A guest article from our lovely partner, Modalyst!
To Dropship or not to Dropship? That is the question.
There are many conflicting feelings about Dropshipping. Like all business models, there are advantages and disadvantages so it’s up to you to decide whether is right for your brand. To help you get started, we’ve outlined some pros and cons for you below.
First, what is Dropshipping?
Dropshipping is a retail fulfillment model where the store does not hold the inventory but rather sells products and has the supplier ship them directly to the customer.
Let’s talk Pros and Cons from a supplier’s perspective.
Pros of Dropshipping:
So you spend a ton of time creating a beautiful e-commerce site but how do you get people to see it? We hear this all the time at Modalyst. Suppliers are finding it difficult to drive traffic to their own online stores. There is no secret sauce for this but we can offer a few ways that may help you increase your visitors. But one of the best strategies is to be open to Dropshipping.
By offering your products for Dropship, you can exponentially increase your exposure. For example, if you are online selling sunglasses through your own online store, you are only reaching the audience you have been able to connect with through your own marketing efforts.
If you choose to Dropship your products, you can sell the same pair of sunglasses across hundreds of online stores. Each of these hundreds of stores are aggressively marketing their own site to drive traffic (often by using your products!) so you are reaching new audiences by just allowing them to post your sunglasses to their site.
Selling through your Online Store VS. Dropshipping through several Online Stores
As the supplier, you are not restricted to the amount of stock you have on hand. As long as you are diligently updating your retailers on the inventory levels, you can “sell” 1 pair of sunglasses across as many sites as you choose!
Now that you are handling all the logistics (and often returns) you can negotiate better commissions. Modalyst offers a standard 60/40 split with the vendors so the suppliers receive 60% of the full MSRP of the product.
Additionally, you can manage hundreds of relationships and not have to worry about Inventory since Modalyst automatically syncs your stock levels. As soon as a product is out of stock, it will be marked that way across all stores selling that item. So now multiply that 60% by hundreds and you can significantly increase your cash flow.
Offloading Excess Inventory
Inventory is the devil. There is nothing worse than staring at left over units from previous collections that didn’t sell. While wholesale buyers are typically picky about selling stale goods, online retailers are much less season-sensitive. Let’s face it, consumers will buy what they want, when they want online, whether it is mittens in Summer or swimsuits in winter.
So if you are reluctant to put your past collections for sale on your own e-commerce site, why not off load it across other online retailers? Dropshipping can be an effective way to quickly get rid of the ghosts of seasons past.
Cons of Dropshipping:
Shipping and Logistics
If you are a one-man/ woman show, handling the shipping for all the items can be time consuming. First, you will need a good understanding of the costs so you can relay that to your retailers accurately. The vendors will need to know the rates before you sell anything so they can inform their customers. The retailer will pay the shipping costs on top of the 60% so make sure you are properly charging (that means not over charging as well!). Be aware that the online store can price their shipping however they choose.
Second, you will need to be fulfilling the orders promptly so the customers are receiving the items as soon as possible. Remember that the customer is interacting with the retailer (not you) so you are in fact shipping on behalf of the store. If you ship the items late, that will reflect poorly on the store and they will likely stop Dropshipping your items. So if you plan to go on vacation- let your retailers know!
Get ready to deal with returns and refunds. You are probably already familiar with them from your own e-commerce site, but multiply that times the amount of stores you are Dropshipping with and this can be a bit of a headache. To avoid confusion, be upfront about your return policy so the retailers are well informed and know what to expect.
Managing Cash Flow
In wholesale relationships, suppliers have control over minimums and delivery which allows for better predicting of cash flow. In other words, many times suppliers are only producing the amount of units ordered as to protect against excess inventory.
With Dropshipping, you have no idea when you will be paid and how much it will impact your cash flow. If you are new to Dropshipping, you might say yes to every store that requests your products but as you become more experienced, you may find it more effective to only deal with the stores that predictably sell your products. This will help you better organize and predict your cash flow. If you are interested in learning more about cash flow, take a look at our series on the subject here.
In conclusion, Dropshipping can be a great way to market your products but it comes with challenges that you will need to asses and be prepared to face!
Want help dropshipping your collection? Email firstname.lastname@example.org and she would be happy to get you started!