Please can I have some advice about starting new online store and working with dropshippers

[WorkingMum23]

Hi,

I've spent a long while researching products and speaking with dropshipping manufacturers. I've narrowed my list down to a few I'd really like to work with and have tried and tested the products out both myself and on friends/family. Shipping times are great (they are UK businesses and all products are designed and manufactured here too) reviews have been great and product quality fantastic. I am a bit confused about how to work out my pricing strategy, one particular company charges £4.20 delivery including vat I want to offer free shipping so would I be able to add this price into the overall price I charge the customer? Do I knock off the vat as I'm not registered for vat but the manufacturer is? How would it work if I chose to work with more than one company. Do I again just include the prices I pay into the overall price I charge the customer? All and any advice would be so great fully received. Thank you.

 

[Solve My Problem]

These are very basic business questions, if you are having to ask them I would look to get some professional advice before starting a business or you could end up with a lot of issues.

Dropshipping is rarely profitable despite what the online videos tell you.

You can charge what you like, as long as you are charging more than it costs you. It's irrelevant to your customer what you pay.

You pay the VAT to your supplier, you do not charge it to your customer. It's a cost you have to swallow.

I would strongly urge you to talk to an accountant before you start, there are plenty in the groups who could advise you.

Good luck with your venture.

 

[WaveJumper]

Welcome to the UKBF exciting times setting up a new business and a lot of hoops probably still to jump through. First, I would say check all your numbers, then check them again to make sure you really are going to be making a profit. You mention postage but what charges are you getting for the actual drop shipping service from your potential suppliers.

If you add all the costs up involved are your prices competitive especially if you offer “free postage” by adding this to the price of your items.

You will be charged VAT by your suppliers which unless you are VAT registered you are going to have to swallow (20% hit straight away) A common question on the forum from people is “I am now registering for VAT what happens to my prices”, well again unless you swallow this 20% in your retail price you are in effect going to be putting all your prices up by 20% worth thinking ahead again how then would the price of your products compare to the competition in the future.

So, check all your numbers again, look at all your running costs, website, internet, marketing to name but a few and make sure you have thought of and factored everything in.

 

[japancool]

well again unless you swallow this 20% in your retail price you are in effect going to be putting all your prices up by 20%

Not true. By registering for VAT, you can claim back your purchase VAT, so your costs go down. In order to make the same margin, your price does not necessarily go up by 20%.

 

[WaveJumper]

Not true. By registering for VAT, you can claim back your purchase VAT, so your costs go down. In order to make the same margin, your price does not necessarily go up by 20%.

What I am saying maybe not clear enough was if you’re not VAT registered and as an example go on and sell something say for £25.00 same price as you competitors whose price includes VAT all fine until you want to be VAT registered. Are they going to suck it up and still sell at £25.00 or they going to add on 20%?

Plenty of people have posted on this topic when their turnover has suddenly rocketed and suddenly realized it’s presented them with a little dilemma on pricing

Sorry I should also add I also get the point your making

 

[japancool]

What I am saying maybe not clear enough was if you’re not VAT registered and as an example go on and sell something say for £25.00 same price as you competitors whose price includes VAT all fine until you want to be VAT registered. Are they going to suck it up and still sell at £25.00 or they going to add on 20%?

Why would they add on 20%?

If before VAT registration, you bought that item for £12.50 inc VAT, you are making £12.50 profit.

After VAT registration, you are paying 10.42 (12.50 ex VAT) for the same item. In order to make £12.50 profit on it, your selling price is now (10.42+12.50)*1.2, which is 27.92, not 30, which is what would be implied by adding on 20%.

 

[WaveJumper]

My point being if you can afford to put your selling price up thats fine if not then your bottom line is going to take a hit

 

[Mr D]

Hi,

I've spent a long while researching products and speaking with dropshipping manufacturers. I've narrowed my list down to a few I'd really like to work with and have tried and tested the products out both myself and on friends/family. Shipping times are great (they are UK businesses and all products are designed and manufactured here too) reviews have been great and product quality fantastic. I am a bit confused about how to work out my pricing strategy, one particular company charges £4.20 delivery including vat I want to offer free shipping so would I be able to add this price into the overall price I charge the customer? Do I knock off the vat as I'm not registered for vat but the manufacturer is? How would it work if I chose to work with more than one company. Do I again just include the prices I pay into the overall price I charge the customer? All and any advice would be so great fully received. Thank you.

Yes, build the postage cost and any other costs into your pricing.
Dropshipping tends to be higher price per unit for you to buy than wholesale - a retailer may buy an item at £4.20 while you pay £6.50. And postage can be considerably cheaper than £4.20.
However if the customer is getting the item for a set price with free delivery they don't get to complain about the postage!

You'll always pay the VAT - the supplier is VAT registered so has to charge it to you. Simply forms part of your costs initially.

Can work with as many companies as you want. The problem for dropshipping is knowing what stock levels are - and what is out of stock.
Some automate the service and will have tens or hundreds of thousands of listings, getting stock updates in near real time. Others will list a few items and get updates for stock once a day.

Say you buy at £10 plus £4.20 postage. You would need to set your price higher than £14.20 - and take account of your costs too. Perhaps £20 is worth it, perhaps £25 is more realistic to make a small profit. Work your figures out, no one else will care if you end up making a loss or only a tiny profit. There are sellers around who think making 10p per sale profit is a good idea....

Just be aware of customer returns. The buyer has the right to return the item for a full refund including the postage (often) and maybe even return postage too.
The fact you've paid for delivery means you end up out of pocket on that transaction - and one return could for some people offset multiple sales in profit.

Did hear a few years back of a woman who purchased 25 wedding dresses. Then sent them all back for a full refund including return postage. Which she was entitled to....

 

[MarkOnline]

Dropshipping is usually good for the manufacturer/importer/wholesaler and poor for the distributor. I think it is a business model of last resort, be careful.

 

[LouiseF]

I used to run a store via a dropshipping method. I adjusted my product prices and postage costs to cover what I had forked out and a little extra for profit.

You say you are thinking about using more than one dropshipper? Does the dropshipper send straight to the customer for you or does it go to you first then you send out to the customer? If your customer order 2 items from you that are coming from 2 different dropshippers then you will have 2 postage costs to cover. Without knowing what you are selling it's hard to say for sure, you might break even on that sale or make a smaller profit then if the customer was buying multiple items from the same dropshipper.

Hope that made sense

 

[WorkingMum23]

Hi everyone, thank you for being so helpful! So the items I'm looking at are personalised made to order items, now from what trading standards have told me customers are not entitled to a refund for personalised gifts unless they are faulty does this sound right to you? Now If i choose to go down this route and if I choose to work with more than one manufacturer/shipper and they have different shipping prices can I not just add those into the cost for the individual items? From speaking to the different companies they don't charge me extra fees just shipping. Stock levels are continually updated throughout the day too apparently. Oh and also they will deliver either to me or the customer and offer next day delivery. Are there any other ways I can ensure the company I choose is the right one? I don't know if dropshipping is sustainble long term or not at this stage.

 

[Mr D]

Hi everyone, thank you for being so helpful! So the items I'm looking at are personalised made to order items, now from what trading standards have told me customers are not entitled to a refund for personalised gifts unless they are faulty does this sound right to you? Now If i choose to go down this route and if I choose to work with more than one manufacturer/shipper and they have different shipping prices can I not just add those into the cost for the individual items? From speaking to the different companies they don't charge me extra fees just shipping. Stock levels are continually updated throughout the day too apparently. Oh and also they will deliver either to me or the customer and offer next day delivery. Are there any other ways I can ensure the company I choose is the right one? I don't know if dropshipping is sustainble long term or not at this stage.

Timewise delivery to the customer direct is preferred. Getting sent to you to send on? You may as well buy wholesale cheaper and post cheaper anyway.
And you'll also get the odd item missing in the post. Some will actually be missing.

 

[LouiseF]

Hi everyone, thank you for being so helpful! So the items I'm looking at are personalised made to order items, now from what trading standards have told me customers are not entitled to a refund for personalised gifts unless they are faulty does this sound right to you? Now If i choose to go down this route and if I choose to work with more than one manufacturer/shipper and they have different shipping prices can I not just add those into the cost for the individual items? From speaking to the different companies they don't charge me extra fees just shipping. Stock levels are continually updated throughout the day too apparently. Oh and also they will deliver either to me or the customer and offer next day delivery. Are there any other ways I can ensure the company I choose is the right one? I don't know if dropshipping is sustainble long term or not at this stage.

The "no returns unless faulty" does sound right but I would double check that. The government website has a whole section on it (just google "online selling rules uk", I can't post links yet)

You can add to the product cost to cover postage costs. One way to offset this could be to offer free shipping.

If the dropshipper is sending direct to the customer what are they putting on the package? I mean, will it say it came from them or you?

Stock levels are continually updated throughout the day too apparently - How is this done? Do they automatically update on your site? Or do they send an email out to you with the latest stock figures and you have to update it yourself?

 

[WorkingMum23]

apparently its white label dropshipping so nothing from them on packaging. They update throughout the day and I can log in and check or out of stock items get sent automatically through to my email.

 

[MarkOnline]

Hi everyone, thank you for being so helpful! So the items I'm looking at are personalised made to order items, now from what trading standards have told me customers are not entitled to a refund for personalised gifts unless they are faulty does this sound right to you? Now If i choose to go down this route and if I choose to work with more than one manufacturer/shipper and they have different shipping prices can I not just add those into the cost for the individual items? From speaking to the different companies they don't charge me extra fees just shipping. Stock levels are continually updated throughout the day too apparently. Oh and also they will deliver either to me or the customer and offer next day delivery. Are there any other ways I can ensure the company I choose is the right one? I don't know if dropshipping is sustainble long term or not at this stage.

From your user name I am going to presume you are young and have children too. I will also presume that funds are tight and feel you dont have many options at the moment. If your motivation is to provide for your child/children you have a big head start over other young people...great motivation to succeed.

I am in the same space as the one you want to enter, personalised gifting. Beware, there are too many sellers chasing the same customers, these sellers will, in many instances, have invested in machinery to produce the lines they are selling. They will have their finger on the pulse of where the market is trending, and have the equipment to change very quickly to satisfy it. These small manufacturers arent really a danger on their own, but when you multiply the 1000's of new entrants who are chasing the same customer together it will put pressure on price points and margins will get squeezed. Because you dont have much control (if any) on design or product cost, you are at a major dissadvantage over your growing competition.

I am not trying to curb your ambition or enthusiasm, but the picture isnt as rosy as you may believe or be lead to believe by these "drop shipping" suppliers. If you really want to enter the space then find a relatively cheap method of personalisation and try that. We started cutting bumper stickers on a 10 year old second hand "plotter" out of a 6ft x 7ft spare bedroom, we were please when we got a sale (we probably lost 20p/ sale, but initial sales were valuable (cos we didnt have any) and they helped us to establish ourselves as a company who took care of our customer (drop shippers on the whole wont care about the end customer (youre their customer not the person they shipped to)). We could survive losing 20p to start because we made what we sold but losing £100 a week ie 75p-£1 a sale woud have put us out of business in about 3 months. The important point is we had manufacturing control, we could manufacture and design to a price point, we could adapt to the market, thats a massive plus one that you will struggle with. You have no benefit of economies of scale, cheaper shipping costs, packaging costs raw material costs etc etc. Its those small gains which will mean the difference between growing capital and burning it. The room for error is so small dont give a high percentage of your costs to someone else, otherwise there will be nothing left for you, and Im sure thats not why you want to do what you want to do.

Best wishes to you and your family

 

[Deleted member 335660]

Hi,

I've spent a long while researching products and speaking with dropshipping manufacturers. I've narrowed my list down to a few I'd really like to work with and have tried and tested the products out both myself and on friends/family. Shipping times are great (they are UK businesses and all products are designed and manufactured here too) reviews have been great and product quality fantastic. I am a bit confused about how to work out my pricing strategy, one particular company charges £4.20 delivery including vat I want to offer free shipping so would I be able to add this price into the overall price I charge the customer? Do I knock off the vat as I'm not registered for vat but the manufacturer is? How would it work if I chose to work with more than one company. Do I again just include the prices I pay into the overall price I charge the customer? All and any advice would be so great fully received. Thank you.

Hi,
Let’s start with the simple part.

If you buy a product for £10 you will pay £2 VAT. If you want to make £10 profit then your price would be £22.

Now if you register for VAT then you can claim the £2 back but you have to pay VAT on the sale. So with a retail price of £22 you will have to pay £3.67 sales VAT leaving you £18.33. You can claim the £2 back so you will be slightly better off as you now have £20.83

As for delivery charges, be careful. We use four dropshippers and they charge different rates for different countries.

We deal in branded products so I am loathe to increase price to cover shipping. I use a shipping table that automatically calculates delivery charges based on supplier and delivery address.

As you cannot claim delivery VAT back you need to include it in your product costs.

Goody luck Trevor

.

 

[Solve My Problem]

Hi everyone, thank you for being so helpful! So the items I'm looking at are personalised made to order items, now from what trading standards have told me customers are not entitled to a refund for personalised gifts unless they are faulty does this sound right to you?

It does depend on the items, things like POD i.e. printed t-shirts with your own design does not come under personalised.

If each item is personalised by the customer (adding a name, changing text) then they are personalised. Same with jewellery i.e. using someone like beeoux, if each piece ordered is different they are personalised, if they are a standard item that doesn't change per customer then they are again exempt.

We used a company called InkThreadable for t-shirts and mugs but the designs were the same for every customer, so we offer returns on all items. The same with beeoux.

 

[antropy]

I've narrowed my list down to a few I'd really like to work with and have tried and tested the products out both myself and on friends/family.

Here's another one for your list: https://www.dropshipwebhosting.co.uk/

I am a bit confused about how to work out my pricing strategy, one particular company charges £4.20 delivery including vat I want to offer free shipping so would I be able to add this price into the overall price I charge the customer?

Yes you could bump up your price then add include free delivery, it's up to you.

Do I knock off the vat as I'm not registered for vat but the manufacturer is?

If you're not VAT registered you don't have to charge VAT but you do have to pay it when you buy something (e.g. you don't get it back).

How would it work if I chose to work with more than one company. Do I again just include the prices I pay into the overall price I charge the customer?

Yep, just simple maths really.

Paul.

 

[Chris Ashdown]

Don't forget eBay or Amazon costs they can be quite high. and remember that if a drop shipper has ten people selling the same item that's quite hard to compete, but in reality there will also be lots of other sellers who buy direct at lower costs also competing. It's defiantly harder to make a profit selling via drop-shippers than buying stock and controlling the whole operation. Often the more specialised the product the less competition