What exactly are drop ship suppliers? Drop ship suppliers are companies that offer goods at wholesale prices to online retail outlets.
How do they work? By providing a line of wholesale products to be resold by a retailer who is free to choose which items to resell in their online storefront. These suppliers typically purchase goods in truckloads from drop ship direct companies then resell them to online retailer in single units. Once sold each good is shipped directly to the customer but by using the retailer's name and address as if they shipped from the retailer's store. Thus the retailer never sees the actual good (s) and the customer has no knowledge of the real shipper.
Drop ship suppliers incur expenditures in their operation. They have numerous overhead expenses when purchasing, storing, and shipping out the merchandise. Not only must they buy each item in mass quantities, they must store them in their warehouse. Also involved is insuring the inventory, hiring employees to organize and pull products as they're ordered, purchasing shipping supplies to pack the items, and paying services as UPS or FEDEX to ship them out. Then they mark up the per unit cost to help cover expenses and make a profit.
Since suppliers have expenses they must charge for their services. Some may charge an initial sign up fee while others charge monthly fees (Doba charges $ 39.90 per month). Most add a drop ship fee of $ 3 to $ 5 per order. Overall charges vary from one supplier to another.
Hence, when considering to sign up with a supplier you must not only be aware of their charges but where they are in the product flow chain. Products sold online start at the manufacturer, then the wholesale distributor (direct company), then to the supplier, followed by the e-commerce retailer, and finally the customer. Thus, the supplier is usually the third link in the chain, unless there are multiple suppliers. Each entity in the chain buys products from the preceding link and must mark up its prices to sell to the next. The more drop ship suppliers in the chain, the more times a product's price is marked up, the more expensive it'll be to the final purchaser: the customer. Joining the first drop ship supplier in the chain is likely to be more profitable then say the third or fourth. Those second, third, or fourth, etc are the ones you, the online retailer wants to avoid. Their prices are much higher and its often impossible to make a profit selling their goods. Perhaps other retailers may sell these same goods for much less. They typically post ads stating you can become rich quickly by using their service. In reality you will not, especially if you're paying monthly dues whether you're selling any of their products or not.
Another problem a retailer faces when using a drop ship supplier is he / she has no control over nor knows how much inventory the supplier has in stock.
Competing online retailers in the same product line might be using this same supplier making it difficult to guarantee the products displayed in the online store will be available for sale, when ordered by a customer. Without a warning, the retailer may be forced to remove listings from their site or risk losing customers.