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How to drop ship

Tiny cardboard shipping boxes sitting on a laptop keyboard

In today's hyper-competitive retail and e-commerce marketplace, drop shipping can be a valuable way to gain a critical edge for your business.

In this how-to guide to drop shipping, we reveal what it takes to get a drop ship business off the ground and offer pro tips for taking your drop shipping operations from good to great.

Drop shipping: an overview

Let’s start with the basics. Drop shipping is a supply chain method in which the seller does not own or stock the goods. Instead, goods are shipped to the buyer by a third party, who stores and owns them.

As a fulfillment method, drop shipping is more common than you might think. In fact, businesses across all sectors—not just retail—drop ship. It’s increasingly used in healthcare for example, says Jamie Cunningham, UPS global practice area lead for supply chain optimization and sustainability.  Many manufacturers choose drop shipping to fulfill orders directly to consumers for items like durable medical equipment and contact lenses.

For companies looking to get a new venture up and running, there are immediate benefits to drop shipping. These include:

  • Reduced overheads: With drop shipping, the responsibility for purchasing inventory and fulfilling orders sits with the third party. You don’t need to shell out money on stock you’re not certain will sell.
  • Flexibility: Drop shipping is great for spinning up fresh capacity quickly to handle surges in demand during peak season and other busy times of the year.
  • Low commitment: Drop shipping allows merchants to test out different markets and experiment with new products without committing to inventory or investing in logistics.

 Of course, drop shipping is not all sweetness and light. It comes with its own set of challenges, most notably:

  • Tight margins: Your drop ship competitors will often sell the same or similar products at low, sometimes rock bottom, prices. What’s more, your drop ship supplier—the third-party who stocks and ships the product—will take its slice of fees and commissions from the sale, further squeezing your profit.

  • Customer service constraints: Sure, you don’t have to worry about physically fulfilling the order, but in the event of stockouts or other fulfillment difficulties, it’s often harder to resolve the problem working through a third party. You also don’t get the chance to fully customize the shipping process for your brand.

How to set up a drop ship business

Setting up any new operation requires commitment, and drop shipping is no different. Here are six key steps for getting your venture off the ground:

  1. Find a product to sell. Brainstorm pastimes and pursuits that require niche items not easily found in the stores. Think expensive hobbies or high-end lifestyle solutions. Tools such as Google Trends are great for product research. Consider B2B items. Businesses are big spenders. Think commercially. Remember higher-margin products may be more desirable to sell than lower-margin ones where high-volume sales are required to turn a profit. Larger items will generally cost more to ship and take longer to pack.
  1. Research suppliers. Ask the product manufacturer for a list of its wholesale distributors. Enlist at least two suppliers for the same product, wherever possible. (This is in case of stockouts or other supply problems.) Vet suppliers for trustworthiness and reliability before entering into agreements.
  1. Develop a marketing strategy. Don’t underestimate the importance of marketing when it comes to drop shipping. A drop ship business can rise or fall on the strength of its marketing. Steps to take include:
  • Sourcing attractive product photography and product descriptions.
  • Determining what additional content you’ll create to promote the product. Generating original content is a great way to boost your chances of being discovered organically in the search engines.
  • Deciding how to handle paid advertising and email marketing.
  1. Set a shipping strategy. Think hardheadedly about different approaches to shipping. Will you offer tiers based on delivery speed or opt for a “one-size-fits-all" charge? Can you provide free shipping without breaking the bank? If you want to offer international shipping, are you aware of the additional considerations involved?
  1. Determine customer service. What level of pre-sales and post-sales support will you provide? Remember if you’re selling big-ticket items, buyers will expect hands-on service, both online and over the phone.
  1. Establish a returns process. Drop shipping an item is one thing, but what happens when your customer isn’t happy with the purchase? In what circumstances might you ship out a replacement item or offer a refund without requiring the return? Ask your supplier about its process for return merchandise authorizations.

Logistical support for drop shippers

It takes a village to drop ship well. Luckily, there’s a raft of technology solutions at your disposal to make for successful drop shipping.

Again, do your research. Of the many e-commerce software products on the market, make sure the one you select includes comprehensive drop shipping software.  UPS works with several companies that specialize in e-commerce solutions and services.  UPS also offers support for drop shipping through the UPS Ready® program.

Work closely with a logistics expert to optimize your approach to drop shipping. One option for e-commerce businesses that offers similar benefits to traditional drop shipping is UPS eFulfillment. This program allows e-tailers worldwide to expedite fulfillment by forward stocking inventory in the United States. For even faster turnaround across the U.S. market, Ware2Go offers an extended network of warehouse locations.

Drop shipping pro tips

Graduating from drop ship novice to drop ship expert won’t happen overnight. Here are some top tips to speed you along the way:

  • Pro tip 1: Plan for peak season. Of course, this will vary from product line to product line—beachwear, for example, will likely sell better during the summer rather than winter months.

 Even for experienced shippers, however, the difference between low and high-volume sales can still be a shock. "Retailers may normally ship 300 packages daily, but when they have these surges the same vendors can ship as many as five to ten trailers a day,” explains Cunningham.  

While drop shipping helps absorb extra demand, start planning for the additional capacity before the surge kicks in. Share information about projected sales demand, and any promotional campaigns, with your supply chain partners in advance.

  • Pro tip 2: Drop shipping isn’t an “either-or.” But deciding the optimal mix of drop ship and owned inventory for your business generally isn’t obvious.

Even the most established retailers continually fine tune their approach to drop shipping, says Stuart McAvoy, UPS global director of supply chain optimization and sustainability.

“For instance, they're still trying to figure out the ship from store model and what inventory they should keep in their distribution facilities, what percentage they should keep in their retail stores, and how much they should rely on third party drop ship vendors to ship,” McAvoy remarks.

Logistics experts such as UPS can help e-commerce vendors weigh up different approaches and get creative with network design, he says.

  • Pro tip 3: Specify how drop shipping will benefit your customers. Work closely with your suppliers to identify expedited shipping options for certain products or delivery areas. “Programs like weekend delivery, extended hours, and same-day / next-day delivery make drop shippers more successful from a customer experience standpoint," says Cunningham.

In today’s cut-throat marketplace, speed of turnaround truly is a competitive advantage. 

Ace your drop shipping

So, you’ve done the product research, your marketing strategy is ready, and your software solutions are in place. You’ve set customer service levels, determined your shipping strategy, and you’ve engaged with supply chain partners.

Now it’s time to get drop shipping.

Ready to get started? 

Ship Now

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