The 5 Essential Elements of Successful Drop Shipping
December 6, 2023
Drop shipping has been an important part of multichannel commerce since the mail-order catalogs of the 1950s. But with the advent and subsequent explosion of Amazon and other “etailers”, modern drop shipping has grown into a global market worth over $243 billion. Today, around 27% of online retailers use drop shipping to fulfill customer orders, enabling them to create a virtual “endless aisle.”
What Is Drop Shipping?
Drop shipping is a type of retail in which a seller accepts orders without having the stock on hand. For retailers, drop shipping presents the opportunity to expand their product catalog and increase their sales, without investing in costly warehouses or needing to manage physical inventory. Instead, these tasks fall to the supplier, who, in turn, benefits from expanding sales channels.
As the eCommerce landscape has grown, so have customers’ delivery expectations. The launch of Amazon Prime a few years ago was a game-changer for the industry. It forced retail executives to focus their attention and investment on meeting the customer delivery promise. After all, the foundation for any successful eCommerce strategy is to deliver the right product to the right place at the right time. It’s that simple yet it is very complex to achieve.
What does all this mean? It means that drop shipping has become a complex, fast-moving process wherein the retailer and the vendor share ownership of the customer delivery promise. If either partner fails to meet expectations on stock availability, product specifications, shipping times, and other critical communications, both can fail, and find themselves without a willing consumer base.
What Does Drop Shipping Include?
A successful drop shipping process involves meeting quick delivery times while maintaining product and data accuracy across your business systems and channels. The success of your strategy relies on five key elements — Connectivity, Compliance, Integration, Fulfillment, and Collaboration.
Connectivity is the bridge between you, your retail customers, and the end consumer. If you can’t communicate effectively across your supply chain, your drop shipping program will be a fruitless endeavor. At the same time, you need to stay abreast of retailer needs and changes in order to adapt and match their customer delivery promise.
Achieving bidirectional connectivity can be difficult, especially if you’re relying on back-and-forth emails or calls, or struggling to maintain multiple drop ship vendor portals. To eliminate these pain points, consider a single-vendor, integrated solution, such as the TrueCommerce Trading Partner Network.
Such networks supply, synchronize, and regularly update trading partner maps, so you can quickly onboard your partners and accurately exchange documents for effective end-to-end communication.
Have you ever noticed that Amazon packages arrive in Amazon boxes, no matter who the manufacturer of the products is? Or that the shipping labels on Walmart boxes all look the same? These are the products of another essential drop shipping element— compliance.
When you onboard a new trading partner, the first thing you’ll need to address is any custom mandate from the retailer. These can range from EDI document requirements, to packing slip and label configurations, to using certain parcel carriers.
In addition to process requirements, you’ll also need to comply with time-bound conditions; some retailers require a purchase order acknowledgement within 30 minutes of sending the order, while Amazon requires vendors to meet 24-hour shipping timeframes for inclusion into the Amazon Prime program.
Compliance isn’t only essential for the growth and profitability of your business; without compliant drop ship practices, many retailers will outright refuse to work with you. But, if you can meet and exceed retailer expectations, you’ll quickly find yourself at the top of the retail ladder.
Expanding into drop shipping also means juggling a variety of business systems, e-storefronts, and marketplaces to ensure that the right products get to the right place at the right time. Most drop shippers start by doing everything manually, but as you add on more trading partners, increase your order volumes, and strive to meet compressed delivery timelines, order processing can quickly become an overwhelming obstacle.
As one TrueCommerce customer put it, “When we first started, we were shipping 400 to 500 orders per day. With our old shipping system, it took almost four minutes to get one label per unit. Needless to say, that wasn’t feasible.”
To succeed in the long-term, integration between your eCommerce channels, your business system, and your EDI solution is a necessity. Furthermore, it’s an asset that will enable you to drive faster order processing and expedited shipping, putting you in the perfect position to grow.
It might seem obvious that fulfillment is essential to drop ship success, but many vendors don’t realize how much goes into a high-performing fulfillment strategy. Fulfillment is more than “getting the product to the customer.”
It’s about the efficiency of your warehouses or 3PL provider, the accuracy of your data and shipments, and the speed of your deliveries. Fulfillment covers every step from the time you receive an order, to the moment your product arrives at a customer’s doorstep.
Optimized fulfillment is crucial to maintaining a positive drop ship relationship with your retail trading partners. Why? Because your actions during the fulfillment process determine if your trading partner is able to meet their customer delivery promise, and directly impact the consumer perception of that partner. After all, the customer isn’t “receiving” their products from you—they’re getting their goods from their favorite online store.
Because drop ship vendors and etailers share the burden of the customer delivery promise, teamwork is a crucial ingredient in drop ship strategy. For vendors, the crux of collaboration is information sharing.
If your retail partner has inaccurate data regarding product availability, changes or discontinuation, or order status, they may be setting unrealistic customer expectations. When customers find out the product they wanted isn’t available or won’t arrive when promised, the consequences can range from costly chargebacks, to negative reviews, to the loss of that trading partner.
A manual, labor-intensive approach to this challenge wouldn’t work; synchronizing product data across sales channels requires sophisticated technology. Integrated EDI, vendor managed inventory (VMI), and drop shipping integrations enhance your inventory visibility while accurately transferring data to your eCommerce partners. The result— an outstanding reputation with consumers and a strengthened retail partnership.
Tips for an Effective Drop Shipping Process
Whether you want to begin your drop shipping business or you’re experienced, here are some ways you can boost your profitability:
- Provide excellent customer support: Ensure your customers can find the answers and solutions they need. Include FAQ sections on your website and use helpdesk software to manage customer support issues and correspondence.
- Write an effective return policy: Understand how all your suppliers handle returns. Write a return policy with consideration for defective items and restocking fees.
- Handle chargebacks quickly: Act quickly when a customer calls a credit card company or bank for chargebacks so you can avoid processing fees and losing the money in question. Provide proof such as the order documentation, tracking information with delivery details, and a wholesale packing slip as soon as possible.
- Implement security practices: Keep your customers’ personal information safe while they shop online. Avoid storing your customers’ credit card information and offer third-party payment options to speed up the checkout process and allow your team to focus on other efforts instead of security audits.
- Pick your products wisely: Use multiple suppliers with overlapping inventory so you have numerous fulfillment options for any product you carry. Write a generic product description and offer near-identical, interchangeable products, such as smaller accessories and product add-ons.
- Strategize your fulfillment: Route orders to a preferred supplier who stocks most of your items. Or decide which supplier will fulfill orders based on their location so you can save on shipping costs and offer faster deliveries.
- Focus on marketing: Implement search engine optimization (SEO) to increase traffic to your website. Ensure your product pages contain keywords and consider investing in ads to draw more potential customers to your pages.
Achieve Drop Shipping Success With TrueCommerce
Becoming a drop ship vendor requires you to navigate complex trading partner relationships, and meet ever-increasing customer expectations. However, the right strategy, combined with the right technology, can enable you to overcome those obstacles and achieve ongoing success.
Looking for the right technology to drive your drop ship strategy? TrueCommerce’s drop ship capabilities include everything you need for success, from connectivity to collaboration and back.
To get started, contact our team today!
Share this post:
Stay ahead of the competition
Get expert supply chain insights delivered directly to your inbox weekly.