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  Lesson 2: How High-Ticket Drop Shipping Works

Hey guys! Trevor here with eCommerce Paradise. Back with lesson number two of the "What is High Ticket Drop Shipping" Mini-Course. In this lesson, I'm going to talk about the supply chain and the fulfillment process.

So that's what high-ticket drop shipping is all about. It's a fulfillment process. It's a method of moving merchandise from the suppliers' warehouse directly to your customers so you don't have to receive it and re-ship it out. You don't have to do anything as far as packaging shipping goes, it ships directly to the customer.

Like I said in the first lesson, there are some shipping complexities you have to deal with when it comes to larger items, depending on the supplier. But in this lesson, my goal is to give you an overview of what the whole supply chain looks like with any model of retail online.

The Supply Chain of High-Ticket Drop Shipping

So the supply chain is basically moving products from the raw materials to an end product and the end consumer that will use it.

The three main parts of the supply chain are the (1) manufacturers (2) wholesalers and (3) retailers. Now, with that said, this business model is all about sustainability. If you are going to make a sustainable business you are going to need higher margins.

Wholesalers vs Manufacturers: Which is Best for High-Ticket Drop Shipping?

Wholesalers are not going to get you high enough margins to make a sustainable business. It is a way to scale in a sense if you've maxed out all the different manufacturers you can get accounts with, then wholesalers may be the only route to go and in certain industries some manufacturers really only sell through wholesalers because they have so much volume.

So you just have to be mindful of that with wholesalers. They're going to take at least half that margin away from you. So if the manufacturer gives 50%, the wholesaler is going to take somewhere between 25% all the way up to 40% of that sometimes and leave you with as little as 5% or 10% gross margin which it is not even enough to pay for marketing. And after you've already offered any kind of sales coupons to customers you could pretty much count that as depleted profit, as a break-even or a loss.

That's why I only suggest doing work with manufacturers to actually get accounts directly with, the brands that create the product. So it's common that these brands will have fulfillment centers and they'll actually ship the products themselves to the customer.

How Manufacturers Run Their Businesses

Let's just go into each of these and talk about their specific business models more. A manufacturer isn't necessarily the company that turns the raw goods into consumable products. It's interesting, but the way it works is most products are made overseas nowadays.

That's not to say all products are still made in the US. But most part, and so that means China, Vietnam even places like Japan, Taiwan, Korea, big manufacturing countries, and the list goes on and on. Of course, Europe is really big - Germany is huge, Belgium is huge. There are lots of manufacturing companies obviously the US has exports as well. But a big percentage of the exports come from China, and we'll just start there as a starting point.

So basically what happens is you have raw goods and depending on what the product is those raw goods are brought into the factory that processes the raw goods into parts that can be put together for the product. So let's just say you're making a couch. So couches require certain wood parts. They require certain fabric parts. They require certain metal parts. So wood, fabric, and metal has to all be produced somewhere and brought in to that Factory in China. And then that Factory in China will actually put those products together in a way that makes a finished product. They'll then package it up, box it up, and crate it up, whatever they need to do, and depending on how many the manufacturer in the US orders.

They will take that product and put it on to a shipping container which can be somewhere between 20 to 40 feet. That container will be put on a big cargo ship and then shipped overseas all the way across the Pacific Ocean, usually landing in the Port of Long Beach in California or in the Port of Tacoma in Washington or any other port that's you know accessible ways. San Francisco has a big one too.

So with that said, understanding that is really important because as far as warranty goes, a lot of the manufacturers that you deal with in the US are going to actually be reaching back out to their Chinese manufacturer to get that product. So understanding that like when you have a warranty issue later on with your store, you always be needing to get pictures of the damages that happen so that the manufacturer in the US can send it to the manufacturer in China and get credit for it. But that's kind of off and not tangent.

So I'll just continue with what a manufacturer is and what they do. Sometimes these days a lot of this has happened and actually, the manufacturer in the US is a sub company of that manufacturer in China. So I see that it's a lot happening where you have all these brands popping up and in some industries that are more prevalent than others, especially young industries.

You'll see these brands actually selling those products themselves to the consumer and they don't offer drop shipping because they want to control the whole process. Well it turns out some of these companies actually are owned by the actual manufacturer in China. So if you can understand that it's actually kind of cool that you know a lot of people are doing that, they're actually setting up the companies themselves saves them costs.

High-Ticket Dropshippers are Manufacturers Best Friends

But for us, they understand that it's really good to work with high-ticket dropshippers that our ecommerce store owners that work online only because we're marketers and it's very expensive to do marketing in-house. So hiring a marketer can cost a lot of money whereas if they have a set of a dealer account like we're a regular physical brick-and-mortar store but actually just ship those products for us when we get orders. It can be very cost effective for them to do marketing. That way they don't have to pay for any of the advertising costs and out of the percentage that they give us. So it's very straightforward for them.

High-Ticket Dropshipping as Wholesale to The Public

So moving onto wholesalers, a wholesaler is a kind of what we do know and it's sort of wholesale to the public in a sense it's offering products at the minimum advertised price that the supplier sets. So it's not MSRP.

Manufacturer's Suggested Retail Price vs Minimum Advertised Price

Here manufacturer's suggested retail price (MSRP), you always see that on products when you go shopping in the grocery area, a grocery store or in the department stores, MSRP or retail price. But MAP, minimum advertised price, is this price. That's the lowest price that they'll allow you to sell online right and people love that price because it's kind of like a wholesale price. It's like a discounted price. It's really cool!

So wholesalers will sell that. But in some industries wholesalers are wholesale to the trade. Only one instance of that is in the security industry. There's a lot of wholesalers and I know this because I used to work for one of those wholesalers. That's actually the first major job I had in life was being a warehouse guy and a sales guy. A security product distribution company who was wholesale to the trade only and they had five branches in the US and it was huge.

There were bigger companies on that they were actually the smaller company in their market. There was one with like 30 branches in the US and it just goes to show security industry has a ton of brands and a ton of really specific products. And they need wholesalers and distribution companies to actually stock those products so they're readily available to be shipped out or even picked up in person because when somebody has a security issue they need it fixed right then in there. So that's a good instance of where there are wholesalers a lot and wholesalers can raise or lower margins depending on the account and stuff like that.

So if you happen to be drop shipping in an industry that has a lot of wholesalers or you decide to get set up with one, just understand that those rates are negotiable. If you plan on doing a lot of sales with their products you can tell them that ask for a discount up front. They may not be willing to give it to you or whatever but later on, you can say hey I've done these many sales, can I get a 10% discount more off every order that I get plus free shipping? There's something like that.

We used to have people that would call us all the time and ask for that kind of stuff and the manager would give it to them because it would basically ensure that they were going to come to us instead of the competition. But again that's another tangent.

Wholesalers are just generally speaking stocking distributors and we are in a sense wholesale to the public but we are not stocking distributors and we sell usually to end-users. You can do ecommerce business to business. That's very popular, in fact, I do suggest always setting up a business-to-business arm of your ecommerce store and like a funnel for those business owners to get discounts because they probably will order over and over and over again from you. But the key is that retailers are really what we are. We are people businesses that are selling products directly to the public at a markup and so just understand your role in the supply chain.

Being the retailer that you are not stocking anything and that you should only want to get accounts with actual brands manufacturers. Don't go for those wholesalers because the margin just isn't there. It might be something like I said you can go into later when you want to scale your business. But when you're getting started it just doesn't make sense.

Unique Value proposition

Alright, now I want to move on to the next section of this lesson talking about what our role is. We're retailers, but what is it that we really do, or what is our unique selling proposition? This is something that you're gonna have to build out into your website all over the place is talk about your unique selling proposition. I mean these things can be things that you offer the customer like free shipping, free returns, fast delivery, things like that and that's really important. But understanding your role is really important.

Drop shipping is marketing. First, it's all about marketing. You as a drop shipper, as an ecommerce store owner you need to be an experienced internet marketer. So that comes into play when you're pitching yourself to recruit new suppliers is they're gonna ask you hey what's your experience? Are you more like of a niche guy, or you more of a marketing guy?

Now tell you right now the one answer that's always going to get you accounts is I'm a marketing guy or gal. If you're a woman, and for women, this is becoming super popular by the way, if you're a woman watching this, I mean just know that there are a ton of women entrepreneurs get into this game right now. And suppliers love working with them because they're just generally speaking nicer and easier to get along with. Just want to throw that out there as far as how we run our businesses though.

Customer Service is Key

It's really important that you understand customer service is key and you always want to have in mind the best customer service possible.

So if you've never experienced really good customer service from a company before I would suggest going out there and submitting all sorts of inquiries to random e-commerce sites like Amazon, eBay, Home Depot, Wayfarer, Lowe's, any of these big e-commerce sites.

Submit inquiries, go to their Contact Us page and ask them a question about a product or ask them a question if you order something from them. Ask them a question about that order and see what their responses are like and study the response.

You've all bought things online so I'm sure you can think back to an email you got where you were really blown away by the customer service. One such company that's known for a really good customer service is Zappos. Definitely go to their website and sign up for their email list and submit an inquiry, a pre-sales inquiry and then buy a pair of shoes from them for like 50 bucks and ask them about it. Send them all sorts of questions or whatever and it'll amaze you how good their customer services.

So my point is that you want to model good customer service. You want that to be a part of your business model so get out there do that. Understand it, study it, and take that in as something that you're always going to be talking about and pitching to your suppliers. And just do it, always be offering great customer service.

High-Ticket Drop Shipping Fulfillment Process

The next section of this understanding the fulfillment process of drop shipping is how the order process works. I know this is the big question everybody has, but how does the order process work? It's important, so here's an example: you put products on your website. You put them into the ads, you send paid traffic to those product listings using the methods that I talked about in my courses and you'll get an order. So when that customer places their order with you, you'll take that order and send it to the supplier.

So it's really simple! I am showing the methods again that I'll show you in the main course when you go ahead and sign up for that is that you'll be taking that order and sending it to the supplier really clearly in a purchase order format. That supplier will then take that purchase order, create a sales order on their end for you because you are their customer and they're gonna send you that sales order.

They may ask you to approve it, they may not, and then you can take that sales order and put it back into your order in the way that I show you in the course. It's really easy and you'll have then a track of your invoices and how much things cost in your cost of goods sold.

Then, of course, you can do other things at that point to which I show you how to set that all that stuff up in the course because it's really important that every time you get something that you create processes for how to handle them.

But basically you'll have the invoice and within usually 24 to 48 hours or depending on the supplier or the product they'll ship out that product to your customer and you'll get a tracking number and then you can go ahead and send that tracking number to them using Shopify which is the e-commerce I talked about the course a lot.

The Best Ecommerce Platform That Powers High-Ticket Drop Shipping

Shopify, by the way, is the only ecommerce platform I use now. It's just super easy to use and it's really fun and it definitely makes everything flow really smoothly.

Once the orders been shipped and the customer has received notification that it's been shipped hopefully it arrives within a few days depending on some factors. It can arrive up to six or seven days later because shipping from the East Coast to West Coast, for instance, takes like six or seven days. But the customer will, of course, receive their shipment hopefully unless there's an exception, in which case I show you an app so you can set up.

If you get notified and then that you have a process in place to make sure that gets taken care of right so once that product has been received hopefully the customer checks it make sure everything is there. If something's missing then you just have to call the supplier and ask them to reship that thing out and ask the customer to take a picture of it.

So there you go! At the end of the day, you can follow up with the customer and ask them for a review of the product that they purchased and review of your store and your services. I will show you apps and automation systems you can set up to get that done automatically as well.

So just to wrap up this whole video about the fulfillment process is that truly the supplier is invisible to the customer. When you think about it there drop shipping so the customer doesn't think they're getting the product directly from the supplier unless they're already familiar with it.

Take Responsibility

And most people aren't so just understand that and when you're talking to a customer use the terms like our warehouse did this, or our warehouse has this that kind of thing, I have to call my warehouse and check the inventory, I have to call my warehouse and get that product shipped out to you, because truly they are the warehouse that's a location of yours. You can talk about that warehouse location in your about page as one of your warehouse locations. Suppliers don't mind that and it looks great to your customer base. It makes you look like a bigger company and a more professional company and it will increase your conversion rates. So definitely do that and just understand that.

You shouldn't ever be blaming anything that happens bad on your supplier. That just take responsibility for our warehouse made this mistake and we apologize, we're working on it, we're speaking with the warehouse manager to get things to figure it out, things like that. It's really important, it makes you look like a bigger business. It makes you look more professional and that's it, guys!

That's a fulfillment method drop shipping works. I hope that it made sense to you and like I said if you have instant access to this course already because you bought it, go ahead and proceed to the next video. If you have to wait till the next day, it's perfectly fine I hope you took notes and you can check out some of the other free videos on my YouTube channel.