Starting a new e-commerce business comes with a number of operational aspects that go beyond simply setting up a pretty storefront. Behind the slick design and the fancy user interface, lie hundreds of hours spent in sourcing new products, maintaining the right inventory levels, processing orders, managing shipments and more. The wider your store’s product assortment, the more complicated your back end processes become.
What if there was an easier way to setting up an online store or expanding assortments for existing stores without all that hassle? Enter drop ship commerce.
Drop shipping involves contracting with drop ship suppliers who stock products you’d like to sell in your own store and setting up an arrangement where the inventory holding, order processing and shipping pieces of the e-commerce puzzle are managed for you by this third-party supplier. By taking these resource intensive processes out of your day-to-day business, you essentially free up time to focus on better selling strategies, marketing to the right audience and maximizing your store conversions.
However, like most things, drop shipping is no cure-all for all your online selling woes. Avoid unpleasant surprises, by minding some important caveats even with this extremely versatile business arrangement.
1. Getting a Drop ship Partner Without Researching Them
A quick search on the internet will give you details of hundreds of drop shippers who can fulfill your requirements for nearly every item under the sun. While many of them might make interesting claims, trusting your stores operations to a third party is a huge leap of faith and must be done only after thorough research.
To begin with, shortlist the vendors who offer products you’re interested in, at terms that seem reasonable. Next, read up about them on review sites and forums to check out how they’ve delivered on their promises to other customers. It would help to reach out to some of their existing clients and get a detailed picture of their true capabilities. Once you’re done with your secondary research, the proof of the pudding lies in the eating. For drop shippers who have their own websites, you could place a few test orders with the suppliers and track their service levels. Getting friends and family to place these orders on your behalf would help ensure anonymity and hence let you gauge their competence at a more impartial level.
2. All Eggs in One Basket
Once you complete your due diligence of drop ship partners, do not rush head long into signing deals with just one of them. It’s always a good idea to have a Plan B, in other words a backup list of suppliers who are as good as the one you initially choose. CommerceHub’s OrderStream platform allows sellers to do just that. Pick from a range of over 9000 top-rated suppliers whose fulfillment capabilities and adherence to delivery schedules are pre-determined. That way, you know that if one supplier is a no-go, you have the option of falling back on another one and save your sale without worrying about it.
3. No Strong SLAs with Suppliers
Keep in mind that your drop ship partners form an integral part of your e-commerce operation. Without a reliable level of service expectation from your partners, there’s only so much you can offer to your customers by way of service. Which brings into focus that holy grail of drop ship arrangements, the Service Level Agreement or SLA.
Craft water-tight SLAs with your drop ship suppliers that take into account the minutest details of every operation that they handle on your behalf. The time taken to process each order down to number of working hours and days to the time taken to ship a ready order to the final destination need to be spelt out crystal clear. Set out expectations from your partner in terms of using your branding on each order that is shipped out to your customers, steps that will be taken when errors happen and a clear demarcation of liabilities if things were to go wrong with any order. Fines or chargebacks are common in SLAs to make up for errors on the part of the supplier. Agreeing to price stability or making sure that your suppliers don’t change prices once products are listed for sale on your site is another key area that your SLA must cover.
4. Barely Informative Product Pages
A drop ship supplier does not just hold inventory and take care of order fulfillment. They also have first-hand information about the products you’ll be selling in your online stores. It is thus imperative to ensure that you get all possible product related content from your drop ship partner in advance of setting up your product pages. Details like item descriptions, colors, sizes etc are critical in helping shoppers make their purchase decision. Every extra point, like sharper images, product demo videos or user reviews go a long way in helping your conversions.
Work with your drop ship partner closely to set up your product pages with accurate details that set user expectations at the right level. Remember, when it comes to product pages, more information is always better.
5. Outdated Stock Data on Website
Imagine browsing through reams of pages across e-commerce stores and finally finding that perfect pair of hiking boots. Now imagine placing an order for said boots, only to get a stock-out message at the end of your long and arduous journey. Not a happy thought, I’d think. Definitely every retailer’s worst case scenario for any sale.
Since you don’t control the inventory of items you sell in a drop ship setup, this sort of a situation can become all too common without tight control on your drop ship partner’s inventory levels. Live inventory status updates would be great in an ideal world, but even hourly status updates that reflect immediately on your site, ensure that you don’t end up with disappointed customers.
6. Misleading Pricing
Anyone who’s ever sold online knows that arriving at a selling price for your products is not as simple as covering costs or aping competitors. This is even more true in the case of drop ship commerce. Before you proceed to price your products, understand completely every single expense that you’ll incur to make each sale and only then venture into the shifting sands of drop ship pricing. Displaying a price on your site that you find yourself regretting later is not the smartest of business practices.
Firstly, get accurate price lists from your suppliers, taking care that you are aware of exceptions like holiday prices, special prices for specific geographical locations and so on. Then proceed to factor in secondary (but inescapable expenses) like taxes, service fees charged by drop shippers, transaction fees charged by your payment processor, seller fees levied by marketplaces like Amazon or eBay, shipping costs and more. If you cater to international buyers, you’d also factor in customs, duties, international freight and check on the legalities of shipping specific items across international borders. Once you take into account every possible expense related to each item, only then should you sit back and devise pricing masterplans.
Whether your strategy is to undercut competition by selling higher volumes or position your products at the premium end of the market, be certain that your users are aware of the exact price they’ll owe you right on the product page, not on some obscure email from you that shocks them into cancelling their order.
7. No Proactive Buyer Outreach
Given the glut of communication platforms available to us, customers expect to know everything there is to know about their orders, on a real-time basis. Don’t wait till they make frantic calls to your customer care number or start bad mouthing you on social media to offer users information they seek.
For instance, OrderStream customers see a current order snapshot that informs them of the fulfillment statuses of all their orders at one glance.
By taking the necessary corrective actions for orders that are in danger of falling behind, sellers can take control of precarious orders and choose to prevent unnecessary delays in deliveries. In case of orders that do somehow slip through the cracks, such a systematic reporting process allows sellers time to reach out to buyers and communicate to them the delays that they might expect.
It’s sound business practice to keep buyers updated about inventory problems, order processing glitches or any other delays on a proactive basis. Not only does this prevent small issues from blowing up into crises, it manages customer expectations and pre-empts negative word of mouth.
Another important aspect of proactive buyer communication, is inviting buyers to review your products or service on a regular basis. Research has proven that customer reviews help new buyers make up their minds about a potential purchase. Besides helping decision making from the customers’ point of view, user reviews also go a long way in helping your site rank higher on search results pages of search engines like Google and Bing. Greater visibility + easier decision making = better conversions.
8. Ignoring Buyer Communication
When you’ve already outsourced a large part of your e-commerce operations to drop ship partners, your business is well placed to offer customers a level of service and hands-on care that full-fledged ecommerce businesses aren’t. Take advantage of this situation and stay on top of every query, complaint or compliment that comes in from your customers. Social media is a common avenue for customers to vent their frustrations about your brand or expect instant customer service, as the case may be. Studies show that 32% of customers expect responses on social media within 30 minutes, another 42% relax that expectation to 60 minutes of response time.
Offering service via social media, live chat, email over and above your customer care number empowers customers with multiple ways of resolving problems as and when they arise.
9. What About Returns?
Returns account for up to 20 -40% of e-commerce sales in the United States, with the top 500 internet retailers ringing in returns at a median rate of 3%. Customers who shop online expect to be able to return items that they are dissatisfied with cheaply and with no hassles. The trend has been for most e-commerce businesses to charge users for one-way shipping of returned items within 30 days of purchase, with exceptions like Zappos that offer free two-way shipping for online returns for 365 days from the date of purchase.
In a drop ship setup, figure out explicitly how you’ll handle buyer returns. You have a choice of directing return shipments to your address and refunding buyers to avoid dealing with the drop shippers entirely. Alternately, you could create an arrangement with your drop ship partners to handle return shipping and replacement of items. Whatever route you choose would depend largely on the level of control you want to exercise on your customers’ purchase experience.
Have more questions about setting up a drop ship channel? Get in touch with us and we’ll help you every step of the way.