how does it work?
Answer 1: Drop shipping is a service that some wholesale suppliers offer, where they will ship their products, one-at-a-time, directly to your customers’ homes, for you. You can offer their products in your eBay store or auctions, and pass your customer orders along to your drop ship wholesaler to fill them. You don’t pay your wholesaler until your customers pay you, so it’s a low-risk way to get started sourcing wholesale products.
Question 2: What is a Drop Shipping Fee, and is it a legitimate charge or a middle-man mark-up?
Answer 2: A drop shipping fee is very standard in the wholesale industry. When you buy your products in volume, YOU are responsible for warehousing them, for breaking open each case, for repackaging each product, for correctly addressing each package, and for shipping each item out to your customers, one-by-one.
With drop shipping, your wholesaler takes over those functions, and that creates a lot of extra work and expense on their part. They must designate warehouse space for storing their drop ship products. They have to send employees to go and pull each product, as it’s ordered, and to repack it, address it, and ship it out. This requires manpower, inventory management systems, special tracking software, and extra packaging supplies. These are all very real expenses that the wholesaler has to cover.
When you drop ship your products, your wholesaler is doing the majority of the work, so their Drop Ship fee is basically the “handling” part of the “shipping and handling” charge.
Remember too, that although you’re paying a higher cost on the front end, you’re saving money on the back end. You’re not paying for any inventory storage costs, packaging materials, or shipping charges. You’re also saving a great deal of time; and in business, your time has a very real cash value.
Question 3: It seems like the profit margins with drop shipping are so much lower than with other types of wholesale product sourcing. Is that because of the Drop Shipping Fee?
Answer 3: Obviously, a Drop Ship Fee is not something you’re going to incur when you use other methods of wholesaling. But you also have to realize that wholesale is a VOLUME business. Wholesalers operate on very thin profit margins, and they make their money by selling in enormous quantities. Drop ship prices are true wholesale prices, but they’re wholesale prices on ONE item. Wholesalers can’t afford to give price breaks and rebates to retailers who buy items one at a time.
Question 4: How does the Drop Ship Fee affect me, as a seller?
Answer 4: Where your Drop Ship Fee can impact you is in your shipping and handling charges. As we said before, your Drop Ship Fee is the “handling” part of that cost. For DSRs, many sellers are looking at shipping rates. So take a look at how you’re “handling” the handling charge. This may be an area that you can get creative in, and find other ways to cover this cost to bring your shipping costs down.
Question 5: How do eBay sellers overcome the problem of thin profit margins and successfully use drop shipping?
Answer 5: There are really two parts to answer to that question:
The first part is that you CAN’T drop ship every kind of product out there, and make a profit. In fact, some products you can’t drop ship at all. For some suppliers, it’s not profitable to sell their products one-at-a-time, so you’re not going to be able to find any real, factory-authorized wholesalers who will drop ship them for you.
And even with some products that you CAN find drop shipping wholesalers for, you still won’t be able to make any money because your competition is buying them in much larger quantities and getting lower wholesale prices. Therefore, they can afford to sell them for less than what you can, and still make a profit.
The only way you’re going to find products that you CAN drop ship profitably is to do your market research. Besides looking at demand and supply, you also need to do your PRICING RESEARCH and find out what the product you’re considering selling is going for on eBay. eBay’s completed listings is a good tool to find this information.
Also make sure, when you’re gathering your pricing info, that you’re comparing apples to apples. In other words, if your product is a brand-new Brand-X Product XYZ, don’t look at the completed listings for new and used Brand-X Product XYZs, because that combined data will lead to inaccurate conclusions.
Compare the retail prices you can expect to charge for a product with the total costs that you’ll incur in selling it – the wholesale price-per-piece that your supplier quotes you, your Drop Shipping Fee, your shipping costs, the value of your time, etc. Obviously, the retail price you can charge needs to cover those costs, and leave you room to make money. Your market research will reveal which products you can drop ship profitably.
The second part of the answer is to realize that drop shipping is not the TOTAL solution to sourcing products for your eBay business. But it is a PART of the total solution, and it has a very important role to play in your product sourcing. There are numerous situations in which drop shipping is going to be a great sourcing solution for a particular product for your eBay business:
• First, when you are tired of garage sales and want to find a renewable source of products, or when you’re a new seller with very little money to invest in buying products, drop shipping allows you to get started selling on eBay and working with wholesale suppliers.
• Second, drop shipping allows you to offer a very deep product selection, within your niche market, without tying up your money in a lot of inventory.
• Third, if you want to offer items that would be challenging to physically stock – large items, heavy items, or items with special shipping requirements – drop shipping makes that possible.
• Fourth, if you just don’t want to deal with tracking inventory and handling shipping issues, or you simply don’t have the time to spend because you’re working a day job, drop shipping lets you make those online sales with a minimum amount of work on your part.
• And lastly, throughout the life of your eBay business, drop shipping enables you to test new products and see how the market responds to them, so you never have to risk investing in products that you might not be able to sell. If you find a product doesn’t move as quickly as you had expected, you’re not out any money. And when you find products that do sell very well, you can start sourcing them in light bulk quantities, to get those additional price breaks and enjoy those higher profit margins.
The bottom line is that drop shipping has a very important role to play in an eBay retailer’s business. You don’t want to limit your product sourcing to JUST drop shipping, because that’s only one part of the puzzle. But if you use drop shipping right, it’s a very effective tool for expanding your product line and growing your eBay business.
Drop shipping fees are a legitimate and necessary cost, and one that you can effectively deal with in your eBay business. You do that by carefully performing your market research to ensure that the products you’re choosing to drop ship are products that you can make a profit with. And when your drop shipping identifies steady, hot-selling items, you can then begin sourcing those products in larger quantities and handling the shipping process yourself, or using a fulfillment center, in order to get the best value for your eBay business every time.
So you think it is best if we put the drop ship fees under the handling charges instead of adding it in the shipping fees? In the past, I had too many people complaining that they were being charged the handling fee. Once I compiled it into the shipping fee it worked out better. Now that the feedback rating have changed, I have been getting complaints again.
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"Where your Drop Ship Fee can impact you is in your shipping and handling charges. As we said before, your Drop Ship Fee is the “handling” part of that cost. For DSRs, many sellers are looking at shipping rates. So take a look at how you’re “handling” the handling charge. This may be an area that you can get creative in, and find other ways to cover this cost to bring your shipping costs down."
If I include my 'Drop Ship Fee' as a handling fee, wouldn't this disadvantage me in search and DSRs? Also, I understand that inflating shipping amount to cover my own costs is considered 'fee circumvention' according to eBay policy? Are drop shippers not bound by this rule?
Hi Rdarwa, Great question. Many customers don't understand what the handling part of shipping and handling is, so I can understand why you get customer inquiries. You need to look at what your overall profit margins on your product are. If you have room, don't be afraid to increase your product price and offer free shipping. If you're doing drop shipping this makes it a little difficult because usually there's not a lot of profit margin. If you have products selling well then look into doing light bulk quantities and using a fulfilment center. This will still give you the ability to offer lower prices on the products free shipping and still have a drop ship arrangement. Of course, this all depends on your market research and the product you are selling.
I can't buy my merchandies from most of the manufacturers. Most require at least a $5000.00 order. I do purchase some of my items and ship from my business. That does help. Some of my items are drop shipped due to the fact that I can't be the amount that is required by the manufacturer. I am working on raising prices a little and lowering shipping so that the drop ship fee is absorbed into the product price instead of the shippping price. I think it will all iron out in a few months when I get things changed. We just need to stress to buyers that it is shipping & HANDLING...not just shipping.
Let's clarify the definition of drop shippers. A drop shipper is a Wholesaler who will drop ship a product for a retailer. The will not sell directly wholesale on eBay. Some wholesalers may have a seperate division that will sell on eBay, but that is completely seperate form their wholesale division.
Whenever we talk with wholesalers and dropshippers that's one of the key things we confirm as part of our qualification process.
So to answer your question, foxhunt4you, the same requirements are necessary as with any supplier that you work with: 1) Registered Business Name 2) Sales Tax Id 3) Business Contact Information 4) Some suppliers who do allow their products to be sold on eBay will request samples of past auctions or samples of your eBay store.
There is a great workshop on this if you look in the community workshop archives for our past workshops under our username.
How can I access the items and their costs of a drop ship wholesaler before deciding to use them? I need to research the opportunity for me to make a profit before deciding upon where and what to buy. I don't want to pay membership fees, etc. to be able to access these data.
If I include my 'Drop Ship Fee' as a handling fee, wouldn't this disadvantage me in search and DSRs? Also, I understand that inflating shipping amount to cover my own costs is considered 'fee circumvention' according to eBay policy? Are drop shippers not bound by this rule?
Handling fee is equal to the drop ship fee in most cases. If you're drop shipping the product, then this is part of the expense of getting it delivered. Sometimes it's an unavoidable expense, But as I mention in post 14, You want to look at other areas of your business where you can increase your profit margin so that this handling fee does not seem so overwelming to customers.
For example, add to the customer experience by giving them information about the product with the product. More than what they'd normally get. Don't be afraid to put in your auction exactly what the additional charge is for. A informed buyer is more likely to buy than a weary buyer. For example, if you're selling a pool table and the handling fee is very high because of the weight then make sure to explain that shipping is higher than normal because of the unusal size and weight.
I have found that the companies that charge memebership fees are too high on their prices to deal with. They charge the membership fee unfront so they got ya! I wouldn't deal with them.
You make a great point. Many wholesalers have very high minimums. What you want to look for is light bulk wholesale where you can purchase product at minimum orders less than $500. We have at WorldwideBrands.com a full database dedicated to this category for this reason.
If you have a good relationship with your supplier and you have a history of volume sale, give your supplier or manufacturer a call and explain to them your situation and that you feel like you can increase volume if you can get a lower minimum. As long as you have the history and you've built that supplier relationship, you will probably find that they are willing to work with you further. Otherwise look for supplier that has a similar product that does allow light bulk wholesale.
A true wholesaler will not charge you a membership fee. There maybe a deposit to open your account but that will directly be applied to your first purchase and will returned if the account is closed. So there charge for opening an account with a wholesaler. If they are, you need to look at them very carefully because that's normally a sign of a middleman.
Wholesalers will not post their wholesale prices online. You will always need to set up an account first and be approved. In our database when we research wholesaler we do list the drop ship fee so that you can make an informed decision on whether to set up an account with that wholesaler but normally that is not posted to the public.
Some wholesalers will put it in their Terms and Conditions or their Policies and Procedures, so You can also try calling the wholesaler and asking them if you could see their Policies and Procedures. Sometimes wholesalers will post this to the general public. Every supplier is different on their procedures.
So there should be NO charge for opening an account with a wholesaler. If they are, you need to look at them very carefully because that's normally a sign of a middleman.
To work with any wholesaler, you need to be a business name and established as a business. You also need sales tax id. For all 3 of your questions, I recommend doing a search on workshop archives under worldwidebrandsinc. We have many workshops on these topics. You can also go to our site, WorldwideBrands.com, and find several free ebooks and video on these topics to help you get started.
Christine, We will also be giving several presentations at eBay Live next week so I recommend if you're going that you attend the Basic Product Sourcing course and several of the others. Look for Rob Cowie and Colette Marshall on tehh speaker list.
Rwarda - if you have any problems with suppliers please make sure to talk with customers service or email customer service.
Suppliers are just like any other business. They will be bought out, change management, change their policies. You should not be dealing with any supplier that charges a membership fee. They may have a deposit that you put in but that goes directly to your first purchases. You made a wise choice there.
Our research team here at WorldwideBrands.com is constantly making updates and adding new suppliers for this exactly reason. This is why we don't distribute any hard copy versions of our database.
What are the normal shipping times by drop ship wholesalers? I am curious if there is a long delay in shipping the items. I don't want my customers unhappy because it takes too long to receive their item.
Do drop ship wholesalers make a profit from shipping and handling?
Every supplier is different on how they handle their shipping and handling fees. My recommendation is that you have any questions on a shipping procedure or handling charge:
1) Check the policies and procedures of the supplier 2) Call your representative and ask them to explain what the shipping and handling charges cover.
Remember - always make sure your communication with suppliers is on a business professional level. It's a business to business relationship so if you work from home and you have 5 dogs who love to bark, make sure they're away from you before you contact a supplier.
I did a past workshop on supplier communication. We've also got some great information on our site.
You want to read the policies and procedures and make sure that you understand fully what the supplier will guarantee. Shipping time frame depends on where the customer is relative to the distribution center.
Always with dropshipping you want to keep product on hand so in case there is delay for any reason you can still get the product out to your customer on time. Many things can impact shipping times so I can't give you a straight forward answer.
But here is something to consider: If you know your supplier warehouse is in California and you live in New York and you get a customer who lives in New York purchase from you. It would be faster if you shipped the product and cheaper. If you keep some product on hand, this would give you that ability to save on some of the shipping cost and handling.
This is an another example of way to be creative with your shipping and handling.
An idea you might want to consider is call your wholesaler and ask them , how can I help speed up the process on getting products shipped out?
Many times there are things you can do as a seller like sending them the exact wording for the shipping label in advance so that they don't have to reformat and manually type it in.
Always look for ways to speed up the communication with you and your supplier.
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