Five Things To Consider When Choosing a Drop Shipping Provider

Five Things To Consider When Choosing a Drop Shipping Provider

In 2015, 61% of shoppers chose to shop at smaller businesses because they offered unique products they couldn’t find elsewhere (Source: ComScore). As customers have become accustomed to the plethora of online product options, they expect smaller online retailers to respond and present them with a vast array of specialized and more personal products.

It’s challenging for smaller retailers, however, to carry a large assortment of inventory due to exorbitant shelf costs. Dropshipping eases this burden. It gives businesses the ability to quickly order inventory directly from their suppliers when customer demand for a certain product spikes, avoiding high shelf space costs.

Starting a successful drop shipping site requires finding the right provider. Based on working with hundreds of successful eCommerce businesses at Volusion, I’ve identified the following top five most important factors to consider when choosing a drop shipping provider for your online business.

1. Relevant Product Options

It’s important to choose a drop shipper supplier that will provide you with a variety of items that are unique and catered to your business. In many instances, smaller online retailers will purchase “hot-selling” items from suppliers; however, these items are most likely available at big-box retailers for a cheaper price. To avoid this, it’s crucial to choose a supplier that offers a variety of diverse products that fall into a category you’re familiar with. When you’re knowledgeable and well-versed about the products you’re selling, your business offers a significant customer service advantage and can charge a higher price for products than a larger retailer that doesn’t know the product as well.

2. Strong Customer Support

Whether you own a large eCommerce website or are just starting your own online store, having a strong customer support team to answer drop shipping questions or help solve pop-up problems is a must. There are several drop shipping companies that provide a robust inventory, but when it comes to customer service, they may be lacking. Be picky about the qualities and extra features your drop shipper offers—this will go a long way in saving you time and ultimately supporting your business’ needs. For example, drop shipping company Doba alerts customers of special supplier deals and when suppliers’ inventory is running low on select goods, making it easy for business owners to update their products in a timely manner.

3. Easy Integrations for Your Online Store

When set up correctly, drop shipping can save you hours of time. Instead of spending time filling tedious backlogs, managing outdated inventory and ordering products for your website, drop shipping allows you to get that time back and focus on making more strategic business decisions. The best way to take advantage of this is by selecting a drop shipping company that has a seamless integration with your eCommerce software. Integrations such as these will automatically manage your orders and customer purchases through one easy-to-use platform.

4. Ability to Sell Your Products Through Different Channels

Creating a well-branded eCommerce store is a key step to growing and developing a successful online business. Creating your own branded eCommerce channel is vital to growing and developing your online business. Despite this, some products sell better on larger retail websites such as eBay, Amazon or even social networks such as Facebook. Additionally, selling on Amazing or eBay can be a good way for first-time or even established business owners to raise brand awareness and generate new customers. Some drop shipping providers give business owners the ability to sell products on Amazon and eBay while providing similar features and the same level of support as if they were selling on their own website. When choosing a drop shipping supplier, be sure to review their multi-platform features.

5. Shipping Prices & Options

“A study conducted by Amazon found that 46% of customers will abandon their shopping carts if free shipping isn’t offered” (Source: Volusion Drop Shipping Guide). That’s almost half of all online shoppers! Shipping cost strategy is an important element to consider when selecting a drop shipping supplier. Drop shippers typically have a shipping fee, so it’s important to choose a provider that won’t heavily raise your product prices or impact your number of customer purchases. Although you may not always be able to offer free shipping, particularly on products with a lower profit margin, try lowering the shipping rates on your more popular products.

Do you have any tips for choosing a drop shipping provider? Share your thoughts in the comments below.

Are PayPal subscriptions transferable when selling a website?

Are PayPal subscriptions transferable when selling a website?

The rise in popularity of the subscription monetization model means that parties to a website sale are increasingly confronted with the challenge of transferring existing paid subscribers from seller to buyer.

Are PayPal subscriptions transferable?

Transferring Paypal subscriptions from one account to another is not possible. However, transferring a PayPal account from one party to another is sometimes possible, which in effect, also sometimes makes transferring an underlying subscriber base possible.

Which PayPal accounts are transferable?

Instead of asking “are PayPal subscriptions transferable?”, we need to know “What type of PayPal accounts are transferable?”

There are two primary types of PayPal accounts:

Account Type Account Description Accounts transferable?
PayPal for Individuals For individuals who buy and sell online on their own behalf. Never
PayPal for Businesses For merchants who buy and sell online using a company name. Sometimes

PayPal For Individuals: Subscriptions cannot be transferred

Unfortunately, if you are processing subscription payments with a PayPal for individuals account (or Personal PayPal account), the subscriptions are non-transferable, no matter the circumstances. The reason being that with PayPal for Individuals, each account is tied to an individual. Thus, when a subscriber enters into a recurring agreement to pay a PayPal for Individuals account, they are agreeing to pay that individual. PayPal cannot legally allow that individual to then sell/transfer those agreements to another individual or entity.

If you find yourself in a situation where you want to sell a website, but the subscriptions are held in a personal PayPal account, the business may be valued lower than expected by potential buyers. The reason for this is that in order for a business buyer to take control of the subscriber base, all subscribers would need to resubscribe to make recurring payments to an alternative PayPal account controlled by the business buyer. Because this will lead to user churn, the buyer will value the business less than they otherwise would have if all subscribers could have been transferred without churn.

Clearly, churn can greatly influence the value of your website. For example, if you decide to sell your website which is monetized exclusively by 100 subscribers, but it is expected that user churn upon re-subscribe will lead to a 50% loss in subscribers, the business would effectively lose 50% of its value. This might not seem like much, but imagine a business worth $100,000 that is now worth just $50,000 – all because the owner decided to charge subscription payments on a PayPal for Individuals account.

Can I transfer PayPal subscriptions with a Business Account?

Consider Jeff. Jeff owns a dating site with 100 recurring subscribers. Jeff sells his website to Tom on Flippa. As Jeff begins transferring the assets to Tom they’re faced with the challenge of transferring the recurring subscription payments. We already know that if Jeff processes the existing subscription payments with a PayPal for Individuals account he won’t be able to transfer this account (or the underlying subscriptions) and Tom will have no choice but to ask all subscribers to re-subscribe under another account he controls. However, if Jeff has a PayPal Business Account it’s possible he could transfer this account and the underlying subscriber base to Tom, assuming certain criteria are met.

How to transfer a PayPal Business Account?

In order to transfer a PayPal Business Account, you need to change the contact name on the account. This contact name is not the name of the business, but rather, the name of the business operator. Taking the above example, the parties would need to submit a name change request, asking that the business operator name be changed from Jeff to Tom. The one major requirement is that both parties must be located in the same country, otherwise PayPal will not honor the request.

If both parties are located in the same country the following steps can be taken to request a name change:

  1. Write a formal letter requesting the contact name change for your business account.
    • Identify the previous name on the account, and the name that you want added.
  2. Provide a copy of a valid photo ID for the new contact person.
    • Acceptable forms of ID include a driver’s license, passport, or any other form of government-issued photo ID that contains the individual’s date of birth (DOB.)
  3. Provide proof of Social Security Number for the new contact person.
    • Acceptable forms of proof include a copy of a social security card, recent pay stubs, w-2, or official tax statements that show the individual’s complete social security number.
  4. Provide proof of business formation including the business name & new contact name:
    • Acceptable forms of proof include Articles of Incorporation, an active business license, or any official business documents filed in the business’s home state.
  5. Provide a bank statement for the bank account tied to the PayPal account.
    • If the bank statement does not display the name of business and the new contact person, a Name Change Authorization Letter is also required.
    • The Name Change Authorization Letter needs to contain a letterhead, company logo, and signature of an officially designated company representative.   

Once you have the information above and are ready to request the name change, take the following steps:

  1. Log into your PayPal Business Account
  2. Navigate to the Business Profile Icon and select Profile and Settings
  3. Select My Business Info
  4. Select Update Business Information
  5. Change the Business Name

For security purposes PayPal won’t allow you to submit the supporting documents by email, so you can either submit them by uploading them or faxing them. If you prefer fax, you can fax the supporting documents to 402-537-5731, just be sure to include a cover page with your name, and a description of the request.

At the end of the day, the decision to process subscriptions via PayPal can have dire consequences when it comes time to sell your website and transfer these subscriptions to a new owner. Though I’ve done my best to outline the general considerations of this process above, I would always recommend reaching out and contacting PayPal directly to get the most up-to-date information about transferring PayPal subscriptions and accounts.

Building A Brand: John Rampton and the Success of Due.com

Building A Brand: John Rampton and the Success of Due.com

John Rampton is a self confessed serial entrepreneur, connector, writer and angel investor.

So when he purchased the premium domain name Due.com [on the Flippa marketplace for $130,000 last March], we were excited when he told us about his plans to build “the best place to pay bills, when bills are due.”

We recently sat down with John to chat about his successful launch, and how the business is performing so far.

Building Due.com – the #1 invoicing software for small business

John told us that he can “only write enough code to be dangerous,” so rather than building the software (and site) from the ground up, he acquired an invoicing company with the objective of using it as the foundation for Due.com.

He explained, “I had become friends with this particular invoicing business over the years and noticed they had a really cool product, but they didn’t know how to market the business. I’m not a great product person, but I’m really good at marketing things.”

The opportunity John saw was simple: continue building and supporting a great product offering, but grow it exponentially with the help of his marketing chops. From that point forward it was simply a matter of moving the existing business across to the Due.com domain and rebranding it with the new Due logo and color palette.

logo_c

Because the invoicing business already had an existing database of over 40,000 clients, Due.com launched and became – virtually overnight – a revenue-generating business.

And John was only just getting started.

 

Marketing and growth

The marketing strategy for Due.com is, at its core, content-based.

The business publishes daily content on its blog and outside sources, featuring business-savvy tips [Four Ways to Build A Business That Supports Your Life] and even inspirational quotes.

John also pens work for his personal blog and large publications such as Inc., Forbes, Entrepreneur and Time. He speaks his mind on entrepreneurship and marketing, and shares more personal reflections of particular successes and failures.

“I bring into my writing my experiences and what I do, and those who come across these posts naturally end up at Due,” John explains.

In addition to their robust content arm, John and his team are constantly developing strategic partnerships to grow their user base. One partnership in particular wielded a co-branded survey and infographic which brought in over 2,000 new users in a single day.

 

User acquisition strategy

A sizable quotient of Due’s user acquisition strategy is its focus on acquiring businesses of a similar scope and merging these companies’ existing customer bases and technology.

John explained how the Flippa marketplace has provided a myriad of digital assets that fit this mold.

“After having success purchasing the first invoicing company, we went out and started acquiring other invoicing and time tracking businesses. Flippa has been a great source for these type of deals. I’ve spent a total of $5,000 on 4 different acquisitions which have brought in over 40,000 new customers.”

John also uses his actual product as a customer acquisition channel. Since Due.com is an invoicing tool, he uses those invoices as a way to acquire new business — over thirty new users per day. “Once we bring the user in and they start sending invoices out, typically for every three invoices that are sent out, that brings in one more user. Almost every new user over the course of five to six weeks adds one additional user.”

 

The Premium Domain

The big question about Due.com is: what impact has having such an ultra premium domain name had on the business?

“Having a premium domain has helped tremendously, I would say by a factor of at least 10x. When you have a premium domain name, people recognize that and it gives you instant credibility,” John explained.

He added, “When I get introduced as the founder and CEO of Due.com, people think we’ve been in business for 10-15 years just because of the domain.”

In addition to building trust and credibility, John says that owning and operating the premium domain name — particularly a .com — has increased his response rate by at least 50% when pitching stories to journalists and reporters. The SEO benefits are immeasurable, as well.

What about the cost? Six figures isn’t an easy amount of money to part with. John’s advice: “Spend the extra money and work whatever deal you can to get a good .com domain name because in the long run, it’ll be worth every cent.”

 

By the numbers

Due continues to scale — it has amassed 78,000 users in its first nine months, and will be profitable in its next two. John and his team have even bigger plans to expand the business beyond just invoicing and time tracking, hoping to venture full-on into the payments space.

The Flippa Team wishes the crew much success, and will be following up in due time…get it?…to see how they’re tracking.

Drop a comment or question for John below, or follow him on JohnRampton.com and the Due.com blog. Also keep tabs via Twitter, Facebook and LinkedIn

Six ways websites listed on Flippa are being monetized

Six ways websites listed on Flippa are being monetized

Effectively monetizing a website might be hard work, but despite the struggle, it is possible. Of course, the first step is understanding which monetization methods are available, and which methods best align with your individual objectives. On that note, I’ve prepared this article by analyzing and summarizing six website monetization methods and the circumstances under which each method is useful. Lastly, along with each method, I’ve also included an example of a real site listed on Flippa using that method. So enjoy this article, and start monetizing your website today!

Website English-Test.net is up for sale on Flippa

English-Test.net uses an AdSense based monetization method.

Monetization via Google AdSense: English-Test.net

AdSense is generally the widest used and most accessible form of advertising available to self-publishing webmasters. Webmasters simply place a brief JavaScript code on the websites’ pages. Then AdSense will choose the highest paying ads that are targeted based on the content of the sites and the interests of the users accessing those sites. It has been particularly important for delivering advertising revenue to small websites that do not have the resources for developing advertising sales programs. Using AdSense to monetize your website traffic is a good option if you have a content-rich site with family-friendly content.

English-Test.net is the self-proclaimed largest collection of interactive online English tests in the world. The site boasts over 1.1 million Unique Visitors a month and about 2.7 million Page Views a month. This massive amount of traffic is being monetized with Google AdSense to the tune of about $5,000/month in revenue.

Website Rewrite My Paper is for sale on Flippa

RewriteMyPaper.com uses a SaaS monetization method.

Monetization via SaaS: RewriteMyPaper.com

Compared to the traditional model of software distribution, in which software is purchased for and installed on personal computers, the Software as a Service (SaaS) model delivers the software service by making it available to the users over the Internet. SaaS is becoming an increasingly prevalent delivery model because of its many benefits such as easy accessibility, painless upgrade, lower initial costs, etc. Some SaaS businesses charge their users on a subscription base, such as Spotify and Evernote, while other SaaS businesses charge their users based on the usage, such as RewriteMyPaper.com and Heroku.com. If your website provides a valuable software service and your users are willing to pay for using it, SaaS would be a good option for you to maximize your revenue from the value of the service.

RewriteMyPaper.com provides a software service that helps college students rewrite their papers and essays. Students simply copy and paste the papers to the website and it automatically rewrites the papers for them. Users are charged for credits that they use based on the number of words in the papers they would like to have rewritten. With 1.5k Unique Visitors and 15.4k Page Views per month, the website generates an average monthly revenue of $725 during the past 6 months.

The Rocking Chair Company is for sale on Flippa

TheRockingChairCompany.com uses a dropship eCommerce monetization method.

Monetization via Dropship eCommerce: TheRockingChairCompany.com

Since businesses being monetized via dropship ecommerce do not carry inventory, they usually take less time to operate and require less cash to start up, compared to an eCommerce business that has to manage the inventory and shipment in-house. It is an attractive business model from an operations standpoint. However, the profit margin of a given dropship eCommerce business would generally be much lower compared to a similar inventory-holding eCommere business. There is also an underlying risk since the dropship business has little control over their inventory and shipment. In general when you go the dropship route, there are likely to be many other stores that carry the exact same products. You really need to differentiate your business from the many other competitors in order to win more orders. The dropship business model is a good option for you to bring in extra income, as it is relatively easy to start and operate.

TheRockingChairCompany.com (TRCC) is a dropship eCommerce website selling chairs and tables. The website is 9 years old with 5.4k unique visits and 25.3k page views per month. It generates $12k products sales and $2.7k gross profits per month with a profit margin of 22.5%. Currently 100% of items on the site are drop-shipped, which means TRCC doesn’t keep any products it sells in stock. When TRCC sells a product, it automatically purchases the product from the manufacturer and the manufacturer ships out the product to the end customer.

Website EVERYTHINGbutWINE.com is for sale on Flippa!

EverythingButWine.com uses an inventory holding eCommerce method.

Monetization via Inventory Holding Ecommerce: EverythingButWine.com

If you want to run a full-time eCommerce business and you have money to invest in it, inventory-holding eCommerce might be a good option for you considering the hefty profit margin. However, you’ll generally need a larger initial investment to get setup. You’ll also need to think about where you will physically store your inventory, and what your fulfillment processes will be.

EverythingButWine.com (EBW) is an inventory-holding eCommerce website that sells wine accessories. With 3.9k unique visits and 34.8k page views, it generates $3.9k in revenue and $1.9k in net profit per month, with a high profit margin of 48.7%. Different from the dropship business TheRockingChairCompany.com (TRCC), EverythingButWine.com would stock products based on what customer ordered and manage the shipment in-house. EBW’s profit margin is 48.7%, more than double the dropship business TRCC’s 22.5% profit margin. Even though the monthly gross revenue of EBW is only $3.9k, the company could retain $1.9k as profit, while TRCC has to give up 77.5% of their revenue to others. However, EBW is currently holding inventory items that cost $13.9k while TRCC is free from the cash flow constraint caused by holding inventory.

Website for sale on Flippa: MyCoverDesigner.com

MyCoverDeisgner.com is monetized via online services.

Monetization via Online Services: MyCoverDesigner.com

Monetization via online services is one of the most common methods of monetization encountered on Flippa. In demand online services include copywriting, graphic design, web development, and online marketing. Hiring specialists from major freelancing communities such as UpWork is a typical growth strategy employed by these web businesses, but it tends to squeeze the margins. On the flip side, though it is less passive and more time intensive, someone who already has the skills necessary to successfully perform a service that people are willing to pay for can widen the margins by performing the service themselves. In the end, service based online businesses can be quite lucrative, but it takes the right mix of skills and human capital to make them successful.

MyCoverDesigner.com is an eBook and print cover design website which offers professional book cover design services. The seller of the site claims to have a high proportion of repeat buyers, and they attribute this to the fact that the authors they work with generally write multiple books and are frequently in need of cover design services. The website is currently generating an average of $223/month profit off of an average of 111 unique visitors/month and 860 page views/month.

Website PhoneDetectiveTech.com is for sale on Flippa

PhoneDetectiveTech.com uses a Click Bank Affiliate monetization method.

Monetization via Click Bank Affiliate Program: PhoneDetectiveTech.com

Joining one of the various Clickbank affiliate programs is a good monetization option for websites that are able to attract niche-specific traffic and convert it into sales. There are, of course, an almost endless number of affiliate marketing strategies, but one of the most successful seems to revolve around creating niche sites that cater to the same audience as the products/services being offered by the affiliate program. For instance, if you have a blog all about online dating, you might monetize that site by joining an affiliate program that sells a book about online dating, and by placing ads on your site that direct users to a location where they can purchase that book.

PhoneDetectiveTech.com is a phone lookup tool showing the details behind the phone numbers. It’s a Click Bank affiliate website and the website database is maintained by the vendor. With 6,043 page views and 1,648 unique visits per month, it generates $232 automated income for the owner every month. By joining an affiliate program such as Click Bank Affiliate Program, the affiliates could earn commissions by promoting other company’s products. Through SEO and referral marketing efforts, the PhoneDetectiveTech.com is able to attract reasonable amount of daily traffic to the website and convert the traffic into sales. In this way, the website could automatically generate passive income for the owner from the affiliate program commissions.

Did we capture all of your favorite website monetization methods? Make sure to chime in with your thoughts below!

Best Domain Parking Providers

Best Domain Parking Providers

What is domain parking?

When we refer to domain parking we are talking about monetising domains through platforms that create advertising pages displayed to search or direct type in traffic (for example see www.newyorkbroadway.com). Providers differ: some offer single page advertising, while others have two-click implementations, showing a keyword that re-directs to a secondary page of ads.

How many domains are parked?

In 2009 Verisign (2009, p5) found 24% of domains were single-page websites, which included construction banner sites, brochures or monetised parking pages (based on a study across 92 million .COM and .NET domains). Verisign (2006, p5) found this number decreased by 2% between 2006 and 2009 based on a 2006 analysis across 57.37 million .COM and .NET domains.

Parked Domains

Looking at unique domain name server records (where domains are directing traffic) for .COM domains we can estimate each parking providers relative inventory size (Flippa, 2015)

[ip4]{ “template”: ip4.barChart(), “parentElement”: “#kcal”, “data”: { “reader”: ip4.dataReader() .data([ {“x”: “Sedo”, “y”: 1215413 }, {“x”: “DNS”, “y”: 1151170 }, {“x”: “GD CashParking”, “y”: 912864 }, {“x”: “DomainSponsor”, “y”: 622329 }, {“x”: “ParkingCrew”, “y”: 397487 }, {“x”: “Fabulous”, “y”: 387690 }, {“x”: “Rook Media”, “y”: 266728 }, {“x”: “Afternic”, “y”: 154980 } ]) }, “d3”: { “yLabel”: “Unique Records” } }[/ip4]

Full list? download raw csv

Who is the best provider?

We were curious as to which parking platforms our domains audience trusted and utilized the most. Can these providers be deemed as the best domain monetisation providers? Our results are as follows:

1. Sedo Parking (example parked page)

2. Go Daddy CashParking (example parked page)

3. DomainNameSales (example parked page)

4. ParkingCrew (example parked page)

5. Bodis (example parked page)

6. Voodoo (example parked page)

7. DomainApps (example parked page)

8. DomainsSponsor (example parked page)

[ip4]{ “template”: ip4.pieChart(), “parentElement”: “#survey”, “data”: { “reader”: ip4.dataReader() .data([ {“x”: “Sedo Parking”, “y”: 22.83 }, {“x”: “GoDaddy”, “y”: 22.04 }, {“x”: “DomainNameSales”, “y”: 11.02 }, {“x”: “ParkingCrew”, “y”: 6.29 }, {“x”: “Bodis”, “y”: 5.5 }, {“x”: “Voodoo”, “y”: 5.5 }, {“x”: “DomainApps”, “y”: 3.93 }, {“x”: “DomainSponsor”, “y”: 3.93 }, {“x”: “Other”, “y”: 18.11 } ]) }, “d3”: { “yLabel”: “Flippa Users (%)” } }[/ip4]Don’t agree?  Have a question? Leave a comment below

 

[1] “Verisign, ‘Domain Brief June 2009 ‘, p5, Verisign.com. http://www.verisign.com/domain-name-services/domain-information-center/domain-name-resources/domain-name-report-june09.pdf

[2] “Verisign, ‘Domain Brief August 2006’, p5, Verisign.com. http://www.verisign.com/domain-name-services/domain-information-center/domain-name-resources/domain-name-report-aug06.pdf

[3] Flippa, 15th January 2015 ‘Data Analysis across all .COM nameserver records (raw file)

[4]  Flippa, January 2015, ‘Flippa User Parking Survey’

Why you should hate dropship ecommerce like I do.

Why you should hate dropship ecommerce like I do.

For the last few years, buyers have been purchasing a type of website that, left unchanged, is almost always doomed to fail. The worst part is, it’s probably one of the most popular types of site being sold.

This is part of a series of guest posts by Justin Gilchrist the cofounder of Centurica, a company that provides due diligence and website assessments to people who buy web based businesses.

I’d like to show you how you can avoid the same fate. More importantly, I’ll take you through a strategy that’s been working for over 8 years now, turning these problem sites in huge profits for buyers.

A few months before writing this I sat opposite a lady on a flight and we had one those really awkward cross-aisle conversations. The type that happens when the other person sees Google Analytics on your screen and realizes you also have an internet business, but neither of you know if the other person really wants to talk.

Originally, she said she ran an ‘ecommerce company’. Five minutes in, it was actually a farming supplies store in the British countryside that happened to have a website … where about 5% of all their transactions happened, compared to the other 95% that happened in store. Her website was three months old and she was very proud of it. I didn’t have the heart to tell her otherwise.

I guess running an ecommerce company sounds so much cooler than “I run a small shop” but that wouldn’t be the first time I’ve heard ‘ecommerce’ used for all the wrong reasons. People’s definition of ecommerce varies depending on who you speak to.

We frequently work with buyers at Centurica where someone wants to purchase an ‘ecommerce business’. Sometimes, they want an online store. Sometimes, they’re just referring to any business that transacts on the internet – like a content site.

Both are technically ecommerce, but not the online store we usually mean.

Ecommerce can be split up into

Physical Ecommerce (PSE) – an online store selling a physical product that is either warehoused and dispatched by the owner, or warehoused by a third party fulfillment center such as Amazon FBA or ShipWire.

Drop-ship Ecommerce (DSE) – an online store that also sells physical products, but these are dispatched directly from the manufacturer or wholesaler.

Digital Ecommerce –  is a website that sells one or more digital information products where the transaction happens on the site. If this were an Affiliate site, the user would be sent elsewhere to make their purchase. If the user is taken to a third party hosted page to make payment (like many shopping carts do) then it still counts as Digital Commerce, providing the site owner also owns that cart transaction.

Knowing the difference is pretty important.

One of those three models comes almost doomed to failure unless you’re able to do something about it. Can you guess which one? Pretend for a minute that you didn’t already read the title.

Here’s the problem with drop-ship

In my opinion, drop-ship ecommerce (DSE) holds the least value out of all three of those types of business.

And to clarify, the ‘bad’ kind of drop-ship are those stores that sell generic products that are easy to source. The kind where you type ‘drop-ship directory’ into Google and your supplier pops up. If you have a site with a distribution agreement, or products that are difficult for competitors to find elsewhere, then the rules change.

New buyers tend to see DSE as being extremely low maintenance. After all, you’re just sitting watching the orders come in while someone else does all the hard work right? If you’ve been around for a few years you’ll probably know anything that seems like easy money on the internet is a problem waiting to happen! Less work means far less reward and whole host of other issues, but we’ll get to those soon.

In reality, Digital Product Ecommerce tends to be the lowest maintenance of the three different types. Outside of customers being unable to open a zip file (yes … it happens), and people asking for a refund, there’s very little maintenance that you need to do providing the product itself is evergreen.

Meanwhile, drop-shipping (which everyone assumes is the easy option), is probably tied second with Physical Ecommerce (PSE), often to people’s surprise. This is providing you have a PSE store where you:

1) Use a fulfillment center to warehouse and dispatch your goods, and a shopping cart that automates most tasks for you, like sending the orders to that fulfillment center when they come in.

2) Outsource or hire someone for basic customer support and

3) Set up triggers with your suppliers for automatic reordering whenever stock runs low. Again, this is something most modern shopping carts will automate.

You’re likely to spend about the same amount of time maintaining a physical ecommerce store (with fulfillment) as you would with a drop-ship one, so the argument about maintenance becomes redundant.

But you promised ‘hate’ in the title …

Being ‘comparatively not as low maintenance as everyone thinks it is’ is hardly a crime or a reason to loathe drop-ship ecommerce. The maintenance issue was merely making a point that DSE’s biggest perceived benefit actually isn’t that much of a game changer.

My personal vendetta against drop-ship ecommerce is that the business model is seriously flawed. When you sell goods on a drop-ship basis, you will always have the smallest margins in the supply chain. UPS will often make more than you do on a typical transaction.

DSE margins are usually so slim there’s not enough left to run paid traffic campaigns. And love or hate paid traffic, most new buyers soon learn this is the ONLY reliable and consistent way to grow an ecommerce business.

Look at it this way – organic traffic is nice, but difficult when you sell a generic product with the same description as everyone else and very few genuine product reviews. You could start a blog and you will get traffic, but most of that traffic will read the article and bounce. Ecommerce blogs typically have low conversion to sales, even with remarketing. Social marketing works well in niches where people care enough to share their love for the products you sell, but what if that product is a lawnmower … or worse still a pubic hair trimmer? Suddenly, your only source for new customers are those where you have to pay to reach them.

Based on the average conversion in your niche, and the cost to buy one click (which is dictated by the other advertisers who all have bigger margins if they’re supplying direct), the amount you would spend to get a sale usually doesn’t generate enough gross profit to make buying clicks sustainable. I’m sure there are exceptions or sites that convert so well, they buck the trend but you’ll find this isn’t the case for the majority of drop-ship sites that you look at.

This why most drop-ship stores rely on Organic Search traffic.

The owners try paid traffic and quickly give up. But we all know that an ecommerce store without paid traffic is like a goldfish in a shark tank right? Besides never being able to hit scale that matters, you’re stuck in a market dominated by competitors who can and will spend whatever it takes to steal your market share, and you’ll be defenseless to do anything about it.

If that wasn’t bad enough, you might also be competing against your own suppliers, who can offer lower prices if need be and spend more to advertise than you ever could.

In short, DSE is a flawed model that SHOULD never scale. It sometimes does, but it’s usually short-lived. Buy at the wrong time and you’ll be left paying for the seller’s mistakes.

So wait, I should never purchase a drop-ship Store?

Not quite.  Drop-ship purchases have been some of the most profitable ones I’ve ever made. The problem comes from purchasing a drop-ship store and leaving it that way, expecting untold riches and a place on the Inc 500.

If you buy DSE, do so with a healthy dose of reality. You could keep it as is, but chances are you’ll find it difficult to grow and scale, and often struggle to just maintain your current position.

A more effective strategy for renovating drop-ship sites is to see it for what it really is – an opportunity to acquire customers cheaply and build a more sustainable system around what is already there.

Take this example

You purchase a store that sells stationery and office supplies to businesses that order online. Currently, they drop-ship directly from the manufacturer and have an average of 100 orders each month. The site generates a profit of $10 on a $100 average order size.

Most of the traffic comes from organic search and the seller has told you PPC is too expensive and doesn’t work. When he tried it, he experienced a conversion rate of 2% and an average cost per click of $0.80

Your first step would be to look at the most popular 20% of products that account for the majority of revenue. In this case, it’s pens, staples and paper. You can order these products directly from the manufacturer in bulk and pay a wholesale rate. On stationery, the margins are significantly higher when you buy wholesale as it’s a commodity item dominated by low cost Turkish and Chinese imports.

Next, you setup an account with a fulfillment provider like Shipwire. They handle all of your warehousing and shipping just for these new products. After Shipwire’s costs have been considered, let’s assume you’re now making an average profit of $70 on each $100 order that you dispatch from the fulfillment centre. All the other long-tail products like lamination machines or laser toners are still drop-shipped as it makes no sense to keep inventory just for the occasional purchase.

Your profit on a sale now averages $60 on a $100 order. This is an average of the majority of products where you earn $70 and few drop shipped items where you still earn $10.

With increased profit per transaction, paid marketing is now back on the table.

Based on the figures above, 100 clicks would cost $80 and generate 2 sales. Previously, this equaled $20 profit (a $60 loss after marketing costs are removed) whereas now, it’s $120 (i.e. a $40 profit after marketing costs). If a campaign works on Google Adwords, then it’s highly likely it will work well with retargeting platforms and paid social too (e.g. Facebook or Twitter Ads), often at a fraction of the acquisition cost of Google.

You now have a system that’s scalable and gives you far more defense against new competitors. You’ve also increased the value of what you purchased several times over before even thinking about recruiting an extra visitor. Any kind of strategy that doesn’t involve the ever-vague “doing SEO” instantly gets my vote.

Conclusion

So on reflection, hate was a little strong.

If you own or you’re thinking of buying an ecommerce store, then you should think twice before diving head first into drop-shipping as a model.

That said, you can turn a negative to your advantage and acquire drop-ship ecommerce sites, providing you intend to change the model, and you’re able to do so quickly.

In Digitally Wed, I go into some depth about how to avoid the type of purchases that appear great on the surface, but deliver mediocre results because of a flawed business model. You can download or order a copy really soon from Flippa – with a special price just for Flippa members. Stay tuned for my next post to get this deal.

Happy Hunting!