Internet retail: stock or drop ship?
Dealing with distributors can be a pain - but it’s important to find more SKU’s if you’re serious about making it in the internet retail world.
Over the past 6 years or so I have met several internet retailers and have been surprised by how many retailers actually carry no inventory - they are basically more like marketing companies who drop ship their entire inventory as opposed to dealing with the overhead associated with stocking inventory.
So when should you consider drop-shipping and which products should you consider stocking? Here is a quick look at the factors you should consider when considering a drop-shipping approach.
The Good
The cost of carrying an inventory is not limited to the amount you invest in the inventory itself - you need to have space to house the inventory, a staff to order and reorder, a staff to ship the inventory out and a myriad of other fulfillment-related expenses.
Basically, if you are going to survive by carrying an inventory you need to make sure that you have extremely padded margins if you want to break even - remember, scale is your best friend. If you can just squeeze out a couple of percentage points of profits then as your business grows you will be more and more profitable.
But while you are small you are probably not going to be profitable so if you decide to carry a physical inventory you need to have a good game plan to take your business to the level you need to be at to be profitable.
Drop-shippers, on the other hand, can be profitable with one sale per week. They general have extremely low fulfillment costs (sending the order to their drop-shipper) so they can focus on marketing their products.
The Bad
So if drop-shipping is such a great deal everybody should do it, right? Not necessarily - for the convenience of having somebody else ship out your products you will pay a price in the form of the margin. You will have lower margins - that’s a fact. But if your choice is between having a lower margin and losing money the choice seems pretty obvious.
The only other major concern associated with drop-shipping is control over fulfillment - you lose that. If you pick a drop-shipping supplier that doesn’t get shipments out on time or constantly sends out the wrong products that reflects poorly on you - remember, the end-user doesn’t care where products ship from, but they will always the company that processed their credit card with that order.
A Sound Strategy
So what do I recommend the vast majority of internet retailers do? In general blend these two strategies together for an optimal mix - if you can get extremely high margins importing products from China you should probably import those. If you have good domestic suppliers willing to drop-ship high-ticket products that you can’t afford to carry, drop ship those.
Also, if you want to test the waters of a new product line without committing yourself consider drop-shipping those products until they prove their value, then stock according to a realistic ROI - this allows you to offer an unlimited number of products with a limited budget and really invest your money where you get the best bang for the buck.
Honey Bunny in critical condition
I try not to write too many things on my blog which aren’t related in some way to internet retail (with the occasional exception of a BlogDesk accident), but a lot of people have been asking what’s wrong with our bunny so I thought I would share.
Our bunny hasn’t been eating and we finally realized that she was having a problem just chewing up her food and swallowing it. Luckily we found a vet in Utah that specializes in rabbits (and other “exotic” pets) and they diagnosed her as having Gastrointestinal Stasis.
So our bunny (Honey Bunny, you may recognize her from such fine products as critter cords) is in critical condition and we think she will be there for at least 4 days (in the pet hospital).
Some people think we’re crazy for being willing to spend so much time and money caring for a bunny - I mean, what does a new one cost, right? $30?
But Honey Bunny has been a part of our family for a long time (Jen has had her for five years). She’s been there for some of the hardest times of our lives.
I figure money will come and go - I feel good about spending money on someone who has brought us (especially Jen) so much peace and happiness.
When BlogDesk drives me crazy…
I really do like BlogDesk, don’t get me wrong - I think it’s one of the greatest blogging tools available, especially if you want to upload pictures to your post.
My irrelevant post on this site yesterday, however, about a local Utah company reminds me that I do need to be more careful with BlogDesk, however.
By default BlogDesk will post to this site - I have to actually go change the blog I’m posting to if I don’t want the post here. I meant to post to another site but in my haste didn’t notice until this morning that I had posted to the wrong one.
So no, I haven’t gone crazy - just forgot to click a button yesterday 