We’re going to clearly define what we mean by distributor, dropshipper and so on. Then we’ll get into how you’re going to find the best suppliers for the products in your niche. I’ll show you how to prepare for your first phone call to a prospective supplier, and even give you a script.
Finally, I’ll explain the difference between real dropshippers and dropshipping agents, and tell you how to evaluate the latter.
The terms distributor, dropshipper, sub-distributor and re-seller are pretty much interchangeable. Here’s why.
Normally I buy from a factory and sell to an end user. That makes me a distributor and the factory a supplier.
Sometimes I get an order from someone who is going to sell what they get from me to someone else. Now they are a sub-distributor / re-seller and I am the distributor. I even get orders from people that think I am the factory and they are the distributor. If you buy a machine from me and have it sent to your Mom as a gift I am a dropshipper.
There are companies that do nothing but buy for their clients. I recently was part of a deal where the chain ran from the factory to Tyson’s Food. It looked like this:
Factory (I don’t even know who they are) > Importer > distributor> ME> buying organization> Tyson’s Food.
So I was a sub-sub-distributor selling to a re-seller?
The point is not to get caught up in semantics. What you want is something you can sell with enough margin that you can make a profit that justifies your effort.
When you buy a product from your seller, the price you pay is Cost of Goods Sold. This is normally abbreviated as COGS.
Your seller knows you have to make money on the order, so he will not charge you list price. He knows you are going to sell it because you have asked him for a re-seller’s discount.
The difference between the price you pay and what sell the widget for is your Gross Margin, GM or margin.
Your GM needs to be enough to cover the other costs of selling – shipping charges, advertising, site design, hosting, and a salary for you.
If you are going to buy multiple widgets and keep them at your home or office, you are a stocking distributor.
If your supplier sends the items straight to your customer, he is a dropshipper.
Almost every distributor is willing to sell you what they buy from the factory or from another distributor higher up the food chain. If you came across my website and wanted to re-sell, I would be happy to work out a deal with you. Here’s why:
As a distributor, I already have a deal with someone to get the product. Maybe I am making 40% GM on it. So I’ll be happy to sell it to you at list less 25%. You make 25% (assuming your customer pays list price) and I make 15%.
I’m happy to take that 15%. Why not? You did the selling. You found the customer in some way and incurred costs doing it. If the customer has an issue with the product, he isn’t going to call me. He doesn’t know I exist. Customer service is your responsibility.
All I have to do is shuffle paper to get my 15%. If I am going to drop ship for you, I will be sure to get paperwork from you, called a packing slip that goes in the box. It will identify you as the seller, and have your contact information on it.
This is why it is easy to find a product source for high margin items. At this point, you have most likely already realized what I am about to tell you:
You want to be as high up the food chain as you can get.
The closer you can get to the actual manufacturer, the better price you will get, the better service you’ll get, and you will have access to more free content. What kind?
(Numbers are for illustration only)
The illustration above makes the point, I think. Your gross margin is a function of how close you are to the manufacturer, and who you are buying from, and the individual circumstances surrounding a given order.
For instance, if you are buying a single item from a distributor, and you don’t have an agreement in place, you would not expect as large a discount as you would if you bought from them regularly, in some quantity. Having items dropshipped instead of stocking them will also affect your margin.
When you stock product you have them all sent to you at once and typically you get a much better price. There are a number of reasons for this:
There is one other benefit: As I am so fond of repeating, most people are lazy. Your guy may send you the case of widgets and when you get it you see from the packing slip that there is a 3rd company’s name in the “ship from” area. What’s going on?
This may seem a little shady, but it’s not. In the absence of formal agreements (written or verbal) you can buy from and sell to anyone you want. Remember that you may not get a better deal by calling the new company. Your guy may have a large quantity discount negotiated.
In any event, you now have something that I always recommend - a second source. The next time you need stock you may want to call your new company and establish a relationship with them as well.
Note: Be sure to keep everything on the up and up. If you have told someone that they are your sole source, use them until things change, and let them know.
Also keep in mind that within niches, business is very much like a family. I know all the suppliers in my main businesses. I know some of the other distributors.
There are a few that buy from me, and I buy from them as well. Word gets around. Be a stand up guy, and you’ll get a reputation as someone that people want to do business with.
Once your site is established, and you start to do some volume, your product sourcing issue may reverse itself. Suppliers will call you, and you may have the chance to sell competing brands on the same or separate websites.
Be careful. You have to maintain a bond of trust with all of your suppliers. Never share any information that could be deemed proprietary with other suppliers or distributors.
Don’t even share things that are public, like product literature. If a supplier ever calls and asks for that sort of info on their competition, make a note of it. They just told you something about themselves, and you may want to keep it in mind when dealing with them going forward.
In every company there will be someone with the responsibility to take care of people like yourself. Make sure you get and keep their contact information. In the normal course of business you may not talk to them at all, but when you need them you really need them. There’s a shipment delay, or they’ve sent the wrong product out for instance.
It’s not a bad idea to give them a call every 6 weeks or so, and see if there is anything new on the horizon – price changes, new product announcements, etc. You may want to bring up any specific things you are doing to more their product – just don’t give away anything you don’t want to share with other distributors.
This is a bargain – or not – depending on what is most important to you.
Personally, I dropship about 90% of what I sell. Usually I am having the item sent from the factory or a major distributor directly to my customer. Please note that I am not dealing with an agent or aggregator – I am dealing with my supplier companies one on one.
Once you have a decent website and some traffic, this will not be an issue. You’ll start getting emails from companies that want you to sell their products. I get them all the time – literally 3 or 4 per day.
Here’s one from today…
She even sent some product literature:
It looks like nice stuff – doesn’t fit any of my sites right now, but sometimes I get something that does.
So how do you get to this point, where companies are emailing and calling you, wanting you to sell their products? (Or buy them, which often turns into the same thing.) It’s not as hard as you may think.
Like anything else, we have to start at the beginning. The beginning is setting up a proper e-commerce site. It needs to look good. Not necessarily fancy, or full of 3D rotating product images, but solid. It needs to have trust symbols, a solid about page, a contact us page with real info, and some products to start with.
In the beginning, you’ll have to either work with a dropshipping agent like DOBA or WorldWideBrands, or do the Amazon dance.
A quick note – Dropshippers actually ship product for you. DOBA and similar companies are agents – they contract with the dropshippers and you pay them for access.
Some of the time if you check the items Agents or dropshippers have, you can find them on Amazon and the “Wholesale” price they are listing as your cost can be higher than the price on Amazon. But not always. I have found a few real deals. And remember – don’t sell on price.
This is where you find some items on Amazon that fit your niche and set up those items in your store at the Amazon cost plus say $20.00 to cover shipping. Put together some dropship items, a few nice things from Amazon with a nice design and all of a sudden you have a legitimate looking e-commerce store. The problem is your margins are not so good. But at least you have something to show.
You may not be able to keep them there for long – some people only want their products for sale by certain vendors, or authorized distributors. Usually though if they are on Amazon they’re used to affiliates putting their stuff up.
The next thing you want to do is track down the manufacturers or major distributors of your widgets. Always try to get as close as you can to the factory. This can get you margins in the 50% to 60% range if you’re lucky. The farther away you are from the source, the less you get.
Research their site before you call. You should go through their site front to back. If they have case studies, read them. Go through the owner’s manual if there is one. REALLY read the copy.
If you can determine who their main competitor is, go to that website as well, and do the same research there. After all, you may be calling them next.
And call, don’t email. I have never landed a new supplier with an email. I always call and find out who is in charge of sales or web promotion. This person has a different title depending on the company, so it’s best to be very straight forward with whoever answers the phone.
If you’re phone shy, get over it. Recently I set up a deal to sell a particular sort of furniture online. I just did a search, found a manufacturer in the USA (weird!) and called them up.
Turned out they did not have an affiliate program, and only sold off of their own web site and Amazon.
OK – would they like to try another channel? “What kind of discount are you looking for?” He asks me and we’re off to the races. Once people start talking numbers, the deal is done – you’re just haggling over price!
Hello, Mr Thompson, I’m Dave Hawthorne with Grabapple Media, LLC. We run multiple websites, and we have one where your products might be a fit. We’ve got a gap in our product line for a cheese straightener, and we like the look of yours. Do you use online distributors at all?
At this point, he’ll say yes and ask to look at your site. Or he’ll say no but tell me about it, or something else – just be ready to tell him why you think you can sell his stuff. Presumably you’re in this niche because you did some research and you know his buying keywords, and what he sells. You can speak to him intelligently about his products and his market.
If you follow these steps, you should start landing some distribution deals. It’s not all one way though. There are some things you need to know as well:
If despite your best efforts you cannot land a distribution deal with a manufacturer or large distributor, don’t despair. In the meantime, you can use a dropship agent’s products. Over time, your site will gain authority and start to rank better in the search engines, you will get more traffic, and you can try again. And of course – you will start to get emails like the one earlier in this chapter.
Let’s look at terminology one more time: the Dropshipper is the company that actually ships your product. What most people think of when they hear dropshipper is actually a Dropshipping Agent like DOBA or WorldWideBrands.
If you start working with an agent it is worth your while to spend some time going through their service / website from one end to the other. Make sure you can live with the drop ship fees involved and the monthly charge for access to their products.
Go through all of the functions on their site that you think you might use. Watch the tutorials, download some product info, work with the database tool – whatever it takes to become completely comfortable.
If you are working within a “free access” trial period, put their offering through its paces. Actually install a product on your site, buy it yourself, and go through the entire sequence, including shipping, calling for service, getting tracking info – just make sure it all works the way you think it should.
It a pain, but it’s much better to get your due diligence out of the way now, than to have 100 of their products on your site and then realize that their service is just not for you.
I recommend that you start your investigation with DOBA.com. At the time of this writing, they have a 7 day trial. Before you sign up, get yourself organized. Set aside a day or two to put their offering through its paces.
Hopefully you’ve been able to secure some solid suppliers for your products. If you’re having everything dropshipped, excellent.
But is you’ve found that the additional discounts available for people who are willing to stock were just too large to pass up, you’ll want to read the next chapter: Shipping