Buying stock upfront versus dropshipping

[Eileen Joy]

I am hoping to set up an online shop selling gifts and items for the home. I can't decide at the moment whether to stock fewer, more carefully chosen items and buy upfront or to try to be more of a market place (thus giving the customer much more choice) and trying to get the supplier to post direct to the customer (dropshipping) which I think might be a slightly more risky proposition. What do people think of the two alternatives? - especially for a new business.

 

[antp__]

Both are viable business options. Some companies do a bit of both.
The people making the most money from dropshipping are the companies you are using. This is who you eventually want to be. You sell 10 products then have 10 people who sell 10 products a day too. This is where you can look in the future.

You can generally stay more competitive by keeping your prices lower when buying wholesale and selling.

It then goes down to budget. If you are willing to invest money into your business, website, stock, advertising and so on then I would rather hold stock.

There are many companies who use dropshipping and works extremely well. Build a business relationship with the suppliers and you shouldn't have too many problems. Give them a call instead of an email or if they are local enough, ask to meet. Make sure you work things out such as customer returns. Goods damaged in transit etc.

 

[Jason L]

Hi Eileen

There are a number of threads regarding this. One you might find useful is this one: http://www.ukbusinessforums.co.uk/threads/dropshipping-pitfalls-and-advice.338058/#post-2509050

Here is a quick summary of my thoughts (not necessarily an exhaustive list)

Drop shipping

Pros
- You don't have to hold stock (saves cost of investing in slow moving items, saves warehousing cost, saves resource needed to dispatch orders, keeps your cash free to invest in other things like marketing)
- You can put more product on your site and see what sells
- You can always trial drop shipping and once you have established demand move to holding your own stock

Cons
- You make less money when you do sell an item
- You lose some control regarding timely dispatch and possibly the tracking of items etc (you have to have very good systems in place for knowing when an item was dispatched to your customer, via what service etc and if there are any problems with delivery you need to be able to resolve them swiftly - your customer has a contract with you, not your drop shipper and they expect you to resolve any issues)

A wider issue is what your point of difference will be in your business? There are lots of other people who may be drop shipping exactly the same products as you - so why will the customer buy from you and not them?

 

[Eileen Joy]

Hi again. Thanks for your replies and Jason L thanks for the link to the previous thread which was very useful. My gut feeling is to get the stock in upfront so I have the security of knowing I can immediately fulfil an order but as time goes on look to set up arrangements with suppliers I know and trust. Does this sound sensible to you? Only drawback is the initial outlay but I need peace of mind while establishing a reputation.

 

[antp__]

Hello Eileen,

Sounds like a good plan to me. When holding stock it is only yourself to blame if the orders are dispatched slowly. Dropshipping, you have to have a lot of trust in them to ship within the times given. You have to know who with and when the delivery will likely take place. Many questions the customer would ask. Just as we would if we purchased something. Small padded envelope items aren't so bad. But you imagine ordering furniture or something alike.

I thought I would eventually dropship products once I had that customer base and manufacture base however I'm still yet to do so. I wanted to so I could setup a system to fulfil the orders while i'm away on holiday. Fulfilment centres would be ideal.

 

[Eileen Joy]

Thank you antp. As I am doing this alone I do wonder how I will ever go on holiday once it is up and running I must say!

 

[antp__]

It is very difficult! When i went away last year a family member agreed to sort it all for me. However it still meant I was sending emails while sat around the pool!

 

[webstore]

The biggest nightmare is ensuring that your online pricing is up to date - given suppliers can make frequent product & price changes. You don't want to find yourself accepting online orders when the dropship supplier has already put prices up - meaning you make no margin or even sell at a loss.

So ideally you want an online shop - such as being based on Magento - that auto updates from a suppliers .xml feed - but having said that I am not aware myself of any dropship suppliers that offer an .xml feed - but am sure there must be some.

 

[Jason L]

My gut feeling is to get the stock in upfront so I have the security of knowing I can immediately fulfil an order

That's the way we used to do it. We only used to use drop shipping if we got caught short on stock for any reason and it was then the quickest way to get the goods to the customer.

Maybe others on the forum have more experience of drop shipping and how you could fully integrate with the drop shippers systems to avoid some of the potential issues?

 

[wayzgoose]

that auto updates from a suppliers .xml feed - but having said that I am not aware myself of any dropship suppliers that offer an .xml feed - but am sure there must be some.

There are many dropship suppliers that use .xml feeds but be aware that those that do are going to have an awful lot of customers just like you. You'd need to find a way of making your business stand out.

 

[Karimbo]

dropshipping is a good way to get started.

I would not use all the XML. You will end up with the exact same description as every other dropshipper and google will ignore duplicate content. It's best to do a bit of research and use unique descriptions that will catch more organic traffic. - You will need to program/modify the cart so you can use a custom description which won't been over-written by the XML update.

After dropshipping you can gauge the market, and selectively sell some items from stock which are big sellers.

 

[beasty]

Drop shipping?

I would ask, why do i want my product on your site if your site is not amazingly slick and what are you investing in my company? You have no risk and profit from my goods, well how about proving you are invested in marketing this and buying in. I do not want a half assed, poorly maintained site with my product.

Just a perspective for you

 

[Karimbo]

Drop shipping?

I would ask, why do i want my product on your site if your site is not amazingly slick and what are you investing in my company? You have no risk and profit from my goods, well how about proving you are invested in marketing this and buying in. I do not want a half assed, poorly maintained site with my product.

Just a perspective for you

I think you're not getting the picture wholesalers/manufacturers have drops shipping programmes in place specifically so that they can shift stock and leave the marketing and promotion to individual retailers.

You may be correct for luxury goods, apple controls it's supply chain rigidly. Breitling wouldn't want it's retailers selling watches on eBay skimming a margin for themselves and undercutting all the jewelry stores and watch stores.

 

[beasty]

Not getting the picture?

Drop shippers have much less incentive to market a product as they will not be stuck with the stock should it not sell that is a fact, if you have invested in stock sitting you are going to make damn sure you get it sold and therefore contribute to the marketing efforts and making sales of that line of product.

Companies erode their own margin, product life cycle and brand value with drop shipping.

All companies SHOULD control their supply chain rigidly, not doing so kills your companies prospect of a long and profitable future.

I was offering a perspective that anyone who is looking to dropship should be aware of.

 

[wayzgoose]

Beasty - the companies that supply a dropshipping service on a large scale, and have done for many years, will supply almost anyone. They do not pick and choose. That are happy to have a vast amount of sellers to shift their products ion any way they choose.

 

[beasty]

QUOTE="wayzgoose, post: 2527774, member: 17565"]Beasty - the companies that supply a dropshipping service on a large scale, and have done for many years, will supply almost anyone. They do not pick and choose. That are happy to have a vast amount of sellers to shift their products ion any way they choose.[/QUOTE]

You have added

ON A LARGE SCALE AND HAVE DONE FOR MANY YEARS

in order to disagree with my post

We are not discussing companies that do this on a LARGE SCALE we are discussing DROP SHIPPING

Devil is in the detail

 

[wayzgoose]

There was nothing to say it was not on a large scale. Most of the well established companies that supply using the dropshipping method ARE large scale. That's why I mentioned it - not to disagree with your post.

 

[buildmeashop]

I would suggest that a new business needs to 'add value' by stocking products that you know like and trust. That way you can build up knowledge and expertise about the products that you can share on your new shop and build up a loyal customer base from people buying from you where you are able to talk knowledgably about the product and answer questions (more importantly). After a while you could then consider drop-shipping, once the 'knowledge' has been acquired!

 

[antp__]

You have added

ON A LARGE SCALE AND HAVE DONE FOR MANY YEARS

in order to disagree with my post

We are not discussing companies that do this on a LARGE SCALE we are discussing DROP SHIPPING

Devil is in the detail

In which your posts do not give the OP any valuable information on whether one is more viable than the other.

Other than telling the OP that drop-shippers do not have the same incentive to sell and market a product they do not hold in stock. Says who? Statistics? Facts?

These people are investing in your company every time they make a sale and have to then purchase it from yourself (the drop-shipping scheme). We are talking drop-shipping? So now we are talking about the people that decide to use it as a business model? These are the people you refer to with no incentive to sell a product because they don't hold it in stock? Previously you said "why would I want my item on your site blah blah"?

Drop-shippers (schemes) do not care who sells their product as long as it's sold quickly. They don't want the hassle of marketing each individual product, they put a photo, description & price and let others do the hard part for them.

If they have 1000 products and sell 5 a day at £5 profit per item. They make £25.
They want 1000 people, listing their 1000 items allowing them to sell 5 a day making the original manufacturer £5 profit on each item for quicker results. Now, I know you didn't need explaining the scenario but you are missing the point of what the OP is actually asking for here.

If anything, the OP will work just as hard to market that product as they are competing with many other people selling many of the same products. IF they use the same photos, descriptions and so on they will get the same results. IF they wanted to build and run a successful business through drop-shipping alone they will have to be that 1 step better with their marketing. Get samples and take their own photos. Write their own descriptions. Look further into each niche item. Offer something in addition which others dont.

"All companies SHOULD control their supply chain rigidly, not doing so kills your companies prospect of a long and profitable future."
Please explain? Do you mean eventually the number of people selling other peoples goods (those that do not hold or invest in stock) will disappear leaving drop-shipping schemes dead?

Maybe it's me missing something here?

 

[Karimbo]

have to agree with antp, dropshippers are usually distributors, there are some manufacturers who dropship for trade goods. In the event industry I know that penn elcom (flight case part company) dropship on behalf of their clients.

But let's just assume that 90% of dropshippers are distributors and wholesalers. In that level of the supply chain they are not interested one bit in spending money on sales and marketing. They want to shift goods fast - for them it's not just the margin on the products they need to factor but also time that stock remains in their posession. Too much time means they lose money as they cannot reinvest the money on more stock.

Drop-shipping is actually very good strategy for them - they make a lot more margin than if they were selling large pallets to a retailer. As antp showed in his example the distributor can have many retailers selling his/her product. They can literally dominate a keyword with their products.

E.g. there are 100 sellers on ebay selling gel pens. 50 of these sellers are dropshippers selling 1 dropshipping company's products. So the dropshipping company dominates half of the ebay listings for gel pens.

 

[Karimbo]

^^ should add it's a hypothetical example.

 

[BigBuy]

We are Big Buy, we are one of Europe's leading wholesalers and dropshippers. We have extensive experience in working with over 20,000 customers registered to our wholesale platform. We are wholesaler and have the stock. We are not intermediaries.

We have developed an incredibly strong reputation amongst many manufacturers and multinational companies who lay their trust in us on a regular basis. Through both our wholesale and dropshipping services, you could reap the benefits of a catalogue containing over 2000 competitively priced products, covering a multitude of categories.

We specialise in an iconic range of 'unusual gifts'. Additionally, you will find products from other categories including: fitness, health and beauty, kitchenware, electronics, and much more.

We put a strong emphasis on offering the best prices and the best quality, enabling customers to receive a product that's competitive in every respect.

We have different packs at very competitive prices that will give a series of exclusive services, including:

- Product brochure CSV, XML in 23 European languages.

- Discounts across the entire catalog, with loose units at wholesale prices.

- Dropship shipping

- Lock stocks

- Online marketing material

Our first-rate dropshipping service allows you to focus on the selling, whilst we take care of the rest. Choose from a selection of wholesale packs designed to suit your type of sales channel, allowing you access to numerous exclusive benefits.

If you have any queries or doubts surrounding our products or services, please don't hesitate to contact us on +34 961 150 422 (Monday to Thursday 9am-2pm and 3pm-6:30pm, Fridays from 9am-2pm) or via the website contact form.

Thank you for your time.

 

[japancool]

I was offered a dropshipping proposal for certain products. They offered me a 10% discount off retail pricing, with the incentive that I could "price it at whatever I liked!"...

Their packaging, which they couldn't change, had their website, that they sold direct from, all over it. The product had their name stamped on it.

I told them where they could drop their ship.

 

[japancool]

We are Big Buy, we are one of Europe's...<snip>

Great. But instead of posting a load of sales patter, you could try answering the OP, as in what are the pros and cons of drop-shipping.

 

[Tom Porter]

Drop shipping can be great as you obviously don't hold the products and therefore there is no upfront costs or storage/shipping. However I have had issues before where a customer purchases a number of products from a number of suppliers.... they turn up at different times causing the customer confusion and resulting in a number of queries.