When you drop ship, your product goes directly from a manufacturer or wholesaler and straight to your customer. So from the time someone orders your product to the time they get it in their hands, you don't touch it or see it. That may trigger some entrepreneurial FOMO, but for some brands it's worth considering, and here's why.
When you're shipping straight from point A to point B, you can save time and money on the labor, organization, and space it takes to store, pack, and ship your inventory. Drop shipping can be a powerful tool to keep your staff and space at a manageable size while holding onto your flexibility — the most powerful asset of any small business. Now, for the catch.
With another organization involved with your business, there's potential for a whole new batch of problems. Even with a supplier shipping your products, customer-facing issues with inventory, packaging, or timeliness are still on you. Them's the rules of entrepreneurship. So it's up to you to decide if your business is the right fit for drop shipping and if your pros outweigh your cons. That decision starts with talking to your supplier about drop shipping — ideally, before you start doing business with them. How can you find out if a supplier drop ships? Ask them! Here are some ice breakers to get you started:
- Do you make what I need for the right price?
- Do you drop ship?
- Can you use my brand packaging?
If you already have a supplier, the answer to the first question is obviously yes. If your supplier isn't receptive to drop shipping, it's best not to push them. Drop shipping requires its own infrastructure, so it's a big ask for manufacturers that don't offer it already. If your supplier won't drop ship, and you don't want to store and ship your products in-house, your best bet may be to outsource your fulfillment.
The cost of drop shipping
It doesn't matter how much time you save with drop shipping if your pricing isn't sustainable — because if it isn't, you'll soon have all the time in the world. To figure out if drop shipping is really worth it for your brand, let's start with your supplier's drop shipping fees.
Your supplier may charge you for drop shipping with a flat rate per package, or they may have a more intricate pricing formula that they've come up with. We've found that the most full-proof strategy to get a clear idea of how much you'll be paying is to send them a simple test case. For example:
I make enamel pins and ship them in 6" x 6" mailers. Each package weights 1 lb. How much would it cost to ship packages to Texas, California, and New York?
It sounds like a 7th grade math test, but this gets right to the point of finding out just how much you're paying for drop shipping. The less surprises, the better.
On the customer side, you can make up for drop shipping costs by increasing the price of your products or your shipping. Some businesses opt to increase their product cost because their customers like the ease of free shipping. Some businesses have flat rate shipping across all inventory. And some stick with a per item shipping fee. There is no blanket solution, but a universal rule of thumb is to have a target, blended margin that keeps your business sustainable.
Drop shipping frees up time to focus on other aspects of your business, and that's where you'll find the most value. With less time spent on fulfillment, you can spend more time on marketing, operations, sales, content, and all the things that bring more customers to your brand.
Your supplier relationship
When you're drop shipping, your supplier is the last person to touch your product before it's signed, sealed, and delivered to your customer, so it's ideal to start an offline relationship. When you can meet in person to talk about your business, hopefully the passion for your brand, your product, and your packaging will make a lasting impression and they'll take the time to get it right. A handshake trumps an e-mail signature every time.
There are even online services like Drop Shipping with Shopify and ChannelApe that can help you manage inventory and order logistics for greater transparency between you and your supplier.
If you're researching drop shipping, you may come across some drop shipping companies that act as brokers. They have connections to thousands of manufacturers that are willing to drop ship and they'll negotiate and manage that relationship for you. But our rule of thumb is to always stay close to the source. Work out your own deal with a manufacturer so there are less people and transactions between you and your customer.
Can I drop ship and use my Lumi packaging?
Absolutely! Most suppliers are happy to have your packaging supplies shipped to their warehouse, just make sure that it's part of your agreement with them. When you're checking out on Lumi.com, getting your packaging materials to your supplier is as easy as entering their shipping address at checkout. Whether you're using custom boxes or plain kraft mailers, your supplier will get your packaging of choice so they can ship out each of your products just like you would.
Keep in mind that all of the moving and shaking of drop shipping is invisible to your customer. They trust that your business is doing what's best to get them what they purchased. They want their order to be correct and on time. That's it. So when the cost of in-house fulfillment outweighs the cost of drop shipping, it may be time to make the switch. With sustainable pricing and trust in your supplier, drop shipping can be a powerful tool for your business to stay flexible without making major changes in your operation.
If you're not quite ready for drop shipping, or your shipping homemade goods, you can still ship from home like a boss. Get tips from some pros.