Welcome to the latest installment of the Beauty Business Basics A-Z series. Today, I’ll cover “D is for Drop Shipping”. This article provides a drop shipping 101 overview, including what drop shipping is, how it works and important points to consider.
Drop Shipping is the term for when another company (often an online-only retailer, not one with a brick and mortar shop) lists your products for sale on their website. When an order is placed for your product, the online retailer sends you an email. You then ship the product to the customer directly, but with the online retailer’s return address information. Even though the online retailer is completely hands off and never once touches or packages your product, it appears to the customer that the online retailer has shipped the order.
Drop shipping is another revenue stream you can easily add to your business. Online retailers like this arrangement because see drop shipping as a way to offer products to their customers without spending money upfront to buy items at wholesale, nor do they have to pay to store inventory and handle shipping. But this doesn’t mean that you can’t profit from drop shipping arrangements.
Most drop shipping arrangements include charging the retailer wholesale pricing plus a drop ship fee, plus shipping, which may either be a flat rate per order or actual shipping charges, depending upon where the customer lives.
For example, if your lotion retails for $15 and wholesales for $7.50, here’s what a drop shipping arrangement might look like:
- The retailer lists your lotion on their website at $15 and charges $7 shipping.
- A customer sees the lotion, places an order and pays the retailer $22.
- The retailer notifies you of the order.
- You ship the lotion and charge the retailer’s credit card $16:
- $7.50 wholesale price
- $1.50 drop ship fee
- $7 shipping charge
- The retailer keeps the remaining $6 as profit
What is a drop ship fee? Think of it as the ‘handling’ part of ‘shipping and handling’ – it is the fee for doing the extra work of keeping inventory on hand (i.e. renting warehouse space), purchasing packaging supplies, packaging the order and shipping it to the customer for you. It can be a per item fee or a flat fee per order, and typically ranges from $1 – $5.
Retailers may have already approached you, asking you to drop ship items. If you decide to move forward with drop shipping, review the agreement closely, to ensure the following information is included:
- Cost of the item(s) to be sold (i.e. wholesale prices or a different pricing structure)
- Any drop ship / handling fees and if they are charged per item or per order
- How/when you will charge the retailer for the order (will there be a credit card on file, a PayPal invoice sent, is payment to be made prior to the item shipping, etc?)
- How the order will be shipped: USPS / UPS / FedEx, etc
- Turnaround time between when an order is placed and when it will ship
- Information you will provide to the retailer, including product photo(s), a product description, and weight of the item so the online shopping cart can calculate shipping charges.
Before agreeing to drop ship your products for a business owner, do your due diligence and review the website (don’t agree to drop ship if the website is still under construction until you can see the finished product) to ensure the company is a good fit with your brand and potential customer base. You don’t want to appear to be partnering with a brand that doesn’t reflect your values or quality standards. It must be a good fit to be of value to both parties.
Do you drop ship your beauty products? If not, what other questions do you have as you explore this possible revenue stream? Share in the comments below.