In this post, we will tackle what you need to know when offering dropshipping for wholesale buyers. We’ll go over the definition of dropshipping and its benefits, things to consider when dropshipping, what you need to know about shipping, and the different dropship directories.
Definition of Dropshipping
According to WooCommerce, “Dropshipping is a form of product fulfillment where a store owner processes orders through a 3rd-party wholesale supplier, who then ships the products directly to a customer. This process removes the need for retailers to stock items in a warehouse.”
The concept of dropshipping is that you as the wholesale supplier or manufacturer will ship the products to customers who have bought from a wholesale retailer. As a wholesaler, you will be responsible for the procurement, shipping and logistics of the products. On the other hand, the wholesale retailer is the one who displayed, advertised, promoted and sold your products to the customer. At the same time, the retailers don’t need to stock up on inventory or have a warehouse. Retailers will notify you when a customer buy your products in their online store. This is a win-win scenario for both you and the wholesale retailer.
E-commerce Fuel explains dropshipping in one sentence, “Any wholesale distributor who will ship to your customers directly on your behalf is a drop shipper.”
Ocean Tailer describes a dropshipper as “A real Dropshipper is simply a Certified Wholesaler who offers dropshipping. In fact, it’s quite difficult to find genuine certified Wholesalers who will dropship and work with online sellers. You find the Dropshipper you want to work with who has the products you want to sell.”
You should also be familiar with Whitelabel Dropshipping or Private Label Dropshipping wherein you as the wholesale supplier will label the package as coming from the wholesale buyer or retailer. Here, you are acting as the third party between the buyer and the customer. Most of the time, dropshippers are anonymous during the transaction between the buyer or retailer and the customer. One advantage of white-label dropshipping is that customers will most likely repurchase from the retailer.
This is also similar to Blind Dropshipping which is “when the wholesale supplier will use a return label that reads something like ‘Fulfillment Center’ or ‘Shipper’ as the business name.”
Check out our post on the 7 things you need to know about white-label dropshipping.
Benefits of Offering Dropshipping to Wholesale Customers
There are a multitude of benefits that dropshipping can offer to your e-commerce business.
One of the major advantages is the increase in wholesale customers who will do business with you. Most wholesale customers already have established a solid base of customers. By having a lot of merchants who will sell your product to their customers, you will be able to expand your market and gain more customers. As a result, you will have more product orders which mean more sales and higher profit.
It is also advisable that you check on the background and trustworthiness of the wholesale customer that you will be doing business with. You should know their background, line of business, track record, target market and other companies that they’re working with.
Save Money, Time and Effort
Another benefit is that you will save money, time and effort since you are delegating the product marketing and advertising to wholesale customers. Wholesale customers do not need to stock products as a transaction is made in an order-basis. They contact you once a customer purchases your products in their online store.
For both you and the wholesale customer, it means more product movement and fulfilled orders. It offers flexibility since you can serve a lot of wholesale customers. You can make your products available in several online stores which result in more leads, conversions, and sales.
You can read more on our post about the 5 Benefits of Dropshipping and why you should offer it to wholesale customers.
Drop shipping is also a form of leverage since the sales process is balanced between you and the wholesale customer. As the supplier or distributor, you handle the physical products, packaging, shipping, and inventory management. On the other hand, wholesale customers handle product marketing, advertising, and promotions for you.
For those who want to provide a pleasant buying experience for your wholesale customers, install the WooCommerce Wholesale Prices Premium plugin. Through this, you can easily set wholesale pricing, minimum order quantities tiered discounts, and manage shipping and tax.
As a wholesale drop shipper, one of the most important actions that you can make is getting wholesale buyers to work with you. Aside from doing diligent research and contacting them, one way is to list your company on dropship directories. Known dropship directories include Worldwide Brands, Oberlo Doba, Salehoo, Wholesale Central, A Better Lemonade Stand, Free Dropshipping List, The Watchman Advisors, Drop Ship Access, and Top Ten Wholesale. You can learn more about these directories in our post about 9 Dropship Directories you can list your store in.
Things to Consider When Offering Dropshipping
Terms and Conditions
One of the first things that you need to do is to polish a contract agreement between you and the wholesale customers. The contract agreement or any supporting document should include the following:
- Wholesale pricing,
- Minimum order quantities (MOQ),
- Tiered discounts,
- Ordering process,
- Suggested Retail Price or Markup (case-to-case basis),
- Profit Margins
- Processing and handling fees,
- Return and exchange policies,
- Customer service.
When you set the Minimum Order Quantity, it should be clear and defined. It should be clear to wholesale customers that they can avail of lower wholesale price once they place an order in bulk.
Another thing that should be clear from the start is the profit margins between you and the wholesale customer.
Having set terms and conditions made between you and the wholesale customer will help to ensure a more effective working relationship, smoother business transaction, and avoid conflict in the future.
Check out our post on What Wholesale Buyers Expect from your Dropshipping Operations.
Since you will be the one to manufacture, procure, and ship the products directly to the customers, you need to set reasonable wholesale pricing and shipping terms. The wholesale prices should be offered exclusively to wholesale customers. It should take into account the materials, labor, costs, expenses, handling fees, shipping fees, and the profit margin.
Payment and Profit Margins
You must also be able to clearly define the profit margins between you and the wholesale customer. Since the customer is paying the retailer, how much will be his or her cut? How does the merchant pay you? What are the payment terms?
Aside from that, when a customer places an order in the online store of the retailer, does he pay you immediately or after a specified period of time? How does he place an order in your online store? These are just some of the questions that you need to be able to discuss with the wholesale buyer.
You may also specify where they can sell your products in. For example, you may agree that the wholesale retailer or customer can only sell the products in their online store and not anywhere else such as Amazon or eBay. You may opt to put limits and restrictions so that these buyers will not directly compete with each other.
Provide a convenient, fast and easy ordering experience for your wholesale customers. There should also be dedicated accounts for registered wholesale customers. For this, you can use the WooCommerce Wholesale Lead Capture which automates the registration, setup and encoding process of wholesale customers.
Oberlo also emphasized the importance of a smooth ordering process, “Though dropshippers does not have to directly deal with preparing, packaging and delivering products, they have to make sure the workflow goes smoothly, from sending customers the right tracking number, to ensuring the products are delivered on time.”
One way to make the ordering process as easy as possible is by using Woocommerce Wholesale Order Form which presents your product catalog on one page and provides an efficient ordering process. Refer to our post on 3 Tips for Increasing Wholesale Order Frequency.
To ensure a pleasant drop shipping experience for the wholesale customers, you must have excellent customer service. It should be clear as to how buyers can reach you whether via email, contact form, live chat, or Skype.
Return and Exchange Policies
From the start, this should be clear as to who will handle the returns. Or more specifically, who will be liable for the costs of product returns and exchanges? This really depends on the agreement between you and the merchant. Be prepared for cancellations, return or exchange of items and shipment problems.
One of the most important things is the correctness of shipment of the products ordered by the customer. It is a must that the ordered items will be delivered to the specified address of the recipients. Since you will be the one shipping the products, the wholesale buyer will rely heavily on you to ship the products right and on time.
You may also opt to offer free shipping incentives to all your wholesale customers. This incentive is a very enticing offer for buyers to buy from you more often. You can read our post on How To Offer Free Shipping Incentives For Wholesale Customers here.
Let’s discuss shipping in more detail below.
What you need to know about shipping
As a wholesale drop shipper, you can opt to ship the products directly to customers or get a shipping carrier to handle the shipping for you. Choose the best option that will give you maximum profits. The first option is sustainable for small start-up wholesale businesses that ship products from time to time. For those who will be frequently shipping large packages worldwide, it is better to partner with a good shipping carrier. Although, there will be a cut in your profits, shipping to customers will be less taxing and worrisome.
Since you will be the one to ship the merchandise in the hands of the customers, there are several things that you need to consider which are as follows:
Partner with a shipping carrier that offers wide coverage, reasonable rates, tracking tools, and fast shipping. Check their shipping regulations. Know about import regulations of countries that you’ll be shipping your products. You also need to consider shipping options, delivery timeframe, shipping fees, package size, and policies.
Destination Country’s Regulations and Policies
Get yourself familiar with foreign regulations, clearances, restrictions, and policies of destination countries that you’ll be shipping to. Every country has its own importation laws and regulations that you need to comply with. Knowing and complying with these clearances and regulations will help you avoid troubles and conflicts.
Choose the best insurance available that will cover for any shipment delays, cancellations, and errors. It is wise to get insurance that will cover losses due to factors beyond your control. Research different insurance companies that cover shipping and study their requirements and policies.
This varies depending on the shipping carrier, size and weight of the shipment, country of origin and destination country, to name a few. Check out the different shipping companies and do a comparison to get the best deal.
This takes into account the timeframe after the goods were shipped from the warehouse up to the time the goods arrived in the specified address of the customers. There should be a reasonable delivery timeframe.
This is very important since international shipping requires you to have a sales invoice. Fortunately, there are a lot of shipping carriers that transmits an electronic invoice to the customs of destination country in order to obtain clearances. This will also make it easier for you when you deal with taxes such as shipment fees, warehouse fees, tariff rates, and other additional charges.
Tracking the shipments will ensure that the goods are delivered to the customer. On the other hand, you can also track if there are shipment errors, delays, and problems.
Aside from ensuring a nice and creative packaging of goods, you should also take into account the materials used in packaging. As the shipping rates vary depending on the package size and weight. You should use lightweight materials in order to avail of lower shipping rates.
We elaborated on these 9 things drop shippers need to know about international shipping and Handle Shipping Costs which you can read more here.
There are also disadvantages in drop shipping that you need to be aware of.
In a post by Shopify, the disadvantages include “Loads of competition and awful margins, syncing inventory is difficult and leads to out-of-stock items, involving a third party will result in more fulfillment errors, mistakes, and logistical problems.”
Aside from that, it is also inevitable that there will be errors in the product shipment, complexities or problems in shipping, inventory issues, and low margins.
Drop shipping has a lot of pros and cons, and it’s up to you to minimize the risks and ensure maximum profits for your business.