Starting a dropshipping eCommerce store or adding dropshipping to your existing store is a big deal. It is very different than stocking and delivering orders to local customers. Fear not, there are a very specific set of considerations you need to evaluate which lead you directly to the answer on whether a supplier is worth your time and effort. We'll also cover how to choose the specific products you will add to the catalog for dropshipping fulfillment.
Here's what you need to determine:
- What retail price do I need to set, per product
- What shipping terms and costs do I need to use
- What return terms and costs do I need to set for this supplier
- How much time will it take to setup the online store
- How much time will it take to handle a dropship order with this supplier
- How do I deliver a great customer experience when the supplier is handling fulfillment, and what does that cost
At AssetLab, we use a few techniques to evaluate these. At the core we use a spreadsheet (which you probably already have if you're running a store) that lists each product, dealer cost, shipping lead time, shipping cost, competitive retail prices, our expense ratio, and the target markup. This is what shows us which products we can sell competitively and make money with. If you find there isn't any room between non-stocking dealer cost, expenses, and retail price then this isn't a product or maybe a supplier you can work with and make money.
If there are products that work out, or an entire product line, then we move on to evaluating the time and complexity of handling orders and customer service.
To do this we write up and estimate the time for the following processes per order.
- New order fraud check and supplier order submission (dropshipping is full of fraudulent customers, trust us, we lost 15k due to fraud in our first few months running our first store)
- The order update process once an order is shipped
- Accounts payable
- How to handle customer service issues and returns
Now you have an understanding for whether there is enough margin in a product sale to make it worth the effort required to handle an order. And, now you can make a decision on whether the supplier or which products from a supplier will work out.
Pro Members get to see the exact worksheet we use for our furniture store and our fraud check process. These alone are worth the annual membership fee!
Look for more how to's covering dropshipping and eCommerce fraud checks.