Drop shipping is a way to fulfill customers’ orders without keeping products in stock. Instead, you accept the orders, and then your supplier completes them and sends the products directly to your customers. It is one of only a few business models that require little or no money upfront, even when you need to send your products to other countries.
Domestic shoppers are increasingly looking beyond their borders to find the products they need. In fact, the majority of online shoppers purchase from overseas retailers. Based on this information, it looks like drop shipping has a bright future.
What? I don’t have to keep products in stock? And there’s no need for money upfront? What am I waiting for?
Hold on just a minute! Like any business model, drop shipping has its share of challenges. This article will discuss the different problems you may face in the drop shipping business and how an international shipping rate calculator can address them by giving you more control over your supply chain.
Low Profit Margin
In drop shipping, the low overhead expenses translate to low returns. It’s how business works. If you invest a small amount, the profit will most likely be minimal. Drop shippers can expect an average margin of 20% and a conversion rate of 2%.
You can then compute your profit using this formula:
Profit = (Traffic × .02) × (Average order value × .2)
It can be challenging for a business to remain profitable under these conditions. The only way to stay afloat is to sell a boatload of products, but that’s not realistic when you’re just starting. You have to find a way to lower your costs so that your profits are more substantial.
That’s where a logistics partner comes in handy. In the traditional drop shipping setup, your manufacturer takes care of the entire order fulfillment process, including delivery. You can change this by taking the shipping out of your supplier’s hands. Instead, task your shipping partner with the picking up of orders from your manufacturer’s warehouse.
With the efficient use of a shipping rate calculator, you can control the delivery costs and increase your profit margin. A 10% increase in your profit can be very significant to your bottom line.
Little to No Control over the Supply Chain
With how drop shipping is usually done, this is probably the most significant disadvantage compared to storing your own inventory. Because you have little to no control over the supply chain, you’re always at the mercy of how efficiently (or inefficiently) your supplier can fulfill orders.
Having a logistics partner gives you more control over deliveries and pickups and makes the supply chain less dependent on things you can’t foresee. Sometimes, they provide you with packaging materials as well.
Many e-commerce businesses even integrate their logistics partner’s software with their platform to further streamline their processes, provided that your manufacturer already has your inventory in their storage. Your buyers can access your partner’s international shipping rate calculator directly and find out the best price for international shipping.
In this setup, your manufacturer ends up just providing storage for your goods, and the extra fees will be less, of course.
Fewer Options for Delivery
With more control over pickups and deliveries, you can offer more options for your customers. They can choose to get economy international shipping if the need for your product isn’t urgent. If they need the delivery to be quick, they can opt for a standard or expedited international delivery.
There’s no need to worry about what companies ship internationally. Even local shipping companies have international partners, so your international customers can just sit back and relax while they wait for their orders. Computing the shipping charge is easier if they have access to a shipping calculator.
In traditional drop shipping, your supplier controls shipping, and that can be a problem. When there are delays, you’ll still be the one handling complaints. Worse, you’ll probably end up promising things to your customers without knowing if you can keep them.
In the new drop shipping setup, you can contact your logistics partner directly and find out the status of any delivery. There are even companies that offer international tracking, which makes it easier to track shipments with the click of a mouse. That’s one of the services a good shipping partner offers besides an international shipping rate calculator.
Your logistics partner can’t straighten out an errant supplier, but it makes switching to a new one so much easier. Because you control the shipping aspect of your drop shipping business, all you have to do is get the address of your new manufacturer and inform your shipping company about it. Plus, you can use a shipping calculator to determine if there are additional charges associated with changing suppliers.
There are several things you should consider when choosing a supplier. Here are a few of them.
- How do they handle returns or damaged items?
- How long does their fulfillment process take (minus pickup and delivery)?
- How is their B2B customer support?
- Do they insure orders, or does your shipping partner have to take care of shipping insurance?
- Do they offer protection from fraud?
- Do they have good online reviews?
Rise to the Drop Shipping Challenge with Stallion Express
There are indeed many challenges that accompany a drop shipping business, but there are also a lot of possible solutions. All you need to do is be creative enough to identify the root of the problem and provide logical solutions. One thing is clear: if you have more control over your drop shipping business’s supply chain, your business has more opportunities to flourish.
Global e-commerce isn’t going anywhere. In 2019, global sales surpassed $3.5 trillion, and it’s expected to grow substantially from there. The competition is fierce, but with less capital and fewer risks, an ordinary seller can get into the e-commerce game easily through drop shipping.
If you need the help of an excellent shipping partner in starting a drop shipping business with minimal risks, contact Stallion Express. We offer viable shipping and e-commerce solutions to many companies all across Canada. Sign up now!