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Wholesale Drop Shipping FAQs

 

Here is a list of the more common questions we get about wholesale drop shipping. To find facts specific to the Hienote Drop Ship List Directory click here.


What is drop shipping?

Why do I need drop shipping?

Are there disadvantages to drop shipping?

How do I benefit from drop shipping?

What kind of profit margins can I make with drop shipping?

What is a blind drop shipper?

Why does a drop shipper need my credit card information on file?

Should my customers pay me first before I pay the drop shipper?

How do you find drop shippers?

Many of the drop ship directory sites are rip-offs, how do I know a directory is legitimate?

Many directories advertise the quantity of products they carry, is this important?

What are middlemen?

What is a drop shipper agent?

Do drop shippers offer credit or Net 30 day payment?

What is an over-saturated drop shipper?

Are importers considered to be drop shippers?

Some drop shippers will not do international drop shipping. Why?

Will a drop shipper supply pictures of their products for my website?

Do drop shippers offer exclusives on products?

Is a wholesaler the same as a drop shipper?

What is an Authorized Dealer Agreement (ADA)?

How have online auctions effected wholesale distributor memberships?

Do some drop shippers restrict how their products are sold on online auctions?

Why is balance important in a drop ship directory?

Why is the search method important in a drop ship directory?

Does anyone offer custom searches for a specific drop shipper?

What are the basic steps an import drop shipper takes to get item through customs?

What is a merchandise passport?

What is a bonded merchandise warehouse?

Some drop shippers sell G.O. goods. What are G.O. goods?

How does U.S. Customs work with import drop shippers on perishable goods?

Does anyone regulate the imported and exported goods pricing?

What is one of the biggest threats to import drop shippers in terms of ecommerce?

How do I know which countries a particular import drop shipper focuses on?

What is an export management company and what do they mean to drop shipping?

What is a Customhouse Broker and how do they help an import drop shipper?

What if I find a drop shipper and they have already reached their quota?

How fast can I start making money with drop shipping?

Do I need a resell certificate or tax ID number to sell products from a drop shipper?

Do I still need a tax ID number if I am based outside of the U.S.?

With the drop shippers in your directory, am I limited to selling drop shipped items via the Web?

When and where did the concept of drop shipping start?

How many drop shippers do I need for my business?

What is closeout merchandise?

Where do I get pictures of the products offered by a drop shipper?

What should I expect in a product picture?

What is drop shipping?

A drop shipper is a manufacturer or authorized wholesale distributor who will ship your single item orders directly to your customers. You will put the product pictures on your site at retail and wait for an order. Once you receive an order you will email or call the drop ship supplier with the customer’s order information and they will in turn ship the product directly to your customer.

Why do I need drop shipping?
If you do not plan on carrying inventory or setting up warehouses for your retail business, then drop shipping can be a key part of your business.

Are there disadvantages to drop shipping?
Yes. The biggest disadvantages are some of the following:

1. You completely rely on the supplier to send product to your customer on-time

2. Your profit margins are sometimes effected by fluctuations in wholesale pricing.

3. Not all drop shippers have up-to-date supply chain and ERP technology. This means they may not have any ability to track inventory or automate their accounts.

 

How do I benefit from drop shipping?

There are many ways to benefit from drop shipping. Some of the benefits are as follows:

1. You don’t carry any inventory

2. You get to set the retail price at whatever you want for huge profits

3. There are no minimum order requirements

4. You pay the wholesaler only after you receive an order

 

What kind of profit margins can I make with drop shipping?

While there is no standard on wholesale pricing, many wholesale companies typically will give a retailer between 25-60% discount off of standard retail pricing (MSRP). The final agreed pricing model is between you and the wholesale distributor. We list wholesale companies who are either the manufacturer of the product, OR they are the first tier import distributor. This is important, as you want to make sure you are getting the right companies for the best pricing.

What is a blind drop shipper?
A blind drop shipper will ship product to your customers, under your name only. They will not have any of their information (i.e. company name, address, advertising...etc.) on the products they send to your customers.

Why does a drop shipper need my credit card information on file?
They will need your credit card information on file so they can bill you for the products you order. Remember, as your customers pay you the retail cost of the products, you will need to pay the drop shipper for the wholesale cost of the products to be sent. It is easier for the drop shipper to simply bill your credit card.

Should my customers pay me first before I pay the drop shipper?
It is always good practice to have the customers pay you first before placing your wholesale drop ship order. Otherwise you risk shipping product to a customer that will not pay you. Then you will be stuck with the bill from the drop shipper!

How do you find drop shippers?
There are several popular methodologies for finding drop shippers. Check out Dr. Beiermann's article entitled "How to Locate Drop Shippers for Your Success." It can be found at the following link:

Many of the drop ship directory sites are rip-offs, how do I know a directory is legitimate?
This is a good question as it has become a serious issue on the Web. It's unfortunate there are so many sites promising to have lists of authentic drop shippers, and yet the lists are full of broken hyperlinks, out dated drop shippers, wholesalers who do not drop ship and middlemen. The site creators are more focused on taking your money rather than maintaining a legitimate research business. The answer to the question is not straightforward. However, you might want to check out Dr. Beiermann's buyer's guide to help you learn about the things you should observe.

 

Many directories advertise the quantity of products they carry, is this important?
This depends on your retail business objectives. Typically, the niche target marketed business do extremely well on the Web. They are focused on one particular type, or category of product with good quality. So, massive quantities of products and drop shippers is not a concern to them. However, if you are taking the flea market approach then you will want as much product as possible. This method has proven more often than not to be an ineffective way of retailing and marketing online. Customers are usually out to buy specific things. You want to make it easier for them to buy.

 

In the end, your ability to market and sell will be more of a factor. With the proper focus, determination, and methodologies, you can virtually sell anything. There are people who have made fortunes selling water and dirt. There have been people who made a fortune selling a plain rock, and calling it a "pet".

 

What are middlemen?
Someone acting the role of a drop shipper. They are working as a liason between you and a drop shipper. This is not a desired situation as they do not bring any value to your business. Often they are bumping up the wholesale price to you and taking it as profit. Check out Dr. Beiermann's article entitled "How you can avoid the three M's of drop shipping." It can be found at the following link:

http://www.hienotedirectory.com/dropship/drop_shipping_041204.htm

What is a drop shipper agent?
This is another term for a middleman or someone acting the role of a drop shipper. In most situations, you will want to bypass these folks as they are merely taking a slice of the profit pie. Also, you should note that these middlemen will usually have their company information on your drop ship order.

Do drop shippers offer credit or Net 30 day payment?
Some drop shippers will offer a line of credit or a net 30 day payment.

What is an over saturated drop shipper?

This is typically a drop shipper that an overwhelming amount of businesses are using simultaneously in the marketplace. As a result, many businesses have duplicate product offerings creating a saturated market for those products. This often results in price wars between businesses.

 

Are importers considered to be drop shippers?

Sometimes. Much of this depends on their distribution objectives. Some importers will retail directly to consumers and do a drop ship programs for vendors. Other importers are strictly into the warehousing component of the retail business and need representatives and vendors to distribute their products.

 

Some drop shippers will not do international drop shipping. Why?

While there are some drop shippers who participate in international drop shipping, many do not. Their reasons for not doing international drop shipping vary. Some of the most common reasons are:

1. Profitability

2. Customs issues and audits

3. Taxation

4. Service issues (i.e. unable verify delivery times, tracking...etc.)

5. Higher packaging costs

6. International product licensing limitations

 

Will a drop shipper supply pictures of their products for my website?

Most drop shippers have pictures of the products they carry. However, the picture quality varies. For example, not all drop shippers carry 300dpi photos. If you are going to advertise in printed publications, they will need photo of at least 300dpi or better.

 

Do drop shippers offer exclusives on products?

Many will often entertain the idea of giving you an exclusive right to a product they carry. In most cases, you will be required to sell a minimum monthly amount (often in the thousands) of that product to get the exclusive rights.

 

Is a wholesaler the same as an authentic drop shipper?

Not always. Many wholesalers do not participate drop shipping. Some are into drop shipping, but require minimum order quantities. There are some wholesalers who will do single item drop shipping.

 

What is an Authorized Dealer Agreement (ADA)?

This is a legal document that outlines the rules and guidelines a dealer (online or offline) must follow in order to sell a drop shipper's products. Some drop shipper's will require the agreement to be signed as a protection policy for their business.

 

How have online auctions effected wholesale distributor memberships?

Let's answer this question with an example sometimes seen:

 

An online auctioneer lists an item for only $1 (they paid for $15 wholesale). They get one bid. The bidder wins the auction at $1. The bidder is charged $30 shipping for an item that should have cost about $5 to ship. The auctioneer makes about $10 profit. The real issue begins when other retailers (non-auctioneers) of the same product cry foul to the wholesale drop shipper. The retailer, of similar item, sees the items listed and sold on an online auction for only $1. They accuse the wholesale drop shipper of selling to an online auctioneer at prices under the retailer's wholesale cost. This results in many retailers abandoning the wholesaler as a supplier. The wholesaler ends up losing a bunch of retail distributors. They lose revenue. To correct the issue, the wholesale drop shipper will set up an ADA to make sure no one is selling their items on online auctions for under wholesale pricing. This does not mean you cannot sell the items on an online auction. It only means you will simply have to follow the wholesaler's policy for pricing for online auctions. As always, your relationship with your wholesale supplier is key as they are a business partner.
 

Do some drop shippers restrict how their products are sold on online auctions?

Our team stays on top of these issues as we personally meet many wholesale company owners at the trade shows we attend. They share a lot of information and personal stories with us you will not find on the Internet. While you can still sell their products on online auctions, we have spoken with some wholesale drop shippers who require the ADA due to prior online auction abuse. In a nutshell, they are losing money and dealer memberships. As and example, here is an actual copy of a recent letter from a drop shipper (we have hidden their name with XXXXX):

"To: XXXXX Dealers

As you are aware, a rapidly increasing number of NEW XXXXX Products are being sold far below our minimum advertised pricing (MAP) at online auction sites. It has been happening long enough that some dealers have experienced a dramatic decline in their XXXXX sales. If this continues, many of these dealers, that are working hard to teach and educate the end consumer, may decide to no longer sell XXXXX Products, and if dealers stop selling, they also stop educating. Education is the key to success for XXXXX Products, and the lack of education could destroy our company.

Therefore, we have modified the requirements for dealers to sell XXXXX Products. In order to sell our products, all current dealers must become authorized by us (XXXXX), by completing and signing the Authorized Dealer Agreement (ADA). The requirements are found on the attached ADA.

 

You as a distributor have the responsibility to send the ADA to all of your current XXXXX dealers. Each dealer must sign, and then fax or send a copy of the ADA back to you. You will then send a copy of every signed ADA to us, to keep on file for monitoring purposes.

 

To maintain authorized status, dealers must abide by all requirements and restrictions set forth in the signed ADA. Dealers that are found not following the ADA guidelines will lose authorization to sell XXXXX Products until the problem is fixed."

The online auction world is changing the retail world at a moderate pace.

 

Why is balance important in a drop ship directory?

You want to find a directory rich in many different categories of products rather than the quantity of products available. Many of the directories try to advertise how many products are available in their directory (i.e. 1,000,000 products). Why is the number of categories important? A directory will not serve you well if it has hundreds of thousands of products, and none of them are in your product interest category. A directory with a good balance has focused on their categories of drop shipper products rather than the quantity. This gives you a better chance of finding something for your line of business.

 

Why is the search method important in a drop ship directory?

The directory must explain the methods they use to find drop shippers. Be careful of directories that do not publish their search methods. If they do not explain their search methods, they may not have a solid search methodology. The directory could be full of a bunch of middlemen. At that point, the directory would be worthless to you. Directories using search methods such as trade show searches and foreign government agency searches are preferred over directories only focused on Internet searches. Why? Not all drop shippers and importers have a Web presence. A directory based on a bunch of Web searches could be missing some of the best hard-to-find drop shippers.

 

Does anyone offer custom searches for a specific drop shipper?

Hienote is the only directory company advertising this type of service.

 

What are the basic steps an import drop shipper takes to get item through customs?

1. Entry. They need to first decide where and how they will enter their merchandise.

2. Valuation & Examination. The legality and tariff on duty value of the goods needs to be determined.

3. Classifications. The percentage of tax that will be charged on the merchandise has to be determined.

4. Liquidation. Finally they need to pay the tariff or duties on the items.

 

What is a merchandise passport?

This is often referred to as an ATA carnet. Import drop shippers often use this to bring products to a trade show from abroad. The carnet is valid in about sixty countries and is valid for about a year.

 

What is a bonded merchandise warehouse?

This is a holding area used by customs if the import drop shipper does not file for merchandise entry within 15 days. Customs will classify the items as abandoned an store them in a special warehouse referred to as a bonded warehouse.

 

Some drop shippers sell G.O. goods. What are G.O. goods?

G.O. goods stands for General Order goods. These are goods that were held in a bond warehouse for a one-year holding period. After a one-year holding period the goods are auctioned. Many importers can find some real bargains at these auctions and carry them for drop ship distribution.

 

How does U.S. Customs work with import drop shippers on perishable goods?

In the case of perishable items such as fresh foods, customs will often issue a permit for an immediate release of the goods. Import drop shippers must apply for the permit before the merchandise arrives. The rules might be changing soon as part of the terrorists prevention by homeland security.

 

Does anyone regulate the imported and exported goods pricing?

Absolutely! It's not a complete free for all in the world market. The U.S. government has the International Trade Administration (ITA). There is a unit, Import Administration, within the ITA that deals with import pricing to the U.S. Their job is to guard our economy from unfairly priced imports.

 

What is one of the biggest threats to import drop shippers in terms of ecommerce?

Without a doubt, union dock worker strikes have a serious impact to drop shippers. When the union dock workers go on strike, the goods sit on the boats until the strike is over. This means an import drop shipper will not be getting new merchandise until the strike is over. In terms of ecommerce, this means many items are out of stock thus creating lost business.

 

How do I know which countries a particular import drop shipper focuses on?

Aside from just simply asking them, many import drop shippers incorporate the name of the region with which they trade the most. For example, Middle East Imports or India Traders.

 

What is an export management company and what do they mean to drop shipping?

An export management company (EMC) handles export operations for a manufacturer that wants to sell its product overseas but doesn't know how or is not interested in selling on the front-end. So, the EMC goes out and markets to distributors in other countries to get the products sold abroad. An EMC from India for example may search for distributors in the U.S. The U.S. distributor could be a drop shipper for the Indian company, all arranged by the EMC.

 

What is a customhouse broker and how do they help an import drop shipper?

The customhouse broker is licensed by the U.S. Treasury Department to act as an agent for an import drop shipper. They help prepare and file the entry documents, deposits, and releases for good the import drop shipper will be carrying.

 

What if I find a drop shipper and they have already reached their member quota?

Over the years, many wholesale drop shippers have put caps on the number of retailers they will allow into their program. There are various reasons for doing this practice, but most of it has to do with inventory management, production forecasting, and growth. There is no particular time of year when a cap can be put in place, or opened up. We have found some wholesalers who manage their caps with a first-come waiting list. Yet, others will open up their cap on just a whim for a particular day without any notification or reason. If you are trying to get into a wholesaler's program, and a cap is in effect, keep in contact with the wholesaler to find out when they will open. During this time, relationships can be built, and the wholesaler gets a better feel for you as a retailer, and your business goals. We have often seen "exceptions" sometimes implemented during caps. We do not track caps as they are changing daily, and it is a goal to keep the Hienote directory affordable for those on a shoe string budget. It would be very cost prohibitive labor wise to get the cap status data as many drop shippers do not have the systems in place to notify cap status.

 

How fast can I start making money with drop shipping?

Much of this will depend on how well you have put together things in your business plan and on your website. Simply having products to sell on the Web usually will not make money without a solid strategy and marketing plan in place.

 

Do I need a resell certificate of tax ID number to sell products from a drop shipper?

In order to buy from a wholesale drop shipper, you sometimes need a tax ID number, or resell certificate. The wholesale drop shipper needs to show proof to the government that they can sell to you without charging you a sales tax. However, not all wholesale drop shipping companies will ask you for this information as the tax reporting structure will vary from state to state along with a company's incorporation or proprietorship. In addition, if you are trying to identify a valid wholesale drop shipping company, be very careful. Many middleman will also ask you for a tax ID or resell certificate as they will also avoid the taxation by claiming to sell you products at wholesale (or, they are just simply putting on a front for their scam). It is perfectly legal for them to do this practice. The IRS is solely interested in collecting tax from a company's income, not if a company is a true wholesale supplier with wholesale pricing. We have have seen other drop shipping directories claim, "If they do not ask for a tax ID number, they are not a true drop shipper." WRONG! Middlemen can also ask for this tax ID number. Why are we mentioning this fact? The point is you cannot identify a true wholesale drop shipper by waiting to see if they need your tax ID or resell certificate. Folks, if it was actually that easy, we would not need a fulltime research staff dedicated to finding wholesale suppliers for you. This is what make's the Hienote Drop Ship List Directory and our research valuable to your business. This is also why we research wholesale trade shows for wholesale drop shippers and meet them face-to-face. This is how we find the real wholesale suppliers. It also saves you the risk and your time trying to find a real wholesale supplier.

 

Do I still need a tax ID number if I am based outside of the U.S.?

No. However, you will probably need some form of business registration locally to the supplier.

 

With the drop shippers in your directory, am I limited to selling drop shipped items via the Web?

No, there are no restrictions as you can sell the items offline.

 

When and where did the concept of drop shipping start?

The concept of drop shipping is almost as old as the marriage between manufacturing and distribution. Although no one has cited an exact date in history of conception, there are some moments in history when drop shipping gained significant popularity. Most seem to agree that drop shipping started with the large size retail and manufacturing companies. During the period of the Just-In-Time (JIT) movement in manufacturing, the concept of a reduced inventory became popular as a cost reduction method. The practice of JIT in manufacturing brought an "on-demand" type of production to the forefront. In turn, reduced inventory in factories resulted in a lower risk and cost savings. Likewise, the retail world embraced similar benefits of an "on-demand" type of supply chain with drop shipping methods. Drop shipping enabled many of the retail businesses to eliminate their inventories and enjoy the reduction of risks and cost savings similar to their manufacturing counterparts. In more recent years, drop shipping has continued to become more automated with supply chain technologies bringing real-time inventory tracking and couriers offering real-time delivery tracking via the Internet.

 

How many drop shippers should I have for my business?

That is entirely up to you. In the case of an import wholesale drop shipper or a closeout merchandise drop shipper, you might want to have at least a couple. In some cases, there are import drop shippers that sometimes carry similar products. They are both getting it from the same manufacturer overseas. If you have a particular product carried by a couple of import drop shippers, it is a good idea to use both of them as one of them may run out of the item. This insures you can possibly get it from the second drop shipper as they might still have the product in stock.

 

What is closeout merchandise?

In the retail industry, shelf and warehouse space are precious commodities. There are many retailers who cannot afford to have excess product on-hand when new products are arriving daily. They are often willing to sell these items at a loss, well below their wholesale cost so that room can be made for incoming goods. These goods are commonly known as closeout merchandise. Closeout merchandise can come from a variety of sources, but the most common situations are:

1. Factory overrun - More units were produced than the manufacturer originally anticipated on the build order.

2. Out of season / discontinued - A company may want to introduce a new product line and needs to clear out space for new arrivals

3. Overstock - A retailer's inventory outpaces local demand for the product

4. Non-defective Customer Return merchandise - Often returned for preference or other reasons

 

Where do I get pictures of the products offered by a drop shipper?

The company you select for drop shipping typically has the pictures of their products on file. They can send them to you on a CD or copy them from a location on their website.

 

What should I expect in a product picture?

Try to get pictures with at least 300dpi resolution whenever possible. This is particularly important if you want to have the pictures printed for a catalog or press released in a magazine. The typical 72dpi pictures found on many web sites to not carry enough resolution for quality print in a magazine, brochure, or other printed media.

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