As a seller using Magento, you’re always looking for ways to grow your online business. It doesn’t matter if you’re a new seller just starting off or if you’re an established seller already swamped with orders. Either way, you need to find a way to sell more products and then ship them to your customers.
Enter Magento drop shipping.
Drop shipping is a fulfillment process in which you sell items from your Magento storefront that are then shipped to your customer by a 3rd party, usually a wholesaler or manufacturer who stores the inventory. Drop shipping can be a great way to expand your product line, streamline your order and inventory management processes, or kick-start your new online business.
Drop shipping for Magento, however, can be a confusing and tricky process. In this post we’ll discuss the pros and cons of drop shipping. We’ll then give you examples of a few different drop ship solutions that you can use for your Magento webstore.
What is Magento Drop Shipping?
Drop shipping for Magento, in its simplest terms, works this way:
- You sell an item on your Magento store front.
- You email the order and shipping information to usually a supplier, wholesaler, or a manufacturer (whom you have an established relationship with) who has that inventory on-hand
- Your vendor then picks, packs, and ships the order to your customer.
The best part is that the vendor is invisible to your customer. Your customer will receive their item as if it was shipped directly from you.
Drop shipping presents many advantages to Magento merchants. Here’s how:
The Advantages of Drop Shipping for Magento Merchants
Not keeping inventory on-hand: The whole point of drop shipping is that you use your vendor’s inventory. You won’t have to worry about keeping inventory stocked or managing churn. You make purchases only when you sell an item.
Low overhead costs: Since you’re not storing inventory, you’ll have minimum to no overhead costs. You won’t have to pay for renting and maintaining warehouses to store your inventory.
Sell what you want: With drop shipping, you can access and potentially sell all different kinds of products. You just have to find the right vendors. This allows you to find a niche market to serve (read How to find the right niche for drop shipping) or expand your product line with ease.
Expand Your Reach: If you’re on the east coast, it can be a hassle to sell to the west coast because of long shipping times and expensive costs. Instead, you can strategically pick vendors that are closer to the west coast and get your products there faster.
Launch Your Business Right Away: All of these advantages of drop shipping combined make it easy for sellers to launch a business with lower risk. You need little money upfront since you won’t have to purchase inventory. You can sell practically anywhere that your vendors reach. Merchants who drop ship can successfully run a business virtually from just their home and computer.
While these are all great advantages, don’t go looking for vendors just yet. Drop shipping has an ugly side, and you need to know about it (read How to Ruin Your Business Doing Drop Ship). Here’s the cons:
Disadvantages of Magento Drop Shipping
Low Margins: In a typical case, a wholesaler buys its products in bulk from a manufacturer. They then mark the price up to sell to you. You mark up the price even higher when you sell to your customer to make a profit. However, if you’re in a competitive market, you’re going to have to keep lowering your price to compete.
This can cause you to sell only at very low margins, or even at a loss! It all depends on the type of products that you sell.
Picking the Right Vendor: It can be hard work finding and establishing a relationship with the right vendor with the best price. You might have to scan through a lot of posing vendors who aren’t offering you real “wholesale” prices.
Unreliable vendors: When drop shipping, you rely on the vendor to always have your inventory on-hand when an order is placed. But, what if they don’t? What if they don’t ship the item on-time and correctly? They deal with it, right? No. Remember, the vendor is invisible to your customers. Ultimately, it’s your responsibility to deal with these situations, and cover costs when needed.
Using Multiple Vendors: It’s best practice to use multiple vendors to always ensure in-stock products, best prices for different products, and shipping from the nearest location. But, managing multiple vendors is very complex. How do you manage who ships what items?
Shipping Costs: If you’re using multiple vendors to ship different parts of one product, you’re going to pay shipping fees for each part. That’s going to get very expensive, very quick. It’s not going to be cost-effective for you.
You need to take all of these things into consideration when developing your drop shipping process. When done correctly, drop shipping from Magento can have a huge impact on your business, and its bottom line.
Magento Drop Shipping Solutions
Here are three solutions that you can use to perform drop shipping: manual drop shopping, Magento drop shipping extensions, and a multichannel drop shipping solution.
1. Manually Drop ship
If you’re just starting off, or only processing a handful of orders a day. You can probably get by just drop shipping your orders manually. This could mean that when an order comes in, you fire off an email to your vendor or place orders yourself through their website. You can pick and choose which orders you want to use through what vendors.
You can also process orders by hand while you’re still testing out the drop shipping waters. You might want to do this why you try out new vendors and see whose best. You don’t want to invest in any technology until you know that drop shipping is the best solution for you.
2. Magento Drop Shipping Extensions
Once your business scales to the point that you can’t handle processing orders by hand anymore, you’ll want to automate your drop shipping process. There are many Magento drop shipping extensions that can help you do this.
An extension would ideally allow you to select and process all your orders from one platform. You can set rules of how orders are split between vendors and who your preferred vendor is. You’ll save yourself an abundance of time and effort then from manually doing it.
When looking for a Magento drop shipping extension, here are aspects to consider:
- Price: Don’t pay for more than what the extension is worth.
- Integrations: If you’re selling on other sales channels like Amazon and eBay, does the extension integrate those orders, too? It’s best to automate across all of your sales channels.
- Popularity/Customer feedback: Your peers know best. Listen to their experiences with the technology. They can point you in the direction of a good extension and steer you away from a horrible one.
- Splitting Orders: If you’re using multiple vendors, this one is important. Make sure your extension can intelligently fulfill different parts of the same order from different vendors.
If you’re a small to medium-sized business fulfilling orders just from Magento, an extension is probably all you need. An extension will allow you to just focus directly on the drop shipping part of your business.
3. Multichannel Platform Drop Shipping Solution
A multichannel platform drop shipping solution is best for the larger, more serious, retailers.
If you sell through multiple channels, either through your Magento webstore(s) and marketplaces or a mix of online and offline channels, you’re going to need to integrate all your end-points (including your ERP/Accounting systems) to drop ship successfully. You need to automate your drop shipping processes, no matter what channel the order comes from. You can then correctly transfer order and shipping/tracking data from your Magento webstore (and marketplaces) back to your back-end systems.
A multichannel management drop shipping solution makes this integration possible.
Now, to be upfront, we’re a little biased towards this option because as a Multichannel Integration company, this is something we handle every day. However, this also means we have a great amount of experience in this area, and this is – by far – the most practical and efficient solution.
This is because a multichannel platform can handle your complex selling environment. But, at the same time, it makes selling easier for you.
An ideal platform should allow you to work from a centralized location for all of your orders. Look for one that allows you to create business rules for order splitting, set vendor preferences, and updates your inventory levels across channels.
A multichannel management solution makes it possible for you to quickly adapt to your evolving selling environment. You can easily add and delete suppliers when needed. You can also decide at the last minute to drop ship an incoming order.
You’re also receiving more benefits beyond just drop shipping because a multichannel platform has many capabilities. You’ll be able to better manage your inventory levels so you don’t oversell. You can easily process orders differently depending on if you drop ship them. You can better manage your product information to create richer, more accurate product listings. Overall, you’ll improve your customer experience.
A multichannel platform allows you to manage your entire business in one place. Drop shipping just becomes one, moving part of your business. When it’s integrated with the rest of your processes, you become a more efficient seller.
What to Do Next
When done correctly, drop shipping can have a significant impact on a business’s bottom line. Whether you’re just starting off your Magento webstore, or want to integrate your webstore with other sales channels, you can take advantage of drop shipping.
The hard part is deciding how to best integrate drop shipping with Magento. We provided three different examples: manual, Magento drop shipping extensions, or a multichannel management drop shipping solution. Picking the best one depends on your business environment.
If you’re interested in what a multichannel solution for drop shipping can do for you, read more about nChannel’s drop shipping solution.
In the meantime, check out these articles for further reading:
- Recommended Practices for Handling eCommerce Returns
- 3rd Party Fulfillment Services: Fulfillment by Amazon (FBA) Alternatives
- The Best Magento Shipping Extensions of 2015