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Dropshipping Fair Trade: Benefits to the eCommerce Retailer

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Dropshipping Fair Trade:  Benefits to the eCommerce Retailer

The 2nd in a 4 Part Series

 What are the advantages to eCommerce Retailers?

Rather than investing time and expense in identifying and establishing Fair Trade suppliers, investing in bulk quantities of merchandise, arranging international shipping, leasing warehouse space, hiring staff and implementing inventory and fulfillment systems and software; know that these functions are outsourced to a Dropshipper.

When an order is received via the web site, they are forwarded on to the dropship supplier who is in the business of purchasing and stocking the inventory. They usually provide this service for many other brick & mortar retailers, eCommerce retailers and mail order sales or catalogue retailers.  Dropshipping is the value added step they provide in the supply chain.

Key Advantages eCommerce Retailers:

  1. Focus on building the demand side of your business.
    1. Web site design, UX and functionality
    2. Brand building
    3. Search Engine Optimization
    4. Search Engine Marketing
    5. Social Media
    6. Customer Service
    7. etc.
  2. No major capital investments.
  3. No working capital (cash) required to purchase inventory.
  4. No long-term leases for warehouse space.
  5. No racking or 2D bar code scanners and accompanying software to buy.
  6. No warehouse management systems to buy, install and train employees.
  7. Great for start-up businesses that don’t have the financial resources.
  8. All costs are variable vs overhead that exist.
  9. Scaling up will not mean your overhead cost will escalate. You don’t have to add facilities and people just because your business grows 10x.

Key Disadvantages eCommerce Retailers:

  1. Your Dropshipper (wholesaler) will be selling the same sku’s (stock keeping units) to many other retailers. So, there may be many sources for your products.
  2. Amazon may carry these same products from market place sellers. All will usually be competing on price.
  3. Unit cost will be higher resulting in lower unit margin as you compete in the marketplace.
  4. The wholesalers may have volume pricing. For a start-up attempting to remain competitive in the market place, you my find yourself having to take a lower margin as you build your business.
  5. Multiple dropship wholesalers have different processes, terms and conditions, returns processing, carriers and billing. Since they are your fulfillment arm, it will require multi-tasking among the different systems.
  6. Loss of oversight and control. Dropship wholesalers will vary in the ability to execute your orders. Responsiveness, commitment to excellence, attention to detail and even having to juggle multiple retailers during peak demand can be frustrating.

 The Dropship Cash Flow Model

Process

Dollars

Customer places order on website

$100.00

You send fulfillment order to Dropshipper

                   $ 50.00

Shipping & Handling cost paid to Dropshipper

                   $   7.50

Transaction fees PayPal

                    $  3.20

Transaction fees eCommerce Platform provider

                    $  3.20

State and local taxes w/Nexus

                    $  0.00

Gross Margin to YOU

$ 36.10

 

How Can Dropshipping Help Your Business?

The best part is you focus on generating orders. Sales drives the entire process. All other processes from procurement, financing inventory, warehouse management, packaging, shipping, hiring and training, payroll etc., while critical, detract entrepreneurs from these key areas of focus.  

The Bottom Line.

Dropshipping continues to grow at an unprecedented rate, is very efficient logistically when done well and continues to serve as the backbone of eCommerce. The question is, what changes do Fair Trade companies need to make to adapt and benefit from this huge transformation? Imagine the impact to artisans worldwide as Fair Trade organizations embrace dropshipping?

Stay tuned for remaining two articles in this four-part series. 

  • 3rd Benefits to the Consumer
  • 4th Benefits to the Artisan

 

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  • Robert Winter
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