busineess question - drop shipping

[Derek Voigt]

I am working on a "wholesale" order to someone that will resell though their online shop. The items aren't huge, so shipping is feasible. We basically have settled on pricing and just need to dot I's and cross T's at this point. The question of drop shipping has come up now, which makes sense to me, but from a business stand point I don't know how to account for the cost I have to basically store finished goods.

Anyone have any experience with this that can offer some advice or options?

Thanks,
Derek

[Richard Wagner]

If you have included the cost of shipping to his customer and the cost of storage prior to shipping in the negotiated price, it seems that you have closed the deal. You are obligated at the negotiated price.

[Derek Voigt]

To this point I have not included shipping into the price, I have always quoted it as "plus shipping". Even if we had agreed to a shipping price, changing the terms to "drop shipping" would open up negotiation again in my mind.

[Mark Bolton]

Ive sold a bunch of wholesale but never drop shipped. I can only imagine your customer will want things shipped with their labeling, packing lists, order and reference numbers. This is all at an added cost to you which would have to be reflected either in compensation or reduced wholesale price to your customer for any items drop shipped. I mean you may now be talking about shipping individual items as oposed to a bulk shipment to them.

I know in other businesses ive been involved in when we did large drop shipments it was not uncommon for us to only tack on 10% which was nice money for only having to process an invoice. If your handling everything other than the transaction id want to be compensated for it.

[Jim Finn]

I recently started selling to retailers and expected to drop ship my small items. Neither of my retailers have mentioned it and have had me ship directly to them and they paid the shipping. This did bring the shipping cost way down lower than "one at a time shipping" cost.

[Jim Neeley]

It can be a good working model as long as your client is prepared to compensate you for your efforts and additional losses.

If you were expecting to pack up 12 to 100 of your "widgets" to ship to your supplier you have one shipping event to plan, follow and be responsible for.

As this translates to 12 to 100 shipments, your work load not only goes up due to the number of shipments but also the frequency of lost or damaged shipments which, even if you insure, cost you additional time and money.

Also, if your supplier gets a call from a customer that an order was not received, they will likely expect you to ship a second unit "gratis" to maintain customer satisfaction, depending upon the honesty of your customer's customer to return the item and likely expecting you to pay shipment to have it returned.

The retail model is a difficult one, requiring a markup incorporating these indirect costs; I suggest that "drop ship", unless you are doing it already, justifies careful thought and contract negotiation.

Just my $0.02.. YMMV.

Jim

[Mark Bolton]

Jims post is great and additionally what about handling returns and so on. In todays world of sending things back on a whim
Id be worried about it.

[Tom Walz]

We manufacture and sell retail.

Some suppliers charge for drop shipping. Whiteside router bits, Vortex router bits and Woodpecker router accessories all charge five dollars a shipment over and above shipping costs to drop ship. Tenryu, Southeast Tool router bits, Wiha, Bondhus and many others do not charge an extra fee for drop shipping.

The drop shipping fee is usually forgiven if the order is large enough.

Some suppliers do have a minimum order size.

Mostly the drop ship fee seems to be to cover the expense of setting up a new customer. It is pretty easy to throw two dozen in a box and select an existing customer. It is more work to box up one item and enter all the data for a new customer.

Remember that the retailer needs to pay his bills as well.

If Whiteside and Southeast both sell the same router bit for about the same price, call it $10, and we discount each one to seven dollars. Then we can make a little money selling the Southeast router bit but we lose money selling the Whiteside router bit after we pay the five dollar drop ship fee.

Also you can’t get too complicated with this sort of thing without offending everybody involved.


I guess it depends on what kind of a relationship you have with your customer. We don’t like paying a special drop ship fee. We don’t charge our customers when we do it.

Returns can be a problem. Our number one cause for returns is that the customer ordered the wrong part. This outweighs all other reasons. We take them back no charge. We have 100% satisfaction guarantee and we are very serious about it. We truly do want our customers to be happy and we think this helps us sell more product.

Our number one problem with returns is that it is almost always an uncommon part.

As for lost packages or stolen packages, it happens. We buy a special insurance policy through our agent that covers lost or stolen goods on any carrier. We don’t have much of this but it does happen.