Dropshipping — Pros and Cons

When I was a little girl, my grandfather had a wonder cabinet.  It was a glass display case filled with wonders that had been collected through the years.  Along with some junk, there were some real gems.  Before the days of television, visiting small children and adults alike could spend hours in fascination as they explored the mysteries of the wonder cabinet.

The Internet is the modern wonder cabinet.  For those of us in the gift business, there are a whole group of sites in that cabinet that can fascinate us while making our life much easier.  I’m talking about the many companies that offer drop shipping programs for those who wish to expand their inventory without having to store it.

It’s easy to confuse drop shipping with affiliate programs. Although affiliate programs are another way to increase your income, there are some big differences.  Most of these usually provide a banner or a text link to take your customer to the parent company’s website where the order is placed.

There are some advantages of affiliate programs as you don’t have to take or process the orders.  But the amount of commission you are paid is usually very low.  Also once the customer leaves your site, you have no way of knowing who that customer is or even if an order was placed with your affiliate link.  There have been complaints of nonpayment for orders as well as the company marketing directly to the customers you sent to them.

With drop shipping, however, you add the photos and description of the products to your own website, take and process the orders, and then have the company ship the item direct to the customer instead of to you.

With this method, a small company can appear to be a large one while increasing their offerings with little investment.  It’s easy to add a wide range of products including baby gifts, cheesecakes, cakes, cookies, teddy bears and much more.  Just as with the wonder cabinet of yesteryear, however, there are some excellent gems alongside some junk.

There are also some great reasons for adding drop shipped items to your website but there are also some drawbacks to doing so.

Toni M, who uses drop shippers on her website, shares some of the pros and cons she has found.

Pros:

  • Use a drop shipper for the themes your clients rarely purchase so you don’t have to keep any specialty products in stock to support the specific themes
  • Gives me the opportunity to offer wine / champagne baskets since I do not have a liquor license
  • Ability to offer more than just gift baskets to clients as there are gift and flower drop shippers
  • Some will allow my marketing collateral (business cards, post cards, sales flyers) to be included at no additional fee
  • I use a local drop shipper for my regional gift baskets – that is all her company does and she does a great job! It’s a win-win as I don’t have to carry all the stock and it supports another small business
  • GREAT for large corporate orders. They do all the work and ship directly to my client or to me.  If to me, I can add any additional items specific to my client’s needs such as specific ribbon colors, their logo items etc.  Then I either deliver locally to my client or ship to a client and still make a profit.

Cons:

  • Most don’t “blind” ship. Meaning they will advertise their company all over the boxes, gift tag etc…  I only use a company which makes it look like it is from my company.
  • Some take your client information and will continue to market to them so you are competing with your drop shipper and they will win that client every time.
  • Registration fees, monthly fees, revenue quotas some companies require
  • Poor image quality – doesn’t compliment the look and feel of my website
  • Poor communication from the drop shipper to know what products have been changed, deleted, have a price adjustment or changes to product descriptions. I spend a lot of time working through it to be current and accurate.

How can we tell the difference between the great and the not-so-good drop shippers?

It can be difficult. Even the experienced can occasionally be fooled.

Some drop ship companies have photos that are several years old so most likely the finished products are very different than what is shown in the photo.  You can never be sure what a dropship company is sending out unless you order one of their products and have it shipped to you.

And, sometimes a company that has all the right characteristics can suddenly go out of business leaving its customers out on a limb.

This happened several years ago with a company that offered some unique gift baskets with licensed products that individual companies would have a difficult time obtaining.  Many companies paid the initial $100 sign-up fee and added the company to their wonder cabinet of drop shippers only to discover that the orders were not being filled and promises were not being kept.  Consequently, they lost their $100 investment and had some unhappy customers who never received the ordered gifts.

There have been dropship companies who start dropshipping and then decide it isn’t profitable enough for them to contineu.  The latest example of this is GiftTree which for many years was a leading dropshipper of alcoholic and gourmet baskets for many of us.  When I joined many years ago, the cost to join was $100.  It proved to be worth the fee until suddenly this year they decided to discontinue their dropship program and only offer an affiliate program.

Several gift basket companies have also become drop shippers.  Although the intent is excellent, often the programs have not been well thought out and for various reasons fail. It is difficult at best for a small company to provide the type of rapid, dependable service that is necessary for a successful drop ship program.  They have to make a profit as well as provide a profit to the company using them to dropship products.  Unless they are large enough to get large discounts from suppliers, the products can have a low value for cost ratio.

Don’t write off this group of drop shippers completely, however, as they can provide some unique products that you won’t find all over the web.  There are a few that do an excellent job as they continue to grow.

So what should you look for in your search for products to dropship to your customers?  As with any business venture, proceed cautiously.  You can lose valuable customers if a dropship company fails to perform as expected or sends out an inferior product.  You also need to confirm that the dropship company will not be marketing to the customers that you send to them.

Decide if the discount that you will be receiving is worth it to you.  This may depend on whether you are offering all dropship products or just want to supplement your own products.  Commission rates can range from 15% up to 40 or 50%.  Some companies offer such a low discount that you will be spending more time and money adding the products to your website and processing orders than you will be making.  Also, don’t forget that the cost of running the customer’s credit card is an expense that should be considered when looking at the discount you are given by the dropship company.  If you are only receiving 15% from the sale and your credit card cost is 3%, that leaves you only 12% profit.  That measn you are only making $6 on a $50 basket.  Worth it?  Not to me.

Some companies offer an okay discount but the retail price that the discount is calculated on is so high that you would not be able compete with other gift basket companies producing the same products.

Don’t let this discourage you from considering the addition of dropshipping to your business model.  There are some good companies who pay a decent commission rate and offer great service.

Always read the agreement carefully.  Each company has different verbage – and some can cost you more than you intended.  Some of your decisions will depend on the activity on your website.  If you have a busy site and receive lots of orders, you may be willing to go with a company that has a monthly charge or monthly minimum order.  Just make sure that there are no surprises.

Consider the ease of placing an order with a dropship company.  Several have a website ordering system that makes it a breeze to place and track your orders.  Others require sending an email or a faxed order and then making sure that it was actually received.  Some of the companies are excellent about confirming receipt of your orders while others are very lax.  You also want to make sure that they will send you the tracking number when they ship the order.

You probably won’t be able to know how communication between you and the dropship company will be until you’ve signed up and been with them for a few months.  Some companies do an exceptional job of keeping members up to date on product availability as well as expected changes while others do not.  I recently signed up with a dropship company that had an incredibily low commission rate (15%) but also had a low shipping rate.  I figured that I could increase what I charged for shipping of the gifts in order to receive a larger profit.  I was approved but then had a couple of questions which I asked via email.  Spiderwebs are still being accmulated on those emails as I wait for an anwer.  If they don’t answer a new customer’s questions in a timely manner, what happens when your customer places an order and needs a question answered that you can’t answer.  Needless to say,  I will consider my $20 application fee to this company to be a loss and will not offer their products.

When you offer drop shipped products on your website, you also have an obligation let your customers know that these products are shipped and how long the shipping can take or at least where they are being shipped from.  We’ve all seen those unscrupulous website owners who deceive their customers by claiming to deliver to every city in the country while they are actually having products shipped from other locations.

Some dropship companies, such as Maple Ridge Farms, provide corporate gifts only and have a minimum order for each gift.  A customer cannot order just one gift and they cannot order directly from Maple Ridge.  This is an ideal company to use for personalized corporate gifts and their service is the best in the industry.  I sell thousands of dollars of their products each year.

The elephant in the room in today’s market is the addition of Amazon to our list of competitors.  Many of the dropship companies not only sell directly to the public on their own website, sometimes at prices less than they offer you, but they also sell their gifts on Amazon.  You have to determine if you wish to compete with Amazon for these products.

After reading the pros and cons, you will need to decide if you want to use dropship products at all.  If you make your own gift baskets and advertise that as a selling point to your customers, you may not feel that you do.  I make my own gift baskets but also offer drop shipped products and handle this by stating near the top of the homepage of my website:

Joyce Reid, owner and award-winning designer for 30 years creates
many of the products in our Flagstaff, Arizona studio while searching
the US. for other unique gifts that she can offer to you.

I also state in the description for each gift that it is either “created in our Flagstaff studio and can be hand delivered or shipped nationwide” or that “this gift is shipped from our partner in xxxxx and cannot be hand delivered.”

A carefully-chosen combination of drop ship programs can add to the fascination of your website’s wonder cabinet but just as with every endeavor there can be pitfalls. If you decide to go this route, do your research and ask questions.

 

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