Retailers and eCommerce businesses need to deliver high-quality products to their customers in a timely fashion. However, without third-party logistics set up, companies are left to oversee every nuanced step of the process. That means oversight of the creation of your products, storage until purchase, the packaging and shipping, and the overall customer experience—each of which can quickly become a logistical nightmare.
Enter dropshipping—a one-stop solution for many retailer headaches. What does drop shipping mean exactly? With a dropshipping supplier and method, order fulfillment is basically done by a third party. Usually, you’ll pay a fee that includes management and packaging of customer orders as well as shipping costs and inventory storage of goods sold, among other services. However, this can come with challenges such as finding a reliable supplier or not considering the dropshipping costs from the start.
Continue reading to learn more about dropshipping suppliers, costs, and how they can impact your online store and business.
What is Dropshipping?
Dropshipping is a cost-effective way of dealing with inventory management, packaging, shipping, and customer satisfaction. But to understand if dropshipping is the right financial move for your platform, let’s break down the costs of starting an eCommerce business and what you need to consider to get your products in the hands of your customers.
1. Business Startup Costs
Before you start selling from your dropshipping business, you need a virtual storefront. The costs associated with a business’ startup involve everything from legal legwork to your marketing strategy. Typical upfront investments you need to make include:
- Your eCommerce platform – You’ll need to identify an eCommerce platform that offers business customization, analytics and data, growth support, a user-friendly interface, and social media integration. For this, you can consider Shopify, Wix, or Shift4Shop, which will cost you anywhere from $20–$50 per month, depending on your customized solution.
- Marketing and design – Your eCommerce platform needs to be a reflection of your products. If your website is clunky or hard to navigate, for example, this can signal to customers that the products are similarly poorly designed or “cheap.” To ensure a seamless experience, you’ll need to allocate the right resources. On average, first-year businesses spend 10.3% of their budget on marketing costs.8
- Domain name, legal work, and ancillary costs – Setting up shop—even in the digital age—requires upfront capital. Everything from the yearly domain name to the legal work needed to set up an LLC or C-Corp must be accounted for in a dropshipping model.
2. Product Creation & Inventory Costs
Two of the most dynamic expenses eCommerce and retail businesses will encounter are product creation and inventory costs. A clothing brand may only need a simple logo printed on a blank, colored shirt, while a toy brand may need a dedicated product-creation chain involving automated and manual labor.
To that end, product creation can be a minute portion of your dropshipping investment, or it may dictate the majority of your spending.
Additionally, you can’t wait until a customer clicks “Purchase” to start building the product. You’ll need a large inventory supply to ensure that the customer receives a notification that their order is en route as soon as an item is bought.
Because of the upfront capital needed, dropshipping is an attractive logistics model for smaller eCommerce brands; many dropshipping models include storage and creation within their service offering.
3. Storage, Packaging, and Shipping Costs
Once you’ve created your business and built up an inventory, there are more costs associated with a dropshipping model. You’ll need to store, package, and ship each product that’s purchased, as well as provide customers with a return solution to ensure a positive experience.
These dropshipping fees come in one of three models:
- Pay-per-order – Some suppliers charge a fee per each order fulfilled and shipped.
- One-time fee – Some suppliers make things easier by just charging one upfront fee.
- Pay-per-month – Other suppliers charge a monthly or annual fee.
While dropshipping suppliers will take care of order fulfillment, from packaging customer orders, taking care of shipping costs, and shipping the packages, it can often be costly for you.
Note: Suppliers may also take a cut of the sale with every item purchased.
What Costs are Associated with Dropshipping?
Retailers and eCommerce brands are increasingly benefiting from the dropshipping model. Typically, partnering with a dropshipping solution will cover:
- Product inventory
- Storage
- Packaging
- Shipping
- Return management
Depending on the third party, it may also include product creation and even some branding and logo-creation services.
Dropshipping Alternatives
Although dropshipping can be an effective business model, it does come with additional fees and may require you to relinquish control over customer service and quality control.
If these costs are prohibitive or if you just want to try another model, consider the following:
- In-house fulfillment – Although more expensive than dropshipping, fulfilling your inventory in-house gives you more control of your product. However, in-house fulfillment means you’ll have to spend more time and energy overseeing this aspect of the eCommerce process.
- Drop servicing – Drop servicing differs from dropshipping in that you’re paying a third party to complete a service rather than fulfill a product. The advantages of drop servicing include increased scaling. However, as with traditional drop shipping, you have less control over the quality of the service.
- Dropshipping agent – A dropshipping agent is a person who takes the guesswork out of finding the right supplier. That’s because they search for the best supplier for your specific product. Then, they oversee the supplier’s fulfillment and shipping of your product. Dropshipping agents can help you increase your shipping times, but some agents may require a minimum number of orders.
Need to Evaluate Your Dropshipping Costs? Find The Right Supplier
In the past, retail and eCommerce businesses required a heavy upfront investment and costly monthly overhead. Dropshipping removes many of these expenses and improves the overall logistics of the customer experience.
But how do you know if you’re paying the right price for your dropshipping solution? While a dropshipping supplier will usually take care of everything in the drop ship supply chain, finding the right one for you can be challenging.
Choose a supplier that will mitigate logistical inefficiencies by optimizing your shipping model, and ensure you’re using the most cost-effective shipping solutions.
Sources:
- Influencer Marketing Hub. What is an eCommerce Platform and How to Choose the Right One? https://influencermarketinghub.com/what-is-an-ecommerce-platform/
- Looka. How Much Does a Logo Cost in 2022? https://looka.com/blog/how-much-does-a-logo-cost/
- NicheDropshipping.com. How Much Does It Cost to Start Dropshipping? https://nichedropshipping.com/how-much-does-it-cost-to-start-dropshipping/
- SideHustleAcademy.com. 11 DropShipping Cost to Consider [Before You Start Your First Store]. https://sidehustleacademy.com/dropshipping-cost/
- Shopify. Pricing. https://www.shopify.com/pricing
- The SMB Guide. Shift4Shop. https://www.thesmbguide.com/shift4shop
- Wix. Pricing. https://www.wix.com/upgrade/website?businessTab=true
- Shopify. The Cost of Being the Boss: What Business Owners Spend in Their First Year. https://www.shopify.com/blog/cost-to-start-business
