Partnering With a Wholesaler – Driving Profits Through Drop Shipping

Partnering With a Wholesaler – Driving Profits Through Drop Shipping

In a difficult economy, people are looking for quality products at the best price. Discretionary income is limited, so customers are looking to get longevity and quality from their purchases. Retailers are looking to provide the best deals, maximize profits and minimize expenses. How do businesses meet this challenge?

Drop shipping is a strategy in which the retailer, or seller, does not keep items in inventory. Customer orders are sent directly to a wholesaler who then ships the order straight to the customer. The seller makes their profit on the difference between the retail price that is charged to the customer and the wholesale price. Drop shipping the merchandise also provides a savings over the usual shipping methods.

The economic impact can also be seen on the spreadsheets of the business. Expenses are not only reduced as a result of dealing directly with the wholesaler and reduced shipping, but the limited inventory that is carried will reduce expenses on the balance sheet. In addition, by working directly with the wholesaler, costs are further reduced by not having to maintain warehouse space, reducing personnel costs and limiting shipping costs from the wholesale warehouse to the retail establishment.

Other benefits of working with a wholesaler who drop ships directly to the customer include an improvement in cash flow. The customer pays the retailer for the purchase, yet the wholesaler usually is paid on a credit basis. Therefore, the seller is able to pay off the cost of the product over time.

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While partnering with a wholesale vendor who drop ships the products sounds like a foolproof technique, there are some risks associated with this strategy. The seller needs to be aware of the amount of inventory that the wholesaler has. Otherwise, items may be backordered, resulting in a long delay in delivery and a poor impression on the customer. Sellers also want to be aware of possible fraudulent wholesalers, especially potential internet start-ups who are lured by ads of making money while carrying no inventory.

When looking for wholesalers to work with, do the research.