The Ultimate Guide To High-Ticket Drop Shipping For Beginners Lesson 2: How Does Drop Shipping Work?
The Ultimate Guide To High-Ticket Drop Shipping For Beginners Lesson 2: How Does Dropshipping Work?
Trevor here with eCommerce Paradise.
Back with Lesson Number Two of the "What Is Drop Shipping?" Mini-Course.
I will be to talking about the supply chain and the fulfillment process.
That is what drop shipping is all about. It's a fulfillment process. It's a method of moving merchandise from the supplier's warehouse directly to your customer, so you don't have to receive it and reship it out, you don't have to do anything as far as packaging or anything with packaging goes, anything with shipping goes. It goes directly to the customer.
Like I said in the first video, there are some shipping complexities you have to deal with when it comes to larger items, depending on the supplier, but in this course, my goal is to give you an overview of what the whole supply chain looks like with any model of retail online.
The supply chain is basically moving products from the raw materials to an end product and the end consumer.
The three main parts are the manufacturers, wholesalers, and retailers. This business model is all about sustainability. If you are going to do sustainable business, you are going to need higher margins. Going through wholesalers is not going to get you high enough margins to make a sustainable business. It is a way to scale, in a sense, if you've maxed out all the different manufacturers you can get accounts with, wholesalers may be the only route to go.
In certain industries, some manufacturers only sell through wholesalers because they have so much volume. Be mindful of that.
With wholesalers, they are going to take at least half that margin away from you. If the manufacturer gives 50%, wholesalers are going to take somewhere between 25% all the way to 40% of that and leave you with as little as 5% or 10% gross margin, which is not even enough to pay for marketing. After you've already offered any kind of sales coupons to customers, you can pretty much count that as depleted profit as a break-even or less. That's why I only suggest doing work with manufacturers. Get accounts directly with the brands that create the products because these brands will often have fulfillment centers. They'll ship the products themselves to the customer. That's the best thing you can hope for.
Let's just go into each of these and talk about their specific business models more.
Three Main Parts of the Supply Chain
A manufacturer isn't necessarily the company that turns the raw goods into consumable products. It's interesting, but the way it works is most products are made overseas nowadays. That's not to say all products are. Some are still made in the US, but most are from China, Vietnam, even places like Japan, Taiwan, Korea. Of course, Europe is really big, too. Germany and Belgium are huge. There are lots of manufacturing companies. But a big percentage of the exports come from China, and we'll use that as a starting point.
Basically, what happens is you have raw goods, and, depending on what the product is, those raw goods are brought into the factory that processes the raw goods into parts that can be put together for the product.
Let's say you're making a couch. Couches require certain wood parts; they require certain fabric parts and metal parts. Wood, fabric, and metal, has to all be produced somewhere and brought in to that factory in China, and then that factory in China will put those products together in a way that makes a finished product. They'll then package it up, box it and crate it up, and depending on how many the manufacturer in the US orders, they will take that product and put it onto a shipment container, which can be somewhere between 20 to 40 feet. That container will be put on a big cargo ship, and then shipped overseas all the way across the Pacific Ocean, usually landing in the port of Long Beach in California or the port of Tacoma in Washington or any other port that's accessible. San Francisco has a big one, too. Understanding that that is the first thing that happens is really important. As far as warranty goes, many of the manufacturers you deal with in the US will actually be reaching back out to their Chinese manufacturer to get that credit for that product. Understand that when you have a warranty issue later on in your store. You'll always be needing to get pictures of the damages that happen so that the manufacturer in the US can send it to the manufacturer in China and get credit for it. That's off on a tangent, so I'll just continue with what a manufacturer is and what they do.
These days, a lot of this is happening, the manufacturer in the US is a sub-company of the manufacturer in China. I see this a lot happening, where you have all these brands popping up. In some industries, it's more prevalent than others, especially young industries. And you'll see these brands selling those products themselves to the consumer, and they don't offer drop shipping, because they want to control the whole process.
It turns out the actual manufacturer in China owns some of these companies. It's actually kind of cool that a lot of Chinese manufacturers are doing that. They're setting up the companies themselves. That saves them costs. But for us, they understand that it's really good to work with drop shippers that are eCommerce store owners, that works online only, because we're marketers, and it's very expensive to do marketing in-house. Hiring a marketer can cost a lot of money, whereas if they have us set up a dealer account like a regular, physical, brick-and-mortar store, and just ship those products for us when we get orders can be very cost-effective for them to do marketing that way. They don't have to pay for any of the advertising costs. We're covering that out of the percentage that they give us. It's very straightforward for them. That's why they like us.
The wholesaler is what we do. It's sort of wholesale to the public, in a sense. It's offering products at the minimum advertised price that the supplier sets. MSRP is up here, Manufacturer Suggested Retail Price. You always see that on products when you go shopping in the grocery store or department stores, MSRP, or retail price. But MAP, Minimum Advertised Price, is this price that's the lowest price that they'll allow you to sell online.
People love that price because it's kind of like the wholesale price, like a discounted price. Wholesalers will sell at that price, but wholesalers are wholesale to the trade in some industries.
One instance of that is in the security industry. There's a lot of wholesalers. I know this because I used to work for one of those wholesalers. That's actually the first major job I had in life, being a warehouse guy, and a sales guy, at a security product distribution company. They were a wholesale to the trade only, and they had five branches in the US, and it was huge. There are bigger companies than that, and they're actually a smaller company in their market. There was one with 30 branches in the US.
It just goes to show that the security industry has a ton of brands and a ton of really specific products. They need wholesalers and distribution companies to stock those products, so they're readily available to be shipped out or even picked up in person. When somebody has a security issue, they need it fixed right then and there. That's a good instance of where there are wholesalers, and wholesalers can raise or lower margins depending on the account.
If you happen to be drop shipping in an industry that has a lot of wholesalers, or you decide to get set up with one, just understand that those rates are negotiable. If you plan on making a lot of sales of their products, you can ask for a discount up-front. They may not be willing to give it to you, or whatever, but later on, you can say, "Hey, I've made this many sales, can I get 10% discount more off every order that I get, plus free shipping?" Or something like that. We used to have people that would call us all the time and ask for that, and the manager would give it to them because it would ensure that they were going to come to us instead of the competition.
But, again, that's another tangent. Wholesalers are stocking distributors. We are, in a sense, wholesalers to the public, but we are not stocking distributors. We sell to end-users. You can do eCommerce business-to-business, that's very popular.
In fact, I do suggest always setting up a business-to-business arm of your eCommerce store, and a funnel for those business owners to get discounts. They probably will order over and over and over again from you.
The key is that retailers are what we are. We are people, businesses that are selling products directly to the public at a mark-up. Understand your role in the supply chain, being the retailer, not stocking anything, and only wanting to get accounts with actual brand manufacturers. Don't go for those wholesalers, because the margin isn't there. It might be something you can go into later when you want to scale your business, but it just doesn't make sense when you're getting started.
Now I want to move on to the next section of this video.
What is our role?
We're retailers, but what is it that we really do?
What is our unique selling proposition?
This is something that you're going to have to build out into your website all over the place, talk about your unique selling proposition. These things can be things that you offer to the customer, like free shipping, free returns, fast delivery, and that's really important. But, understanding your role is important. Dropshipping is marketing. It's all about marketing.
As a drop shipper, as an eCommerce store owner, you need to be an experienced internet marketer, eCommerce marketer.
That comes into play when you're pitching yourself to recruit new suppliers, because they're going to ask you, "Hey, what's your experience like? Are you more of a niche guy, or are you more of a marketing guy?"
I'll tell you right now that one answer that's always going to get you accounts is, "I'm a marketing guy," or, "gal," if you're a woman. And for women, this is becoming super popular. If you're a woman watching this, just know that there are a ton of women entrepreneurs getting into this game right now, and suppliers love working with them because they're nicer and easier to get along with.
As far as how we run our businesses, you must understand customer service is key.
You always want to have in mind the best customer service possible. If you've never experienced really good customer service from a company before, I would suggest going out there and submitting all sorts of inquiries to random eCommerce sites, like Amazon and eBay. Submit inquiries. Go to their Contact Us page and ask them a question about a product, or, if you order something from them, ask them a question about that order, and see what their responses are like, and study them.
You've all bought things online. I'm sure you can think back to an email you got where you were blown away by the customer service. One such company that's known for really good customer service is zappos.com.
Go to their website and sign up for their email list, and submit a pre-sales inquiry. Buy a pair of shoes from them for $50 and ask them about it. Send them all sorts of questions. It'll amaze you how good their customer service is.
My point is that you want to model good customer service. You want that to be a part of your business model. Get out there, do that, understand it, study it, and take that in as something that you're always going to be talking about and pitching to your suppliers, and just do it.
Always offer great customer service.
Understanding the Fulfillment Process of Drop Shipping
The next section of this, Understanding the Fulfillment Process of Drop Shipping. This is how the order process works. I know this is a big question everybody has, but, how does the order process work? It's important.
Here's an example. You put products on your website, and you put them into the ads. You send paid traffic to those product listings, using the methods that I talk about in my courses, and you'll get an order. Once that customer places their order with you, you'll take that order and send it to the supplier. It's really simple.
I'll show you in the main course when you go ahead and sign up for that, is that you'll be taking that order and sending it to the supplier, really clearly, in a purchase order format. That supplier will then take that purchase order, create a sales order on their end for you, because you are their customer, and they're going to send you that sales order. They may ask you to approve it; they may not. You can then take that sales order and put it back into your order in the way that I show you in the course, it's totally easy, and you'll have a track of your invoices and how much things cost to get sold.
Of course, you can do other things at that point, too. I will show you how to set all that stuff up in the course because you must create processes to handle them every time you get something. Basically, you'll have the invoice, and within 24 to 48 hours, or depending on the supplier or the product, they'll ship out that product to your customer. You'll get a tracking number, and then you can go ahead and send that tracking number to them using Shopify, which is the eCommerce platform that I talk about in the course a lot.
Shopify, by the way, is the only eCommerce platform I use now. It's just super easy to use, really fun, and definitely makes everything flow smoothly.
Once the order's been shipped, the customer will receive a notification that it's been shipped. Hopefully, it arrives within a few days. It can arrive up to six or seven days later because shipping from the east coast to the west coast takes six or seven days. But the customer will, of course, receive their shipment, hopefully. Unless there's an exception, in which case, I show you apps you can set up to get notified automatically, and then you have a process in place to make sure that that gets taken care of.
Once that product has been received, the customer will check it and make sure everything is there. If something's missing, then you just have to call the supplier and ask them to reship that thing out. Ask the customer to take a picture of it. There you go. You can then follow up with the customer, ask them for a review of the product they purchased, and review your store and services.
Just to wrap up this whole video about the fulfillment, the supplier is invisible to the customer when you think about it. They're dropshipping. The customer doesn't think they're getting the product directly from the supplier unless they're already familiar with it, and most people aren't. Understand that.
When you're talking to a customer, use the terms like, "Our warehouse did this," "Our warehouse has this," that kind of thing. "I have to call my warehouse and check inventory." "I have to call my warehouse and get that product shipped out to you." That kind of thing. Because for your customers, they are your warehouse. That's a location of yours. You can talk about that warehouse location in your About page as one of your warehouse locations.
Suppliers don't mind that, and it looks great to your customer base. It makes you look like a bigger company, a more professional company, and it will increase your conversion rates. Understand that you shouldn't ever be blaming anything that happens bad on your supplier. Please take responsibility for it. "Our warehouse made this mistake. We apologize. We're working on it." "We're speaking with the warehouse manager to get things figured out." Things like that. It's really important. It makes it look like a bigger business, makes you look more professional.
That's the fulfillment method. That's how dropshipping works.
If you have instant access to this course already, go ahead and proceed to the next video. If you have to wait 'til the next day, it's perfectly fine.
I hope you took notes.
You can check out some of the other free videos on my YouTube channel.
If you're ready to get started, you can go check out Niche Hacks Course on the eCommerce Paradise Academy website.
See you guys in the next video.
eCommerce Paradise was created by Trevor Fenner of Seattle, Washington in 2015 to help you, the entrepreneur, to start and scale your own eCommerce business selling high-ticket products online with the drop shipping fulfillment method so you can make more profit per sale, have a sustainable and evergreen online business, get started with very little upfront investment, and live a location independent lifestyle. Trevor owns multiple 7-figure High-Ticket Drop Shipping eCommerce stores and is a digital nomad, traveling the world while working remotely with the help of his team of over 10 virtual assistants from around the world. Trevor is currently located in Bali, Indonesia. Trevor is also a passionate skateboarder, surfer, scuba diver, photographer, environmentalist, outdoorsman, fitness and tattoo enthusiast.
AFFILIATE DISCLOSURE: Some of the links on this page may be affiliate referral links. I will get a commission from the vendor when you make a purchase after clicking them at no added cost to you. As a result, many of them also provide you with a special discount just for using my link. You can go directly to their support if you have any issues with their software or product.
Step-By-Step Training for High-Ticket Drop Shipping
Here are the next steps you'll need to take to start your high-ticket dropshipping business:
- Lesson 1: Research The Market And Choose Your Niche
- Lesson 2: Start Your Shopify Website and Legal Business Structure
- Lesson 3: How To Find And Recruit The Best Suppliers
- Lesson 4: Optimize Your Shopify Website and Sales Funnel
- Lesson 5: Launch Your Store With Paid Traffic
- Lesson 6: How To Manage Your Business
- Lesson 7: Automate and Outsource Your Day-To-Day Work
Resources for Starting A High-Ticket Drop Shipping eCommerce Store
These are the resources I've created to help you start your own high-ticket dropshipping eCommerce store:
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